CHAPTER 1:

41. Mc Donald's has been able to

a. earn above-average returns.
b. achieve strategic competitiveness.
c. use the strategic management process.
d. All of these options are correct.
ANSWER: d

42. A firm has achieved when it successfully for mulates and implements a value-
creating strategy.
a. strategic competitiveness
b. a permanently sustainable competitive advantage
c. substantial returns
d.legaland ethical core values

ANSWER: a

43.A competitive advantage

a. can be permanent if the firm has successfully implemented the strategic
management process.
b. entails reducing investors' risk to near zero.
c. can be identified only if it has been unsuccessfully challenged by competitors.
d. exists when competing firms are unable to find investors.

ANSWER: c

44. Above-average returns are

a. higher profits than the firm earned the previous year.
b. higher profits than the industry averaged over the last10 years.
c. profits in excess of what an investor expects to earn from a historical pattern
of performance of the firm.
d. returns in excess of what an investor expects to earn from other investments
with a similar level of risk.

ANSWER: d

45.The strategic management process is

a. a set of activities that will assure a sustainable competitive advantage and
above-average returns for the firm.
b. a decision-making activity concerned with a firm's internal resources,
capabilities, and competencies, independent of the conditions in its external
environment.
c. a process directed by top-management within put from other stakeholders
that seeks to achieve above-average returns for investors through effective use
of the organization's resources.
d. the full set of commitments, decisions, and actions required for the firm to
achieve above-average returns and strategic competitiveness.
ANSWER: d
46.The primary drivers of hyper competition are
a. rising global socio-economic in stability and increased inflation.
b. the emergence of a global economy and rapid technological change.
c. increased global competition and decreased tariffs.
d. increased availability of capital and increased competition.

ANSWER: b

47. All of the following are characteristic of the global economy EXCEPT
a. the increasing importance of developing countries as sources of revenue
growth.
b. the free movement of goods, services, people, skills, and ideas across
geographic borders.
c. the increased use of tariffs to protect industries.
d. higher levels of opportunities and challenges.

ANSWER: c

48.Essentially, has become one of the world's largest markets with 700 million
potential consumers.
a. the European Union
b. the United States
c. China
d. Japan

ANSWER: a

49. has become the second- largest economy in the world.

a. The United States
b. The European Union
c. Japan
d. China

ANSWER: d

50.The economic interdependence among countries as reflected in the flow of

goods, services, financial capital, and knowledge a cross country borders is
defined as
a. hyper competition.
b. boundary less retailing.
c. strategic intensity.
d. globalization.

ANSWER: d

51. Globalization has led to

a. lower operational efficiency as firms must transport raw materials and
finished goods farther.
b. increasing loyalty of customers for products made domestically.
c. declining returns from investment in research and development.
d. higher product quality.

ANSWER: d

2.The "liability of foreignness" is the

a. inability of most U.S. managers to truly comprehend foreign cultures.
b. political disadvantage that U.S. firms have when doing business abroad.
c. overall risk of participating outside a firm's domestic country when entering
global competition.
d. strong cultural preference for "buying local," which puts foreign firms at
adisadvantage when competing in the U.S. market.

ANSWER: c

53. Even for companies capable of succeeding in global markets, it is critical that
they
a. remain committed to and strategically competitive in their domestic market.
b. introduce many new products immediately after entering a new market.
c. acquirea local competitor in each significant foreign market.
d. develop good negotiating skills in order to take advantage of local suppliers in
the international
market.

ANSWER: a

54. The rate of technological diffusion is increasing. Which of the following was
fastest inpenetrating 25 percent of homes in the U.S. market?
a. telephone
b. television
c. personal computer
d. Internet

ANSWER:d

55.New markets created by iPods, PDAs, and Wi-Fi are a result of

a. disruptive technologies.
b. global competition.
c. knowledge intensity.
d. hyper competition.

ANSWER: a

56. Apple's iPod and iPad are examples of

a. the march of globalization.
b. rapid technological diffusion.
c. disruptive technologies.
d. products that were not imitated by competitors.
ANSWER: c

57.The ability to effectively and efficiently access and use information is

a. vitally important at the point where a domestic firm enters the global market.
b. an important source of competitive advantage in virtually all industries.
c. the minimum required for survival in virtually any industry.
d. critically important mainly in high technology industries.

ANSWER: b
58. The CEO of Ridge way, Inc. , realizes that the company's survival depends on
developing and acquiring knowledge. Which of the following actions by the CEO
would be most consistent with this need?
a. ensuring that all current unique knowledge of the firm is protected by patents
b. planning extensive employee training and hiring educated and experienced
employees
c. investing in sophisticated databases in relevant knowledge areas
d. establishing a system of organizational in telligence gathering

ANSWER: b

59. Knowledge is composed of all the following EXCEPT

a. insight.
b. expertise.
c. information.
d. intelligence.

ANSWER: a

60. Which of the following statements about organizational knowledge is

correct?
a. Knowledge is an intangible resource.
b. The importance of knowledge is increasing.
c. The value of knowledge as aproportion of shareholder value is increasing.
d. All of these options are correct.

ANSWER: d

61. In order to cope with hyper competition, firms need to develop

through continuous learning.
a. competitive resilience
b. strategic flexibility
c. strategic power
d. competitive dominance

ANSWER: b

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

ANSWER: b
63. The industrial organization (I/O) model argues that
a. the key factor in success is choosing the correct industry in which to compete.
b. the firm's internal resources and capabilities represent the foundation for
development of a
value-creating strategy.
c. the key to earning above-average returns is strategic flexibility.
d.the internal structure of the organization must match the industry in which it
competes in order to
earn above-average returns on investment.

ANSWER: a

64. Which of the following statements is most consistent under the I/O view ?
Performance of the firm is most directly attributable to
a. the power of the financial market stakeholders.
b. the resources the firm possesses.
c. the profitability of the industry in which the firm competes.
d. hyper competition within the industry.

ANSWER: c

65. Firms use the five forces model to identify the of the industry as measured by
its
a. size; number of competitors.
b. globalization; exports.
c. hyper competition; technology diffusion.
d. attractiveness; profitability.

ANSWER: d

66. Although Mc Donald's is competing in an unattractive industry, it has

improved its performance by focusing on product innovations and by enhancing
existing facilities. This improved performance is best explained by
a. globalization.
b. theresource-based model.
c. the I/O model.
d. hyper competition.
ANSWER: b

67. An investor is considering in which of two start-up companies to invest. The

investor has faith in the industrial organization model of above- average returns
and isusing its concepts to make a decision. Bothstart-up companies propose to
manufacture health focused foods with such characteristics as low salt, low
sugar, high fiber, and no artificial additives. Rex Rich Foods has a business
strategy of producing a differentiated product for which consumers will pay
more. Green Pastures Foods is in the health-foods industry because of its
internal culture and commitment to healthful life styles. Which firm will the
investor feel is most consistent with the model of industrial organization ?
a. Green Pastures Foods
b. Rex Rich Foods
c. Both firms are consistent with the I/O approach.
d. At the entrepreneurial stage, the model which companies follow is not
important.

ANSWER: b

68. Research shows that approximately percent of a firm's profitability is

explained by the industry in which it competes, whereas
a. 90; 10
b. 60; 40
c. 36; 20
d. 20; 36
percent is explained by the firm's characteristics and actions.

ANSWER: d

69. All of the following are resources of an organization EXCEPT

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

ANSWER: c

70. All of the following are assumptions of the resource-based model EXCEPT
a. each firm is a unique collection of resources and capabilities.
b. the industry's structural characteristics have little impact on a firm's
performance over time.
c. capabilities are highly mobile across firms.
d. differences in resources and capabilities are the basis of competitive
advantage.

ANSWER: c
71. is a capacity for a set of resources to perform a task or an activity in an
integrative manner.
a. A capability
b. A core competence
c. Sustainable competitive advantage
d. Organizational intelligence

ANSWER: a

72.When resources and capabilities serve as a source of competitive advantage

for a firm, the firm has created a(n)
a. strategic mission.
b. inspiring vision.
c. core competence.
d. sustainable market niche.

ANSWER: c

73. In the resource-based model, which of the following factors would be

considered a key to organizational success?
a. unique market niche
b. weak competition
c. economies of scale
d. skilled employees

ANSWER: d

74.To have the potential to become sources of competitive advantage, resources

and capabilities must be non-substitutable, valuable, and
a. unique; easy to imitate.
b. easy to imitate; difficult to implement.
c.rare; costly to imitate.
d. easy to implement; unique.

ANSWER: c

75. The resource-based model of the firm argues that

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

ANSWER: d

76.The resource-based view of the firm

a. emphasizes that it is difficult to develop and sustain a competitive advantage
based on resources alone.
b. argues that the industry environment has a stronger influence on firms' ability
to implement strategies successfully than does the competitor environment.
c. calls for firms to focus on their homogeneous capabilities to compete against
their rivals.
d.suggests that vision and mission are closely linked to sustainable competitive
advantage.

ANSWER: a

77. The goal of the organization's come.

a. vision
b. mission
c. culture
d. strategy
is to point the firm in the direction of where it would like to be in the years to

ANSWER: a

78.The Princeton Alliance Church states in its web site that "PA Cexists to help
you live life to the fullest by knowing God, developing community and bringing
hope. "This pronouncement is most precisely a statement of organizational
a. values.
b. mission.
c. vision.
d. culture.

ANSWER: c

79. A firm's mission

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

ANSWER: a

80. The final responsibility for forming the organization's mission lies with the
a. CEO.
b. top-management team.
c. employees.
d. organization's stakeholders.

ANSWER: a
81.Who typically develops a firm's mission statement?
a. only the CEO
b. only top managers
c. the CEO and top managers
d. the CEO, COO, and CFO only

ANSWER: c
82. Organizational stakeholders include
a. unions.
b. host communities.
c. employees.
d. suppliers of capital.

ANSWER: c
83. The interests of an organization's stakeholders often conflict, and the
organization must prioritize its stake holders if it cannot satisfy the mall. The is
the most critical criterion in prioritizing stakeholders.
a. power of each stakeholder
b. urgency of satisfying each stakeholder
c. vulnerability of organizational stakeholders
d. social value of each stakeholder

ANSWER: a

84. Capital market stake holders include

a. industry competitors.
b. shareholders.
c. employees.
d. government regulators.

ANSWER: b
85. Dissatisfied capital market stakeholders may
a. sell their stock.
b. tighten loan covenants.
c. seek to increase their power.
d. All of these options are correct.
ANSWER: d

86. Green leaf Property Management has been earning below- average returns
for the last three years. Which of the following statements are true?
a. Green leaf will be able to satisfy its multiple stakeholders easily as long as the
stakeholders are committed to the strategic mission of the firm.
b. Green leaf will be able to at least minimally satisfy the demands of each
stakeholder.
c. Green leaf will need to prioritize the demands of its stake holders based on the
political influence each wields.
d.Green leaf will not be able to minimally satisfy all stakeholders.

ANSWER: d
87. Product market stake holders include the firm's customers, and the principal
concern of this stake holder group is
a. maximizing the firm's return on investment.
b. receiving the highest- quality products and services in the industry.
c. obtaining reliable products at the lowest possible price.
d. increasing the profitability of the firm.

ANSWER: c
88. Generally speaking, product market stake holders are satisfied when
a. afirm's profit margin yields the lowest return to capital markets take holders
that is acceptable to them.
b. a firm's profit margin yields an above-average return to its capital market
stakeholders.
c. the interests of the firm's organizational stake holders have been maximized.
d. the interests of all stake holders have been at least minimally satisfied.

ANSWER: a
89. Before liquidating, Circuit City took several actions to try to satisfy its
……….stakeholders.
a. capital market
b. product market
c. organizational
d. governmental

ANSWER: a
90. The Chambers of Commerce of cities and towns often implore citizens to buy
from local businesses. This is because the organization's role a satax payer is
most important to as stakeholders.
a. majör suppliers of capital
b. shareholders
c. host communities
d. unions

ANSWER: c
91. Although it closed stores, changed the top management team, and sought
potential buyers, none of these actions resulted in outcomes that allowed Circuit
City to meet the expectations of its stakeholders.
a. product market
b. capital market
c. organizational
d. governmental

ANSWER: b
92. Organizational stakeholders are usually satisfied when
a. the irreturn on investment has been maximized.
b. customers pay the highest sustainable price for the goods and services they
receive.
c. companies provide a dynamic, stimulating, and rewarding work environment.
d. companies are paying the highest prices to suppliers.

ANSWER: c
93. Product market stakeholders include
a. suppliers.
b. shareholders.
c. employees.
d. the firm's chief executive officer.

ANSWER: a
94. Refuge Nursing Homes,Inc., (RNH) has been highly profitable in the past 10
years, providing its investors higher returns than those earned by its direct
competitors' investors. RNH has a reputation for providing high-paying
managerial and hourly- employee jobs. However, recent investigations have
revealed that the nursing home residents have been provided sub standard care,
including non-nutritious and unappetizing meals, non-functional medical
equipment, and inadequate patient-care staffing. Which statement best describes
the situation?
a. RNH has been earning below- average returns, so it has had to prioritize the
demands of its various stakeholders.
b. RNH has prioritized the demands of capital market stake holders over the
demands of product market stake holders.
c. RNH has earned above-averagere turns and so has satisfied the needs of all
relevant stakeholders.
d. RNH has been attempting to minimally satisfy the demands of all of its
stakeholders.

ANSWER: b
95. A prominent national accounting firm runs television advertisements
showing an accountant working alone late in the Office on aclient's project, while
clenching along stemmed rose in his teet hand grinning ecstatically. The message
of the adis that this firm's accountants love their work. This adseeks to convey a
sense of the organization's to the viewers.
a. culture
b. mission
c. vision
d. personality

ANSWER: a
96. The global economy, globalization, rapid technological change, and the
increasing importance of knowledge are creating the need to
a. delegate strategic responsibilities to employees" closer to the action."
b. split responsibilities between the CEO and the board of directors as a result of
corporate scandals
triggered by unethical CEOs.
c. re-centralize the responsibility for strategy to the CEO.
d. expand the strategic responsibilities to all organizational stakeholders.

ANSWER: a

97. The strategic leader's work is characterized by

a. ambiguous decision situations which make effectiv edecisions difficult to
determine.
b. a willingness to unify stake holders through skillful manipulation.
c. an ability to identify the correct solutions to long-range problems.
d. concentration on the practical day-to-day aspects of the organization's
operations.

ANSWER: a
98. The profit pool is the
a. pool of assets that is distributed to investors.
b. total profits earned in an industry along all points of the value chain.
c. profits that are accrued when a firm earnsabove-average returns.
d. total profits that can be divided among the competitors within an industry.

ANSWER: b
99.The steps for identifying the profit pools in an industry include all of the
following EXCEPT
a. defining the boundaries of the pool.
b. estimating the overall size of the pool.
c. defining the competitors in the pool.
d. estimating the size of the value-chain activity in the pool.

ANSWER: c
100. Analysis of the industry's profit pool enables strategic managers to
a. predict future revenue streams for the organization.
b. predict growth in sales over the medium to long range.
c. determine whether an industry will be viable in the long term.
d. locate the most promising areas of an industry's value chain.

ANSWER: d
101. If Mc Donald's were to map the profit pool in the quick service restaurant
industry, it would do all of the following EXCEPT
a. define the industry's boundaries and size.
b. estimate the profit potential in each part of the value chain.
c. focus on unattractive industries ignored by competitors.
d. select the strategy to use where the largest profit pools are located.

ANSWER: d
102. A majör assumption about the strategic management process is that it is
a. inspired.
b. team-based.
c. rational.
d. inclusive.

ANSWER: c
103. A business-level strategy describes
a. the businesses in which the company in tends to compete.
b. all policies and procedures used in functional departments.
c. the firm's actions to exploit its competitive advantage over rivals.
d. a firm's resources, intent, and mission.

ANSWER: c
104. In adiversified firm, corporate-level strategy is concerned with
a. operating each individual business under the corporate umbrella.
b. determining how each functional department of the firm will operate.
c. determining in which businesses to compete and how resources will be
allocated between businesses.
d. coordinating the vision and mission of each subsidiary firm.

ANSWER: c
105.PGG Mining is making a strategic decision whether to shut down a coal mine
in Pennsylvania. It is important to consider that the decision
a. should be based solely on the results of profit-pool mapping.
b. has ethical implications for organizational stakeholders.
c. need not be socially responsible if the firm is making below-average returns
from the mine.
d. All of these choices are important to consider.

ANSWER: b
106. It is well known that the elected school board of alargecity engages in
unethical and illegal activities involving the awarding of majör contracts. This
behavior has existed for decades, even as the membership in the schoolboard
has changed overtime. This behavior reflects
a. the core values of the schoolboard as an organization.
b. a functional, although unethical, culture of the school board.
c.the lack of an organizational mission for the school board.
d. a schoolboard lacking in core competencies.

ANSWER: a
107. In smaller, new venture firms, returns are sometimes measured in terms of
a. return on assets.
b. return on equity.
c. return on sales.
d. the amount and speed of growth.

ANSWER: d
108. A______is an integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a competitive advantage.
a. goal
b. strategy
c. tactic
d. mission

ANSWER: b
109. is an investor's uncertainty about the economic gains or losses that will
result from a particular investment.
a. Return
b. Reward
c. Risk
d. Revenue

ANSWER: c
110. The culmination of the strategic management process is
a. performance.
b. strategy implementation.
c. strategy formulation.
d. analysis.

ANSWER: a
111. Managers must adopt a new mind-set ---------- And the challenges that
evolve from constantly changing set that values conditions.
a. flexibility
b. innovation
c. speed
d. All of these options are correct.

ANSWER: d
112.______ innovation is a term used to describe how rapidly and consistently
new, information- intensive technologies replace older ones.
a. Perpetual
b. Disruptive
c. Global
d. Diffusion

ANSWER: a
113. provides the firm with new and up-to-date skill sets, which allow it to adapt
to its environment as it encounters changes.
a. Strategic flexibility
b. Continuous learning
c. Knowledge
d. The Internet

ANSWER: b
114.The I/O model is grounded in
a. an thropology.
b. psychology.
c. economics.
d. accounting.

ANSWER: c
115.Firms use both the……. And…….. models. Infact, these models complement
each other in that one focuses
Outside the firm while the other focuses inside the firm.
a.industry; capability
b. I/O; resource-based
c. competition; competency
d .industry; competency
ANSWER: b
116. should establish a firm's individuality and should be inspiring and relevant
to all stakeholders.
a. A strategy
b. A vision
c. A mission
d. A goal

ANSWER: c
117. William Ackman is a hedge fund manager who owned alargesh are of J.C.
Penneystock. Hewasalso a member of the Penney board. Hetriedto get the CEO
fired, but the board and top management said he breached his board room duties
when he publicly disclosed information on the CEO search and financial
condition of the company. Here signed from the board of directors. This is an
example of a contentious relationship between
a. the capital market stakeholders and the organizational stakeholders.
b. the organizationals take holders and the product market stakeholders.
c. the capital market stakeholders and the product market stakeholders.
d. all the stakeholders.

ANSWER: a

118. Strategic leaders are

a. located only at the executive level.
b. located in different are a sand levels.
c. the CEO, COO, and CFO only.
d. located at different levels, butonly in the operating area of the organization.

ANSWER: b
119. Successful strategic leaders are
a. committed to helping the firm create value for all stakeholder groups.
b. committed to nurturing those around them.
c. decisive.
d. All of these options are correct.

ANSWER: d
120. Strategic delegation helps
a. overload middle managers.
b. executives control strategy implementation.
c. avoid too much managerial hubris.
d. emphasize profit maximization.

ANSWER: c
121.Organizational culture refers to
a. the social energy that drives, or fails to drive, the organization.
b. the complex set of ideologies, symbols, and core values that are shared
throughout the firm.
c. what people do when no one else is looking.
d. All of these options are correct.

ANSWER: d
122. Effective strategic leaders
a. are willing to be brutally honest.
b. focus on strategy formation.
c. focus on strategy implementation.
d. focus on innovation.

ANSWER: a
123. Strategic leaders,………..,often work long hours, and their work is filled with
ambiguous decision
situations.
a.at the top of the organization
b. regardless of their location in the organization
c. in the finance area
d. in the operations area

ANSWER: b
124. If Mc Donald's is considering growing potatoes,the step of the profit pool
analysis is the one that
a.defines the pool's boundaries.
b. estimates the pool's overall size.
c. estimates the size of the value-chain activity in the pool.
d. reconciles the calculations.

ANSWER: c
125. If South West Airlines is considering the consequences of video
conferencing on business travel, it is in the profit pool analysis step known as
a. defining the pool's boundaries.
b. estimating the pool's overall size.
c. estimating the size of the value-chain activity in the pool.
d. reconciling the calculations.

ANSWER: a

126. SWOT stands for

a. strategy, wealth, organization, and threats.
b. success, weakness, opportunities, and taxes.
c. strength, wealth, organization, and taxes.
d. strengths, weaknesses, opportunities, and threats.

ANSWER: d
127. In the strategic management process ASP stands for
a. analyses, successes, and purposes.
b. analyses, strategies, and performance.
c. ability, strategies, and purposes.
d. ability, successes, and performance.
ANSWER: b
128.The firm's provide the foundation for choosing one or more______and
deciding how to implement them.
a. analyses; strengths
b. abilities; strengths
c. analyses; strategies
d. abilities; strategies
ANSWER: c

129. It is important to emphasize that, primarily because they are related to how
a firm interacts with its stakeholders, almost all strategic management process
decisions have
a. ethical dimensions.
b. local dimensions.
c. political dimensions.
d. global dimensions.

ANSWER: a

130. A company competing in a single product market has

a. one corporate-level strategy.
b. one business-level strategy.
c. one business-level strategy for failure. It should seek to diversify.
d. one business-level strategy and one corporate-level strategy.

ANSWER: d

131.The strategic management process is

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

ANSWER: d

CHAPTER 3:

41. All competitive advantages have

a. a limited life.
b. an expiration date.
c. the ability to earn above average returns indefinitely.
d. the ability to lead to more competitive advantages.

ANSWER:a

42. It is increasingly difficult for a firm to develop and sustain a competitive

advantage because of the effects of globalization and
a. the rapid development of the Internet's capabilities.
b. extensive use of outsourcing within the borders of the United States.
c. the declining number of inventions and patents developed by U.S. citizens.
d. the simultaneous erosion of the U.S. work ethic and the U.S. education system.

ANSWER: a

43.Which of the following is NOT required for a firm to achieve strategic

competitiveness and earn above average returns from its core competencies?
a.Core competencies must be acquired.
b.Core competencies must be bundled.
c.Core competencies must be internationalized.
d.Core competencies must be leveraged.

ANSWER:c

44.Which of the following is NOT a factor affecting sustainability of a competitive

advantage?
a. The availability of substitutes for a firm's core competence
b. The rate at which obsolescence of the core competence occurs because of
environmental changes
c. The imitability of a core competence
d. the length of time the core competence has existed

ANSWER:d

45.Internal analysis enables a firm to determine what the firm

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

ANSWER: a

46.The proper matching of what a firm can do with what it might do

a. balances the internal characteristics of the firm with the characteristics of the
external environment.
b. overcomes the rigidity and inertia resulting from a history of success.
c. yields insights the firm requires to select its strategy.
d. develops core competencies based on human knowledge.

ANSWER: c
47.The key to achieving competitiveness, earning above average returns, and
remaining ahead of competitors in the long run is to manage current core
competencies
a. in a way that uniquely bundles and leverages the firm's existing resources.
b. while simultaneously developing new ones.
c. and imitate the core competencies of successful competitors.
d. in order to preserve and enhance them against the firm's competitors.

ANSWER: b

48. Which of the following is NOT a component of internal analysis leading to

competitive advantage?
a. tangible and intangible resources
b. analysis of supplier power
c. capabilities
d.core competencies

ANSWER: b

49. Value consists of

a. aproduct's proprietary characteristics and attributes for which customers are
willing to pay.
b. aproduct's performance characteristics and attributes for which customers are
willing to pay.
c. a product's proprietary characteristics and attributes for which customers
consider paying.
d. a product's performance characteristics and attributes for which customers
consider paying.

ANSWER:b

50. ... are the source of a firm's ... , which are the source of the firm's ....
a. Resources; capabilities; core competencies
b. Capabilities; resources; core competencies.
c. Capabilities; resources; above- average returns.
d. Core competencies; resources; competitive advantage

ANSWER:a

51.... is measured by a product's performance characteristics and its attributes

for which customers are willing
a. Competitive advantage
b. Profit potential
c. Contribution
d. Value

ANSWER:d
52. By emphasizing core competencies when formulating strategies, companies
learn to compete primarily on the basis of
a. intangible resources.
b. their primary activities.
c. firm-specific differences.
d. efficiency of production.

ANSWER: c

53. The challenge and difficulty of making effective decisions are implied by
preliminary evidence that of organizationa ldecisions fail.
a. one-fourth
b. one- fifth
c.one-tenth
d. one-half

ANSWER: d

54. A decision that results in failure

a. is a career-ending event because it is so unusual.
b. often results from lack of accountability.
c. fosters organizational inertia.
d. allows for learning.

ANSWER: d

55. Today, a substantially slimmed-down Polaroidis introducing a number of

new products, including GL20 Camera Glasses which have a built in camera and
LCDs. This wave of new product development is explained by
a. the funds provided by a patent-infringement laws üit won by Polaroid.
b. weaker competitors in its industry.
c. the learning that occurred from making earlier mistakes.
d. an easing of regulations governing intellectual property protection.

ANSWER: c

56.The three conditions that characterize difficult managerial decisions

concerning resources, capabilities, and core competencies are
a. complexity, rarity, and human intellectual capital.
b. uncertainty, complexity, and intra organizational conflicts.
c. imitability, complexity, and inter organizational conflicts.
d. imitability, comparability, and human intellectual capital.

ANSWER: b

57. In the television Show Mad Men, Don Draperisin charge of the creative
department at an advertising agency. He appears to spend most of his time
drinking and relaxing, but occasionally he has a flash of insight that leads to an
ewad campaign.He provides which valuable intangible resource?
a. trust
b. ideas
c. brand name
d. capacity to innovate

ANSWER: b

58. Supply and demand impacts the level at which people are paid. If there are
few people with a proven record of using judgment effectively then they will be
in high demand and offered high compensation. CEOs are valued for their
judgment as
a. resource allocators.
b. capability counters.
c. strategic leaders.
d. core competency accumulators.

ANSWER: c
59. A person who has made a successful decision when no obviously correct
model or rule is available or when relevant data are unreliable or incomplete has
exercised
a. fore sight.
b. judgment.
c. effective strategic thinking.
d. decisiveness.

ANSWER: b

60.One reason executive judgment can be a particularly important source of

competitive advantage is that judgment
a. allows a firm to build a strong reputation.
b. gains the loyalty of share holders.
c. increases human intellectual capacity.
d. allows for superior bundling of resources.

ANSWER: a

61. Judgment is the capacity for making a successful decision when

a. there are multiple decision criteria.
b. no obviously correct model or rule is available.
c. cognitive biases create barriers to rationality.
d. there are contradictions between the firm's vision and its implemented
strategy.

ANSWER: b

62. The most numerous of the following organizational characteristics are

a. resources.
b. capacities.
c. capabilities.
d. core competencies.

ANSWER: a

63. Capabilities typically come from

a. individual resources.
b. one unique resource.
c. several outstanding resources used independently.
d. combining resources.

ANSWER: d

64.All of the following are tangible resources EXCEPT

a. production equipment.
b. distribution centers.
c. a firm's reputation.
d. formal reporting structures.

ANSWER: c

65.Tangible resources include

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

ANSWER: b

66. Compared to intangible resources, tangible resources are lever ……

constrained because they are …….. to age.
a. less; easier
b.less; harder
c. more; harder
d. more; easier

ANSWER: c

67. Compared to tangible resources, intangible resources are

a. of less strategic value to the firm.
b. less likely to be the focus of strategic analysis.
c. a superior source of capabilities.
d. more likely to be reflected on the firm's balance sheet.

ANSWER: c

68. Compared to tangible resources, intangible resources are

a. less visible; more difficult to copy.
b.less visible; less difficult to copy.
c. more visible; more difficult to copy.
d. more visible; less difficult to copy.

ANSWER:a

69. The critical executive skill of the current business age is the ability to
a. manage technological innovation.
b. manage human intellect.
c. initiate change and overcome inertia.
d. coordinate tangible and intangible resources.

ANSWER: b

70. Which of the following is NOT a reputational resource?

a. customer opinion that the firm's products are high quality
b. employees' opinion of the firm as a terrible place to work
c. suppliers' opinion that the firm pays its bills in a timely manner
d. customer opinion that using the firm's products makes them attractive
ANSWER: b

71. An investor is considering buying are staurant that has been in operation for
a number of years. The restaurant has a highly regarded chef, and many long-
term kitchen and wait staff who work together smoothly. It has a reputation for
dishes of consistently high quality and an appealing dining atmosphere. What
should the investor consider when making a decision?
a. The investor will find that the success of this restaurant is so heavily based on
human resources that the business will likely be subject to inertiain the future.
b. The investor will find that the restaurant's financial statements under value
the true value of its resources.
c. The investor should be aware that in tangible assets are difficult to leverage in
to additional business.
d. The investor should search for a firm which has competitive advantages based
on tangible resources.
ANSWER: b

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

a. Capabilities are often developed in specific functional areas such as
manufacturing, R&D, and marketing.
b. Valuable capabilities are based almost entirely on tangible resources.
c. Capabilities based on human capital are more vulnerable to obsolescence than
other intangible capabilities because of the tendency for employee knowledge to
become out dated.
d. The link between firm financial performance and capabilities is dependent on
whether the capabilities are based on tangible or intangible resources.

ANSWER: a

73.When firms lay off employees, they are

a. treating employees as an intangible resource.
b. recognizing the reduced value of labor in the value chain.
c. eroding the organization's knowledge resources.
d. temporarily sacrificing a tangible asset that is easily replaced.

ANSWER: c

74. Because firms combine tangible and intangible resources to create

capabilities,
a. these capabilities are fragile and subject to sudden loss of value.
b. capabilities are often based on developing, carrying, and exchanging
information and knowledge through the firm's human capital.
c. capabilities are easily transferred from one firm to another as employees
change jobs.
d. these types of capabilities are considered primary activities in the value chain.

ANSWER: b

75. ....... can be viewed as the capacity to take action.

a. Strategic assets
b. Human capital
c. Core competencies
d. Functional capabilities

ANSWER:c

76…….is an example of a capability that is based in the functional area of

distribution.
a.Effective use of logistics management techniques
b. Effective control of inventories through point-of-purchase data collection
c. Effective organizational structure
d. Product and design quality

ANSWER: a
77. Capabilities
a. tend to be developed through firm-wide interactions and reşide in the firm as a
whole.
b. tend to be concentrated in the support activities of the value chain.
c. tend to be concentrated in the primary activities of the value chain.
d. are of ten developed in specific functional areas.

ANSWER: d

78. Samsung has core competencies in manufacturing its own components and
components for other competitors, which help it to predict future innovations
and bring them to market quickly. It is indirect competition with Apple in the
smart phone market. Its competencies allow Samsung to
Apple's innovations.
a. get a first-mover advantage over
b. prevent
c. block
d. imitate

ANSWER: d

79.Innovation, consumer understanding, brand-building, go-to market, and

scaleare activities that P&G performs well and are examples of the company's
a. tangible resources.
b. intangible resources.
c. core competencies.
d. capabilities.

ANSWER: c

80.To provide a sustainable competitive advantage, a capability must satisfy all

of the following criteria EXCEPT
a. Be technologically innovative.
b. be hard for competing firms to duplicate.
c.be without good substitutes.
d. Be valuable to customers.

ANSWER:a

81.From a customer's point of view, for an organization's capability to be a core

competence it must be
a. inimitable and unique.
b. valuable and unique.
c. inimitable and non substitutable.
d. valuable and nonsubstitutable.

ANSWER: b

82. Valuable capabilities

a. Allow the firm to exploit opportunities in its external environment.
b. allow the firm to neutralize threats in its internal environment.
c. allow the firm to exploit opportunities or neutralize threats in its external
environment.
d. allow the firm to neutralize opportunities in its internal environment.

ANSWER:c

83.Capabilities that other firms can not develop easily are classified as
a. costly to imitate.
b. rare.
c. valuable.
d. non substitutable.

ANSWER: a
84. A majör departments to rechain has a strict policy of banning photographs or
videos of its sales floor or back-room operations. It also does not allow
academics to conduct studies of it for publication in research journals. In fact,
some of its own top managers refer to them an agement's policies on secrecy as
"verging on paranoid." These policies indicate that the top management of the
firm believes the organization's core competencies are
a. causally ambiguous.
b. unobservable.
c. imitable.
d. common.

ANSWER: c

85.Several months ago, are staurant developed an ewappetizer that is a hit with
customers. Many customers go to the restaurant just for the appetizer, and it was
at the center of are cent highly positive review by a food critic. Preparation
involves common ingredients and average culinary skills but requires a very
high oven temperature, which sign if i cantly increase sutility costs. Several
competing restaurants have since added their own version of the appetizer to
their menu. Which criterion for assessing capabilities/core competencies is met?
a. The restaurant has the capability to develop something that is valuable.
b. The restaurant has the capability to develop something that is rare.
c. The restaurant has the capability to develop something that is costly to imitate.
d. All of these criteria are met.

ANSWER: a

86. In the airline industry, frequent- flyer programs, ticket kiosks, and eticketing
are all examples of capabilities that are but no long era. rare; valuable.
b. valuable; rare.
c. socially complex; rare.
d. valuable; causally ambiguous.

ANSWER: b

87. The capabilities used to create the sustainability/green initiatives at Walmart

and Target are to be…… causally ambiguous. But less likely
a. rare; valuable.
b. valuable; rare.
c. socially complex; rare.
d. valuable;

ANSWER: b

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

ANSWER: a

89. A financial management firm has existed for more than 70 years. Some of its
original clients' gr and children are now clients of the firm themselves. The
partners and staff of the firm have spent most or all of their careers with the
firm. Many have even married into each other's families. This firm has
capabilities that would be costly to imitate because of its
a. Access to large amounts of financial capital.
b. causally ambiguous core competencies.
c. social complexity.
d. unique historical conditions.
ANSWER: c

90. South West Airlines has a complex inter relationship between its culture and
staff that adds value in ways that other airlines cannot, such as jokes on flights or
the cooperation between gate personnel and pilots. These examples illustrate
which of the following criteria for sustainable competitive advantage?
a. valuable
b. rare
c. costly to imitate
d. non substitutable

ANSWER: c

91. McDonald's culture, with an emphasis on cleanliness, consistency, service,

and the training that reinforces the value of these characteristics, illustrates
which of the following criteria for sustainable competitive advantage?
a.valuable
b.rare
c.costly to imitate
d.nonsubstitutable

ANSWER:c

92. Organizational culture is

a. a morphousand changeable.
b. not easily imitable.
c. so difficult to analyze that most firms should choose to ignore it.
d. typically fragile in the face of changes in the external environment.

ANSWER: b

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

ANSWER: b

94.If a firm offers a service that is valuable, rare, and costly to imitate, but a
substitute exists for the service, the firm will
a. achieve competitive parity.
b. have a competitive disadvantage.
c. have a temporary competitive advantage.
d. gain a sustainable competitive advantage.

ANSWER: c

95.ACME Corp. İs a leading provider of radios to the commercial market. Its

products all rely on printed circuit-board technology. ACME has protected its
market leadership with continued advancements in this technology, which it
patents. A competitor has developed a radio for this market with equal
performance but uses a software- based technology instead of circuit boards.
ACME's technology leadership fails which capability test?
a. the value test
b. the rareness test
c. the substitutability test
d. the costly-to-imitate It fails all three of these tests

ANSWER:c

96.Firms that achieve competitive parity can expect to

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

ANSWER: b

97. A veterinary practice has added a pet boarding and grooming facility. Most of
the practice's competitors also provide these services. The veterinary practice is
gaining competitive
a. advantage.
b. parity.
c. disadvantage.
d. neutrality.

ANSWER: b
98.A local restaurant, Farm Fresh Ingredients, has become highly successful
through its menu, based solely on organically raised chicken and beef, and
organic seasonal produce. It has opened new locations in other cities, and these
new locations are becoming highly profitable. Farm Fresh can expect that, at
best, its competitive advantage will be
a. permanent.
b. sustainable.
c. temporary.
d. defensible.

ANSWER: c

99.Value chain activities are

a. the activities most likely to be imitated by competitors.
b. activities or tasks the firm completes in order to produce products and then
sell, distribute, and service those products in ways that create value for
customers.
c. the core competencies of the organization.
d. the activities most crucial to implementing the firm's business strategy.

ANSWER: b

100. Value chain activities include all of the following EXCEPT

a. supply-chain management.
b. operations.
c. management information systems.
d. distribution.

ANSWER: c

101.Examples of support activities include all of the following EXCEPT

a. finance.
b. human resources.
c. follow-up service.
d. management information systems.

ANSWER: c

102. Value chain analysis is a tool used to

a. analyze a firm's external environment for value-creating opportunities.
b. analyze a firm's value chain activities and support functions in isolation from
its competitors' value chain.
c. understand the parts of the firm's operation that create value and those that do
not.
d. identify the firm's core competencies in each of the primary activities of the
firm.

ANSWER: c
103. Firms that have strong positive relationships with suppliers and customers
are said to have ingredient ……. , an essential to creating value.
a. customer value
b. social capital
c. effective marketing
d. an attractive industry

ANSWER: b
104. Knowledge transfer and Access to resources within the value chain are
enhanced by
a. guidelines for sharing knowledge and resources.
b. social capital.
c. penalties for not sharing knowledge and resources.
d. training employees on how to cooperate.

ANSWER: b

105.To build social capital where by resources such as knowledge are

transferred across organizations requires between the parties.
a. a contract
b. determination
c. confidence
d. trust

ANSWER: d

106.Outsourcing is the
a. spinning off of a value-creating activity to create a new firm.
b. selling of a value-creating activity to other firms.
c. purchase of a value-creating activity from an external supplier.
d. use of computers to obtain value-creating data from the Internet.

ANSWER: c

107. A majör reason outsourcing is effective is that

a. it increases the innovative potential of the firm.
b. few firms possess superior capability in all primary and support activities.
c. it permits unlimited access to capital resources.
d. competitors do not have access to the same external sources.

ANSWER: b

108. Which of the following is TRUE about outsourcing?

a. Outsourcing allows firms to be more flexible and requires minimal
coordination.
b. Outsourcing allows firms to concentrate on those are asin which they can
create value.
c. Outsourcing strengthens the creative and innovative functions within the firm.
d. Outsourcing is effective only when it includes all support activities
ANSWER: b

109. A majör U.S. manufacturer of children's toys believes its main competitive
advantage lies in its continuing development of innovative toys and games. The
company is facing increasing competition on price, and it is strongly considering
outsourcing to off shore firms as a means of reducing costs. The LAST function
this firm should consider outsourcing is
a. operations.
b. research and development.
c. supply- chain management.
d. distribution.

ANSWER: b

110. The owner of a store that sells fine-quality fabrics for homes eamstresses be
moans the fact that few young women know how to do fine tailoring, much less
simple dress making. Many potential customers are unable to appreciate the
Premium quality of the fabrics and are deterred by the high prices, as well as the
complexity off inesewing. In the past, the store had a strong demand for fabrics,
large classes for women learning the fine points ofsewing, and are putation for
excellent service and technical advice. Now the storeis earning lower-than-
average returns. This case is an example of
a. the hazard of competitors being able to imitate a firm's core competency.
b. the need for firms to stick to their core competencies through temporary down
turns in market
demand.
c. the lack of intangible resources under mining the core competencies of the
firm.
d. core competencies that have become core rigidities.

ANSWER: d

111.Which of the following is NOT an external event that reveals the "dark side"
of core capabilities?
a. A new competitor figures out a better way to serve the firm's customers.
b. New Technologies emerge and replace those used by the firm.
c. A firm changes its focus to an ew core competence.
d. Political or social events shift the foundation of current core capabilities.

ANSWER: c

112. Acme Auto Repair hasath riving business based on its reputation for high-
quality work, honesty, and skilled employees. For continued long-term success,
Acme's owner should
a. concent rate on maintaining Acme's current core competencies.
b. focus on developing Acme's future competitive advantages.
c. place more emphasis on tangible resources, which are less vulnerable to
obsolescence than
intangible resources.
d. recognize that core competencies derived from human resources are more
subject to becoming core rigidities than are corec ompetencies based on other
types of resources.

ANSWER: b

113. Borders had a competitive advantage in physical location. However,

Amazon fundamentally changed customer buying habits, and Borders'
competitive advantage became a core
a. stagnation.
b. rigidity.
c. weakness.
d. inefficiency.

ANSWER: b
114.All of the following were traditional sources of competitive advantage
EXCEPT
a. labor costs.
b. Access to financial resources.
c. protected markets.
d. a highly educated labor market.

ANSWER: d

115.______is the ability to analyze, understand, and manage an internal

organization in ways that are not dependent on the assumptions of a single
country, culture, or context.
a. Strategic thinking
b. A global mind-set
c. Profit-pooling
d. Competency-discovering

ANSWER: b
116.A product's value is created by each of the following EXCEPT
a. high cost and highly differentiated features.
b. low cost.
c. highly differentiated features.
d. low cost and highly differentiated features.

ANSWER: a

117. A firm's core competencies, integrated with an understanding of the results

of studying the conditions in the external environment, should
a. guarantee profits.
b. lead to a first-mover advantage.
c. drive the selection of strategies.
d. increase the firm's market share.
ANSWER: c

118.All of the following are true about the strategic decisions managers make
about their firm's internal organization EXCEPT that
a. they are directly correlated to executive compensation.
b. they are non-routine.
c. they have ethical implications.
d. they significantly influence the firm's ability to earn above-average returns.

ANSWER: a
119.One capability that can be learned from failure is when to
a. repeat with a modification.
b. add more resources.
c. digin.
d. quit.

ANSWER: d
120.Subscriptions to the New York Times have been decreasing as more
customers receive their news through other media. At the same time, advertisers
have shifted portions of their spending too ther media. The NYT's managers are
making decisions under
a. certainty.
b. uncertainty.
c. intra organizational conflict.
d. inter organizational conflict.

ANSWER: b

121. may exist among managers making decisions as well as among those
affected by the
decisions.
a. Certainty
b. Simplicity
c. Intra organizatioinal conflicts
d. Inter organizational conflicts

ANSWER: c

122. Amazon is building a new distribution facility in Robbinsville, New Jersey. It

is immediately off the exit of a majör road. This is an example of
a(n)………………resource.
a. financial
b. organizational
c. physical
d. technological

ANSWER: c
124. Government agencies are known for having so many layers and rules that
decisions are made slowly and inefficiently. In this case the …………. Resource is a
detriment to tax payers using and paying for the bureaucracy.
a. financial
b. organizational
c. physical
d. technological

ANSWER: b

125. A food bankin Florida was struggling to serve its customers. It asked
Walmart for help. Walmarts enta team of managers whore organized storage and
transportation. The food bank was able to increase the number of clients served
by ten fold. Walmart shared its expertise in
a. distribution.
b. human resources.
c. marketing.
d. manufacturing.
ANSWER: a

126. Charmed by Claire is a successful retail boutique that sells women's

accessories. Claire, the
owner/manager, knows that women have many options when buying jewelry.
When customers enter her store they are greeted by name and given prompt,
friendly attention. Customers return to the store because the service is excellent.
Claire says the most important decisions he makes is hiring the best staff
because customer service is vital to her business. Customer service is
a.a human resource.
b. an organizational resource.
c. ara reresource.
d. a core competency.

ANSWER: d

127. Many firms out source the payroll function of paying employees to firms
such as ADP. Payrollis
a(n)
a.value-chain activity.
b. operation function.
c. support function.
d. supply-chain function.

ANSWER: c

128.The……
Are those with the potential to be formed in to core competencies as the
foundation for creating
value.
a."most" knowledge resources
b."most" capabilities
c. "right" resources
d. "darkside" resources

ANSWER: c

129.Tools such as…. help the firm focus on its core competencies as the source of
its competitive advantages.
a. marketing
b. manufacturing
c. outsourcing
d. imitation

ANSWER: c

130.All core competencies have the potential to become core

a. rigidities.
b. stagnations.
c. inefficiencies.
d. weaknesses.

ANSWER: a

CHAPTER 4:

39. Business-level strategies detail commitments and actions taken to provide

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

40. A firm's core strategy is its ………………..strategy.

a. corporate
b. business
c. pricing
d. international
40-b

41. When selecting a business level strategy, the firm must determine all of the
following EXCEPT
a. how will the customer's needs be satisfied?
b. who is the customer?
c. what are the customers' needs?
d. why should these customers' needs be satisfied?
41-d

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

43. Which of the following is TRUE?

a. As customer loyalty increases, customers are more sensitive to price increases.
b. Customer loyalty has a positive relationship with firm profitability.
c. Customer loyalty is fragile and cannot reliably be considered a factor in firm
success.
d. Customer loyalty is of importance only to firms using the differentiation
strategy.
43-b

44. The………..dimension of relationships with customers is particularly

important for social networking sites suchas Facebook and MySpace.
a. reach
b. richness
c. affiliation
d. social
44-a

45. Amazon has built capabilities around Internet technology and e-commerce to
facilitate information exchanges with its customers in a cost effective manner.
This represents which of the three service dimension?
a. reach
b. richness
c. affiliation
d. None of the these options are correct.
45-b

46. Viewing the world through the customer's eyes and constantly seeking ways
to create more value for the company enhances
a. the reach of the company toward the customer.
b. the ability to identify the customer.
c. the richness of the relationship with the customer.
d. affiliation with the customer.
46-d

47. Before the firm decides what products to offer and what benefits and
features they will have, the firm must decide all the following questions EXCEPT
a. who the firm should serve.
b. when the customer's needs should be satisfied.
c. what needs the firm should satisfy.
d. what core competencies are needed to satisfy customer needs
47-b

48. In the animal food products business, food-product needs of owners of

companion animals pets (e.g., dogs andcats) differ from the needs for food and
health-related products of those owning production animals (e.g., livestock).
Which of the following aspects of managing customer relationships does this
choice refer to?
a. Who: Determining the Customers to Serve
b. What: Determining Which Customer Needs to Satisfy
c. How: Determining Core Competencies Necessary to satisfy Customer Needs
d. When: Determining When to Satisfy Customer Needs
48-a

49. Starbuck's determined that all of the following customer needs were
important EXCEPT
a. low price.
b. the experience associated with drinking coffee, not just the coffee.
c. the actual product of service (e.g., a cup of coffee), not the experience.
d. allowing customer to design their own drinks
49-a

50. Hyundai allows customers to return their cars if they lose their job within 12
months of purchase. Which of thefollowing aspects of managing customer
relationships is Hyundai engaged in?
a. Who: Determining the Customers to Serve
b. What: Determining Which Customer Needs to Satisfy
c. How: Determining Core Competencies Necessary to satisfy Customer Needs
d. When: Determining When to Satisfy Customer Needs
50-b

51. An interior decorator has moved his business from Los Angeles to St. Paul,
Minnesota, because his spouse's company transferred her to St. Paul. The
decorator is distressed because the customers in his target market have, in his
words, "banal and bourgeois taste." What is the decorator's problem?
a. The decorator does not understand that customer needs are neither right nor
wrong, good nor bad.
b. The decorator has no core competencies that will transfer to his new
geographic market.
c. The decorator should choose a strategy of cost leadership in this environment.
d. The decorator is highly affiliated with the new target market and understands
how he can create value for it.
51-a

52. In order to meet and exceed customer's expectations, firms must

a. constantly manipulate customers' perceptions of their needs.
b. answer the questions: who, what, when, where, how, and why as they apply to
customers.
c. continuously improve, innovate, and upgrade their core competencies.
d. successfully defend their established core competencies from imitation by
competitors.
52-c

53. Business-level strategies are concerned specifically with

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

54. An entrepreneur is investigating starting a company that provides tax advice

to small companies. In order to position his company differently from the
existing competitors, the entrepreneur must
a. analyze the reach, richness, and affiliation the company must have with its
customers.
b. provide tax advice either in a different manner or provide a different kind of
tax service than competitors.
c. offer tax advice at a price lower than the cheapest competitor.
d. offer tax advice at a higher quality than the best competitor.
54-b

55. Which of the following are central to implementing value-creating strategies

and thereby satisfying customers'needs?
a. firm resources
b. capabilities
c. core competencies
d. None of the these options are correct.
55-c

56. The analysis of the activity map of a successful company such as Southwest
Airlines emphasizes how
a. the organizational culture of Southwest Airlines is the key to the success of the
organization.
b. understanding of the profit pool in an industry indicates to companies where
above-average returns can be earned.
c. it is hard for rivals to match a configuration of integrated activities than to
imitate a single activity.
d. the primary and support activities of a successful company capture value all
along the value chain.
56-c

57. By examining the of Southwest Airlines, one can identify the strategic themes
around which it has developed its business strategy. These themes include
limited passenger service, high aircraft utilization, highly productive ground and
gate crews, and so forth.
a. activity map
b. profit pool
c. value diagram
d. five forces model
57-a

58. If Southwest Airlines employees lost their high enthusiasm and commitment
to the company,
a. the airline could continue without problems because its cost leadership
strategy is dependent on its efficient internal procedures.
b. replacement employees could be hired from rival airlines that are laying off
employees easily merged into the Southwest culture.
c. there would be no impact on Southwest's profitability because Southwest's
customers value the low faresrather than being "entertained" by the employees.
d. Southwest would have lost one of its competitive advantages and its
performance would be threatened.
58-d

59. Strategic fit among many activities (in an activity map) is fundamental to
a. the development of core competencies for a firm.
b. the breadth of competitive scope for a firm.
c. sustainability of a firm's competitive advantage.
d. the integrity of the firm's value chain.
59-c

60. All of the following are considered generic business-level strategies EXCEPT
a. product diversification.
b. cost leadership.
c. focused differentiation.
d. integrated cost leadership/differentiation.
60-a

61. A company using a narrow target market in its business strategy is

a. following a cost leadership business strategy.
b. focusing on a broad array of geographic markets.
c. limiting the group of customer segments served.
d. decreasing the number of activities on its value chain.
61-c

62. As the television industry has changed in the last few decades from just three
major networks to a multiplicity ofnetworks, one of the major aspects of
business strategy for the newer networks isnetworks.
a. broader target market
b. narrower target market
c. increased use of primary activities to capture value
d. increased use of support activities to capture value
62-b
63. The effectiveness of any of the generic business-level strategies is contingent
upon
a. customer needs and competitors' strategies.
b. the match between the opportunities and threats in its external market and
the strengths of its internal environment.
c. the trends in the general consumer base and the robustness of the global and
industry economy.
d. the firm's competitive scope and its competitive advantage
63-b

64. A cost leadership strategy provides goods or services with features that are
a. acceptable.
b. unique.
c. substandard.
d. mediocre.
64-a

65. A cost leadership strategy targets the industry's……………….customers.

a. most typical
b. poorest
c. least educated
d. most frugal
65-a

66. Durable Ceramics, Inc., provides inexpensive ceramic tile to builders of

institutional buildings such as schools, prisons, and public administration
buildings. It has always competed on a cost leadership basis. Most of its
productsare purchased by a few commercial construction firms, so it is fairly
dependent on these construction firms for selling its product. Durable Ceramic's
next most-efficient competitor, Cost-Less Ceramics, Inc., earns average returns,
whereas Durable earns above-average returns. The commercial construction
firms are putting pressure onDurable to reduce its prices. If Durable reduces its
prices below those of Cost-Less's prices, it is likely that
a. both Durable and Cost-Less will devise additional ways to become more
efficient in their productionprocesses.
b. Durable will be unable to absorb the lower cost, and will go out of business.
c. both Cost-Less and Durable will go out of business, leaving the customers with
fewer alternative sources oflow-cost tile.
d. Cost-Less will go out of business, and Durable will gain higher power over its
customers.
66-d
67. Research suggests that having a competitive advantage in than it does in the
differentiation strategy.
a. marketing and sales
b. technology development
c. logistics
d. human resource management
67-c
68. A river barge company can offer cheaper, although slower, per pound
transportation of products to companieswhen compared with transportation by
air, truck, or rail. The river barge company should first target customerswhose
companies use
a. the integrated cost leadership/differentiation strategy.
b. either of the focus strategies.
c. the cost leadership strategy.
d. any of the strategies except the focused differentiation strategy.
68-c
69. Walmart went against business-level strategy and made changes to attract
upscale customers. These changes had which of the following results?
a. It strengthened Walmart's position against rivals such as Dollar Stores and
Amazon.
b. It made Walmart vulnerable to Dollar Store and Amazon.
c. It attracted significant numbers of new customers.
d. Family Dollar, Dollar Tree, and Dollar General all experienced losses in sales as
many of their customers went to Walmart.
69-b

70. Walmart's same store sales have been declining and those of rivals Family
Dollar and Amazon have beenincreasing. What could explain this recent change?
a. Walmart was too aggressive with its low-cost position and lost customers who
wanted more upscaleproducts.
b. Walmart changed its strategy to focused differentiation.
c. Amazon and Family Dollar changed their strategies to attract more upscale
customers.
d. Walmart changed its strategy to attract more upscale customers.
70-d

71. A company pursuing the differentiation or focused differentiation strategy

would tend to
a. build economies of scale and efficient operations.
b. develop and maintain cost-effective MIS operations.
c. develop flexible systems that allow rapid response to customers' changing
needs.
d. have relationships with suppliers to maintain efficient flow of supplies for
operations.
71-c

72. When the costs of supplies increase in an industry, the low-cost leader
a. may continue competing with rivals on the basis of product features.
b. will lose customers as a result of price increases.
c. will be unable to absorb higher costs because cost-leaders operate on very
narrow profit margins.
d. may be the only firm able to pay the higher prices and continue to earn
average or above-average returns.
72-d
73. Ever-improving levels of efficiency enhance profit margins for a cost-leader.
This effects which of the five forcesof industry structure most directly?
a. potential entrants
b. substitutes
c. buyer power
d. supplier power
73-a

74. The typical risks of a cost leadership strategy include

a. the inability to balance high differentiation and low price.
b. production and distribution processes becoming obsolete.
c. excessive differentiation to the point where the customer base is too small.
d. loss of customer loyalty.
74-b

75. When a firm is able to produce nonstandardized (that is, distinctive)

products for customers who valuedifferentiated features more than they value
low cost, the firm is successfully implementinga.
a differentiation strategy.
b. a cost leadership strategy.
c. an integrated cost leadership/differentiation strategy.
d. a single-product strategy
75-a

76. A firm successfully implementing a differentiation strategy would expect

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

77. The products or services that are differentiated from others have qualities
that are
a. perceived by the customer to add value for which they will pay a premium.
b. valued by the typical industry customer.
c. perceived as standardized by the customer.
d. seen as classic attributes rather than passing fads.
77-a

78. Blind taste-tests have shown that the taste of premium-priced vodkas and
inexpensive vodkas are indistinguishableeven to regular drinkers of vodka. But
the sales of premium vodkas are thriving. This is an example of
a. the perception of perceived prestige and status as a means of differentiating a
product.
b. the importance of high-quality raw materials when using the differentiation
strategy.
c. the risk of product imitation by competitors.
d. the danger counterfeiting holds for firms pursuing the differentiation strategy.
78-a

79. All of the following are examples of differentiated products EXCEPT

a. Mont Blanc pens.
b. Caterpillar's heavy-duty earth-moving equipment.
c. Great Value brand at Walmart.
d. Prada fashion
79-c

80. The use of a differentiation strategy would be expected to be LEAST effective

in which of the following markets?
a. commodity goods
b. motion pictures
c. popular music
d. writing instruments
80-a

81. All of the following are ways that a good or service can be differentiated
EXCEPT
a. responsive customer service.
b. perceived prestige and status.
c. economies of scale and efficient operations.
d. engineering design and performance.
81-c

82. The differentiation strategy can be effective in controlling the power of

rivalry with existing competitors in anindustry because
a. customers will seek out the lowest-cost product.
b. customers of nondifferentiated products are sensitive to price increases.
c. customers are loyal to brands that are differentiated in meaningful ways.
d. the differentiation strategy benefits from rivalry because it forces the firm to
innovate.
82-c

83. Wholesome Pet Food has successfully specialized for 20 years in high-quality
pet food made from all-natural ingredients and organically raised lamb. This
brand has a strong following and is recommended by veterinarians who practice
in affluent neighborhoods. Wholesome's main supplier of lamb has announced
that the price for lambwill be 15 percent higher next year.
a. Wholesome will probably be able to pass the cost on to its customers because
they are less sensitive to priceincreases than the average buyer.
b. Companies pursuing Wholesome's business strategy are especially vulnerable
to this risk.
c. If Wholesome raises its pet food prices, customers will turn to less expensive
brands such as Purina.
d. Wholesome probably operates on very thin margins, and a cost increase will
threaten its ability to earnaverage returns.
83-a
84. Which of the following is NOT a value-creating activity associated with the
differentiation strategy?
a. Developing policies to ensure efficient hiring and retention to keep costs low
and implement training toensure high employee efficiency.
b. Providing accurate and timely delivery of goods to customers.
c. Ensuring receipt of high quality supplies (raw materials and other goods).
d. Developing flexible systems that allow rapid response to customers' changing
needs
84-a

85. A differentiation strategy can be effective in controlling the power of

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

86. Recently, the only type of car available for Anthony to rent on a business trip
was a compact, fuel-efficient Japanese import. Anthony was surprised at the
comfort and performance of the car. He is in the market for a new car and had
previously considered only buying another luxury SUV. Now, he is thinking about
the significant cost savings he would have if he bought the compact vehicle
rather than a new SUV. This is an example of the competitive risk thata.
a competitor's products can convey a product's differentiated features to a
customer at a significantly reduced price.
b. a product imitation can cause customers to perceive that competitors offer
essentially the same good.
c. experience can narrow a customer's perceptions of the value of a product's
differentiated features.
d. brand loyalty insulates a company from rivalry with competitors.
86-c

87. A manufacturer of jewelry imitates the style of a popular and expensive

brand using manufactured stones rather than real gemstones and lesser grade
metals rather than silver and gold. The manufacturer packages the jewelry in
boxes of the same color imprinted with an almost identical logo. About 85
percent of the company's sales are through Internet sales. This example
illustrates the competitive risk of differentiation strategy.
a. customer sensitive to price differentials
b. threat by the cost leader
c. customer experience
d. counterfeiting
87-d

88. The typical risks of a differentiation strategy do NOT include which of the
following?
a. Customers may find the price differential between the low-cost product and
the differentiated product toolarge.
b. Customers' experience with other products may narrow customers'
perception of the value of a product's differentiated features.
c. Counterfeit goods are widely available and acceptable to customers.
d. Suppliers of raw materials erode the firm's profit margin with price increases
88-d
89. When implementing a focus strategy, the firm seeks to
a. offer products that are both differentiated and low cost.
b. move into the global market.
c. target the typical customer in an industry.
d. serve the specialized needs of a market segment.
89-d

90. Ikea offers young customers a selection of home furnishings featuring good
design, function, and acceptable qualityat low prices. Ikea is using which
business-level strategy?
a. cost leadership
b. focused cost leadership
c. differentiation
d. focused differentiation
90-b

91. The focused differentiation strategy differs from the differentiation strategy
in that
a. the focused differentiators have a broader competitive scope.
b. the value-creating activities of focused differentiators are more constrained.
c. focused differentiators target a narrower customer market.
d. there are fewer risks with the focused differentiation strategy
91-c
92. Chico's is a clothing retailer that targets middle-aged women who want
stylish and appealing clothes that are suitable for the mature figure. Chico's has
an extensive customer list, a frequent-buyer discount card, and frequentsales
promotions to Chico's customers based on their spending levels. Chico's uses a
strategy.
a. focused differentiation based on a buyer group
b. focused differentiation based on a product line segment
c. generic differentiation
d. integrated cost leadership/differentiation
92-a
93. The new generation of lunch trucks serving high-end fare in cities such as
New York, San Francisco, and LosAngeles share which of the following a business
strategies?
a. cost leadership
b. focused differentiation
c. integrated cost leadership/differentiation
d. differentiation
93-b
94. The Monteleone Company pays large fees to a highly recognizable,
prestigious individual to be the spokesperson for the company's products, luxury
private jets. Monteleone is probably following the
a. focused cost leadership strategy.
b. focused differentiation strategy.
c. integrated cost leadership/differentiation strategy.
d. total quality strategy
94-b
95. The risks of a focus strategy include
a. a competitor's ability to use its core competencies to outfocus the focuser by
serving an even more narrowlydefined segment.
b. a competitor's ability to use its core competencies to outfocus the focuser by
serving an even more broadlydefined segment.
c. decisions by industry-wide competitors to use their resources to serve a wider
range of customers' needs than the focuser has been serving.
d. decisions by focused competitors to use their resources to serve a wider range
of customers' needs
95-a

96. Focus strategies are

a. sheltered from the risks associated with industry-wide strategies because of
their niche focus.
b. able to avoid global risk by focusing on niches in national or regional markets.
c. faced with additional types of risks than are industry-wide strategies.
d. more subject to failure than industry-wide strategies.
96-c

97. New Balance Athletic Shoes target Baby Boomers' needs for well-fitting
shoes. The company is unique in that it offers a very broad range of shoe widths.
A realistic potential risk New Balance runs in this focused differentiationstrategy
includes the possibility that:
a. Baby Boomers may find that they do not need well-fitting shoes, since they will
become increasinglysedentary as they age.
b. a competitor may be able to better use flexible manufacturing systems to make
shoes with an individualized fit.
c. athletic shoes may go out of style.
d. New Balance shoes may begin to appeal to a wider market, thus losing New
Balance's focus advantage
97-b

98. Suppose another firm found a way to offer IKEA's customers (young buyers
interested in stylish furniture at lowcost) additional sources of differentiation
while charging the same price or to provide the same service with the same
sources of differentiation at a lower price. What category of competitive risk to a
focus strategy would thisbe?
a. An industry-wide competitor decides that the market segment served by IKEA
is worth entering.
b. Focusing on a more narrowly defined segment and "outfocusing" the focuser.
c. The needs of the customers in this narrow segment have become more similar
to those of industry-widecompetitors.
d. Experience can narrow customer's perceptions of value of the firm's
differentiated features.
98-b

99. Zara has pioneered "cheap chic" in clothing apparel. Zara offers current and
desirable fashion goods at relativelylow prices. To implement the strategy, Zara
uses sophisticated designers and effective means of managing costs.These are all
characteristics of which business level strategy?
a. cost leadership
b. differentiation
c. integrated cost leadership/differentiation
d. stuck in the middle
99-c

100. Firms use the integrated cost leadership/differentiation strategy because

a. other firms have established unassailable market dominance with the other
four strategies.
b. global markets allow for much broader competitive scope.
c. most consumers want to pay a low price for products with somewhat highly
differentiated features.
d. one strategy is not enough for most large firms.
100-c

101. The integration of a cost leadership and a differentiation strategy

a. is challenging because it increases the number of value-chain activities and
support functions in which thefirm must become competent.
b. forces a firm to adapt more slowly to changes in its environment.
c. allows the firm to avoid being "stuck in the middle."
d. requires such a large customer base that it is most practical for firms in the
global marketplace.
101-a

102. Target's brand promise "Expect More. Pay Less" and appeal to higher-
income, fashion-conscious discount shoppersillustrates the strategy.
a. cost leadership
b. differentiation
c. focused differentiation
d. integrated cost leadership/differentiation
102-d

103. J.C. Penney attempted the strategyTarget.. But it couldn't outWalmart, nor
could itMacy's and
a. of integrated cost leadership; price; compete with
b. of focused differentiation; cost; differentiate between
c. of cost leadership; cost; differentiate between
d. of focused cost leadership; price; differentiate between
103-a
104. Three sources of flexibility in completing primary and support activities are
particularly useful for firms using theintegrated strategy. These are
a. Flexible Manufacturing Systems, Reengineering, and Total Quality
Management.
b. Outsourcing, Reengineering, and Flexible Manufacturing Systems.
c. Outsourcing, Total Quality Management, and Information Networks.
d. Flexible Manufacturing Systems, Total Quality Management, and Information
Networks.
104-d

105. The benefit of a flexible manufacturing system is that

a. the lot size needed to manufacture a firm's product efficiently is reduced.
b. the necessary skill levels of workers are reduced, allowing the firm to reduce
costs.
c. it lends itself to empowerment of employees.
d. it captures the cost savings of economies of scale
105-a

106. A flexible manufacturing system is

a. based on the use of temporary and part-time employees as well as
outsourcing.
b. a computer-controlled process that is used to produce a variety of products in
moderate, flexible quantities with minimal human intervention.
c. based on a 360-degree view of the company's relationships with customers.
d. a system that identifies "the one best way" to produce each product in the
company's line
106-b

107. A nationwide chain of pet stores wishes to identify the tradeoffs that its
customers are willing to make betweenlow-cost products such as generic pet
foods and differentiated features such as pick-up and delivery of pets
forgrooming. The best technique for this firm to learn this information would be
to use
a. information networks.
b. a flexible manufacturing system.
c. differentiation development planning.
d. Enterprise Resource Planning
107-a

108. By linking companies with their suppliers, distributors, and customers,

provide a company with flexibility.
a. flexible manufacturing systems
b. information networks
c. total quality management systems
d. capabilities
108-b

109. TQM is most helpful to firms following the business strategy.

a. cost leadership
b. integrated cost leadership/differentiation
c. focused cost leadership
d. focused differentiation
109-b

110. The term "stuck in the middle"

a. means adhering to a middle of the road strategy in the face of negative
outcomes.
b. indicates that the customers of the firm are willing to pay only a mid-range
price for the product.
c. reflects the fact that the customers of the firm have only moderate
expectations regarding product quality.
d. means that the firm's cost structure is not low enough to allow it to
attractively price its products and that itsproducts are not sufficiently
differentiated to create value for its target customer
110-d

111. All of the following describe strategies EXCEPT

a. they are purposeful.
b. they cannibalize the old strategy.
c. they precede the taking of actions to which they apply.
d. they demonstrate a shared understanding of the firm's vision and mission.
111-b

112. More choices and easily accessible information about the functionality of
firms' products are creating increasingly______ customers.
a. sophisticated and knowledgeable
b. loyal
c. dissatisfied
d. content
112-a

113. The……………... dimension of relationships with customers is concerned with

the firm's access and connection to customers.
a. loyalty
b. reach
c. richness
d. affiliation
113-b

114. Reach is an especially critical dimension for which firm?

a. Google
b. J.C. Penney
c. Blockbuster
d. Colgate-Palmolive
114-a
115-c
116-d

117. Consumers in the United States are known for their

a. low income.
b. impatience.
c. loyalty.
d. group think.
117-b

118. When firms use core competencies to implement value-creating strategies

they are answering the " " question.
a. who
b. what
c. why
d. how
118-d

119. Stage in the family life cycle is a factor.

a. demographic
b. socioeconomic
c. psychological
d. perceptual
119-b
120. The book The Dyslexic Advantage appeals to a market of educators, people
with dyslexia, their friends, family,and coworkers. This is customer
segmentation by factors.
a. demographic
b. socioeconomic
c. psychological
d. consumption
120-c

121. Religious beliefs are an example of customer segmentation by

factors.
a. demographic
b. socioeconomic
c. geographic
d. psychological
121-d
122. Historically, women have paid more for dry cleaning than men. Signature
Cleaners advertises "equal price" for allcustomers. Signature Cleaners appeals to
women, which is market segmentation by factors.
a. demographic
b. socioeconomic
c. geographic
d. consumption pattern
122-a
 123. Chelsea Milling Company makes Jiffy packaged baking mixes. It was
established in 1930. It has never spent one cent on advertising, which is one
reason it is able to pursue a(n) strategy.
a. differentiation
b. focused differentiation
c. integrated cost leadership/differentiation
d. cost leadership
123-d
124. Mercedes mass produces luxury vehicles at a premium price. It uses a(n)
strategy.
a. differentiation
b. focused differentiation
c. integrated cost leadership/differentiation
d. focused cost leadership

124-a
125-c

CHAPTER 5

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

42. Multimarket competition occurs when firms

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

43. Competitive dynamics refers to the

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

45. Hilliard Pharmaceuticals and Ahrens Vitamins, Inc., have high market
commonality, both geographically and in the market segments in which they
compete. Hilliard, the number two firm in the industry, has undertaken a majör
strategic attack upon Ahrens, the market leader. Which of the following
statements is most likely to be TRUE?
a. Ahrens will not respond aggressively since this is a strategic move and not a
tactical action.
b. As the market leader, Ahrens has little to fear from an attack by Hilliard and
will not expend organizational slack on a major response.
c. Ahrens will respond aggressively because of the high multimarket contact
between Hilliard and Ahrens.
d. Ahrens will respond after a long delay as the nutrition supplement industry is
a slow-cycle industry.
ANSWERS c

46. In general, compared with firms which compete in only one market, among
firms which face one another in multiple markets there is
a. similar competitive rivalry.
b. less competitive rivalry.
c. more competitive rivalry.
d. no competitive rivalry.
ANSWERS b

47. Research suggests that a firm with greater multimarket contact is…….. likely
to respond aggressively when attacked.
a. more; more
b. less; more
c. less; less
d. more; less likely to initiate and attack, and
ANSWERS b

48. Which pair of firms has the LEAST resource similarity?

a. small, family-owned Italian restaurant; Olive Garden
b. Target; Walmart
c. HP; Dell
d. FedEx; UPS
ANSWERS a

49. Rapid-Built Homes specializes in low-cost prefabricated, modular homes that

can be erected in a matter of days anywhere in the country. Rapid-Built focuses
on entire subdivisions of homes developed by real estate speculators.
ModernModular Homes (ModMod) specializes in modular homes designed by
architects, which can be built anywhere in the country. The buyers usually build
the home themselves from kits on their own lots. ModMod sells fewer than 100
house kits per year. ModMod is run by two professors of architecture as a
sideline business. According to the "Framework of Competitive Analysis," we can
say that Rapid-Built and ModMod
a. are direct mutually acknowledged competitors.
b. have high resource similarity.
c. have high market commonality.
d. are probably not engaged in intense competitive rivalry.
ANSWERS d

50. Firms with………. market commonality and……………… resource similarity are

direct and mutually acknowledged competitors.
a. low; high
b. low; low
c. high; high
d. high; low
ANSWERS c

51. In general, firms are more aware of competitors who have similar resources
and who
a. have low market dependence.
b. are late movers.
c. have low market commonality.
d. compete against the firm in multiple markets.
ANSWERS d

52. …………. And…………. describe the situation in which organizations are direct
competitors and are fully aware of the competition.
a. High market commonality; high resource similarity
b. High market commonality; low resource similarity
c. Low market commonality; high resource similarity
d. Low market commonality; low resource similarity
ANSWERS a

53. Firms with few competitive resources are more likely to

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

54………… relates to the gains or losses a firm will experience if it attacks a rival
or responds to an attack by a rival.
a. Motivation
b. Awareness
c. Responsiveness
d. Ability
ANSWERS a

55. Both……. and ……….affect the awareness and motivation of a firm to

undertake actions and responses.
a. first-mover advantages; corporate size
b. market commonality; resource similarity
c. management capabilities; competitive analysis
d. speed of management decisions; management actions
ANSWERS b
56. The larger the resources of a firm taking a competitive action compared with
the resources of the other firms in the industry, the……….. the response will be of
these other firms.
a. more fragmented
b. slower
c. larger
d. more tactical
ANSWERS b

57. Walmart initially used a focused cost-leadership strategy to compete only in

small communities by using sophisticated logistics systems and efficient
purchasing practices to gain a competitive advantage. The response of local
competitors was because they
a. rapid; were nimble and flexible.
b. slow; lacked the ability to marshal resources.
c. rapid; perceived gains from responding to Walmart's attack.
d. rapid; had the resources and flexibility compete against Walmart.
ANSWERS b

58. A competitive action can be one of two types, either or

a. aggressive; defensive
b. quality-based; cost-based
c. strategic; tactical
d. market-based; resource-based
ANSWERS c

59. Which of the following is an example of a strategic action?

a. A "two movies for the price of one" campaign by Blockbuster Video
b. Use of product coupons by a local grocer
c. Entry into the European market by Home Depot
d. Fare increases by Southwest Airlines
ANSWERS c

60. Which of the following is an example of a tactical action?

a. Walmart's launch of Sam's Club stores
b. Continental Airlines exit from a hub airport in Denver
c. Netflix beginning to offer music DVDs in addition to movies
d. Dell's launch of a new line of high performance, custom-made PCs
ANSWERS c

61. Which of the following is the most strategic action by Walmart?

a. Aggressive pricing to ensure they are a price leader
b. Aggressively pricing toys and electronics during the holiday season
c. Aggressively pricing school-related items in the back-to-school season
d. Entering a new foreign market
ANSWERS d

62. On the whole there are more competitive responses to

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

63. First movers are

a. entrepreneurs who lead in the establishment of new industries.
b. firms that are first to exit a declining industry.
c. firms that take an initial competitive action.
d. individuals who move frequently as employment opportunities change in a
locale.
ANSWERS c

64. The chief disadvantage of being a first mover is the

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

65. Which of the following statements is FALSE?

a. First movers tend to take higher risks than second and later movers.
b. First movers tend to have significantly higher revenues than second movers.
c. First movers have lower survival rates than second and late movers.
d. First movers tend to have more organizational slack than later movers.
ANSWERS c

66. A second mover

a. is typically ineffective in its response to the first mover.
b. attempts to provide a product with greater customer value than the first
mover's product.
c. usually incurs higher expenses than the first mover since it must engage in
reverse engineering.
d. typically has a higher survival rate than first movers which typically take
greater risks.
ANSWERS b

67. Late movers are those firms that

a. respond to a competitive action a significant amount of time after the first
mover's action and the second mover's response.
b. respond to a first mover's competitive action often through imitation or a
move designed to counter the effects of the action.
c. take an initial competitive action (either strategic or tactical).
d. typically achieve higher-than-average returns because they can imitate the
most efficient actor.
ANSWERS a
68. Bubble-Up, Inc., is a small manufacturer of educational toys for children
under age 10. It has co-existed with three other competitors in the educational
toy industry for over 20 years, each of them maintaining a stable market
share.There is a wide-spread rumor that Mega-Toy, Inc., the market leader in the
broad children's toy market, has decided to target educational toys. Which of
these statements is most likely TRUE?
a. The owners of Bubble-Up are unconcerned about Mega-Toy's entry to the
market because of the resource
dissimilarity between the firms.
b. Bubble-Up's greater organizational slack will allow it to aggressively attack
Mega-Toy.
c. Bubble-Up's smaller size may make it more flexible in introducing innovations
than Mega-Toy.
d. Competitive rivalry will not increase for Bubble-Up because Mega-Toy is not
dependent on the educational
toy market.
ANSWERS c

69. A firm that is LEAST likely to launch competitive actions is one that has
a. organizational slack.
b. advanced research and development.
c. recently improved the quality of its products.
d. large size.
ANSWERS d

70. All competitive advantages do not accrue to large-sized firms. A major

advantage of smaller firms is that they
a. are more likely to have organizational slack.
b. can launch competitive actions more quickly.
c. have more loyal and diverse workforces.
d. can wait for larger firms to make mistakes in introducing innovative products.
ANSWERS b

71. Which of the following is TRUE of Walmart?

a. Walmart has an unusual amount of flexibility for a large firm.
b. Walmart's success is largely due to the fact it has little market commonality
with other industry firms.
c. Decision-making responsibility is centered at its Arkansas headquarters, which
allows the firm to respond quickly to competitive attacks.
d. Walmart's advantage lies in its ability to "think big."
ANSWERS a

72. Which of the following is TRUE of Southwest Airlines?

a. Southwest has an unusually low amount of flexibility for a large firm.
b. Southwest's success is largely due to the fact it has little market commonality
with other airlines.
c. Decision-making responsibility is centered at its Dallas headquarters, which
allows the firm to respond quickly to competitive attacks.
d. Southwest's advantage lies in its ability to "think small."
ANSWERS d

73. Without quality, the firm's products

a. can compete effectively on the basis of low price.
b. lack credibility among customers.
c. must be exported to developing countries, because they are not competitive in
the United States or developed countries.
d. are associated with predatory competition.
ANSWERS b

74. Quality is
a. meeting or exceeding customer expectations in the goods andior services
offered.
b. only a major factor in the production of luxury goods, such as BMW cars.
c. an assured way to gain competitive advantage.
d. a viable trade-off with product cost in gaining a competitive advantage.
ANSWERS a

75. Quality affects competitive rivalry because a competitor whose products

suffer from poor quality likely will_____________ until
a. initiate more competitive actions; the firm returns to profitability.
b. initiate fewer competitive actions; the quality problems are corrected.
c. initiate more competitive actions; the quality problems are corrected.
d. advertise more; customers believe the quality had improved.
ANSWERS b

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

77. A firm is likely to respond to an attack by a competitor in all of the following

situations EXCEPT
when
a. the attack is by a price predator.
b. the attack makes the firm's market position less defensible.
c. the attack damages the firm's ability to use its capabilities.
d. the attack improves the competitor's market position.
ANSWERS a

78. Which company below committed significant resources to enter the

information services market and, given its success, was imitated by other
competitors?
a. Compaq
b. IBM
c. HP
d. Dell
ANSWERS b

79. Akamai Technologies is a dominant player in the content delivery network

(CDN) market. Akamai is not very diversified (i.e., is dependent on the CDN
market). If rival CDN providers such as Limelight Networks and Level 3
Communications lower their basic CDN service prices, what would be Akamai's
likely response?
a. raise its prices
b. do nothing since it is the market leader
c. exit the industry
d. lower its prices
ANSWERS d

80. Lobelia's Nursery and Garden Resource Center has long provided high-
quality, typical types of seasonal bedding plants to customers in the Mobile,
Alabama, metropolitan area. It has traditionally competed with the other plant
nurseries within a 50-mile radius of Mobile. Recently, Lobelia has opened a
branch in Fairfax, Virginia. Lobelia's research shows that most Fairfax nurseries
have only one location. Lobelia can expect the local Fairfax nurseries to
a. be unmotivated to respond because their market position is not threatened by
a new competitor from out-oftown.
b. respond with fierce attacks because of resource dissimilarity.
c. respond aggressively because of high market dependence.
d. take no competitive response because of the lack of mutual interdependence
among the nurseries.
ANSWERS c

81. Which organization has the highest market dependence?

a. a chain of rapid-service oil change shops
b. a manufacturer of chemicals for the international pharmaceutical industry
c. a regional department store having 26 locations in the Northwest
d. a company that specializes in making replacement tiles for the space shuttle
ANSWERS d

82. Sustained competitive advantage is most achievable in a market.

a. slow-cycle
b. medium-cycle
c. standard-cycle
d. fast-cycle
ANSWERS a

83. Walt Disney's focus on is typical of a slow-cycle market.

a. innovation
b. total quality
c. proprietary rights
d. economies of scale
ANSWERS c
84. The CEO of the Wholesome Food retail grocery chain, which specializes in
organic and natural produce and meat,
has stated, "The key to success is to find your niche and focus on it, regardless of
what anyone else does." The CEO
a. realizes that he must understand competitors in order to predict their
competitive actions and responses.
b. understands that he is the market leader in his niche and thus has a
sustainable competitive advantage.
c. believes he has placed his firm in a slow-cycle industry where concerns about
protecting unique competencies dominate concerns about market share.
d. realizes his firm has such lower resources than other competitors that his
chain is "competitively invisible" to them.
ANSWERS c

85. The ability of Disney to maintain its competitive advantage through

proprietary rights to its characters would be severely weakened if
a. theme parks with alternative cartoon characters were built in large numbers.
b. numerous lawsuits against copyright thieves tainted the reputation of the
company.
c. Disney attempted to move beyond its traditional industry.
d. Disney's cartoon characters became widely perceived as old-fashioned and
unappealing.
ANSWERS d

86. Lawsuits over patent and copyright infringements are more common and
intense in
a. fast-cycle markets because the market is innovation-driven.
b. standard-cycle markets because the firm's brand name is such an important
competitive advantage.
c. slow-cycle markets, because of the ability to shelter the company from
imitation of its competitive
advantage.
d. standard-cycle markets because innovation is rare, and so gives the innovating
firm a significant competitive
advantage.
ANSWERS c

87. Traditionally, the music industry signed multi-year contracts with artists and
sold copyright protected music through established distribution channels. A shift
to the digital format and the rise of Internet technology has resulted in the
sharing of music over peer-to-peer networks, a practice the industry called
"piracy." In recent years, the music industry has seen a rapid decline in the
number of CDs sold. At the same time, the ownership of the distribution rights of
musical content under copyright laws remains clear. Attempts at innovation by
individual record labels to offer music as direct downloads to consumer are
quickly copied by other labels. Based on these factors, the best assessment is that
the music industry has shifted from a to a cycle market.
a. slow; fast
b. slow; standard
c. standard; slow
d. standard; fast
ANSWERS d

88. Which industry can be LEAST described as a slow-cycle market?

a. freight railroads
b. pharmaceuticals
c. cell phone provider
d. private ownership of highways and bridges
ANSWERS c

89. Reverse engineering is characteristic of

a. first movers.
b. fast-cycle markets.
c. market leaders.
d. price predators.
ANSWERS b

90. Companies in fast-cycle markets need to profit quickly from an innovative

product for all of the following reasons
EXCEPT
a. the technology used is not proprietary.
b. the prices of component parts tends to rise rapidly.
c. product prices fall quickly in fast-cycle markets.
d. counterattacks from rivals come quickly.
ANSWERS b

91. A company in a…………….. industry is LEAST likely to make heavy use of

patents and copyrights.
a. slow-cycle
b. medium-cycle
c. standard-cycle
d. fast-cycle
ANSWERS d

92. ……………markets are often described as volatile and innovative.

a. Slow-cycle
b. Fast-cycle
c. Standard-cycle
d. Sheltered
ANSWERS b

93. An organization's loyalty to its own product is a competitive disadvantage in

a(n) ………….. market.
a. slow-cycle
b. standard cycle
c. intermediate cycle
d. fast-cycle
ANSWERS d
94. Because Coca-Cola, Nestle, and PepsiCo all sell a product (bottled water) that
is essentially the same and all three giant companies are engaged in battles for
market share using incremental changes in their products and seeking loyalty to
brand names, it is most likely that the bottled water market is a(n)
a. slow-cycle market
b. standard-cycle market.
c. fast-cycle market.
d. intermediate-cycle market.
ANSWERS b

95. Competition between candy makers (e.g., Hershey, Mars, Cadbury, Nestle,
and Godiva) where firms package design (including package downsizing) and
ease of availability is characteristic of a(n)
a. slow-cycle market
b. standard–cycle market.
c. fast-cycle market.
d. intermediate-cycle market.
ANSWERS b

96. Goods or services in standard-cycle markets reflect

a. organizations that serve a mass market.
b. numerous first mover advantages.
c. an inability to sustain a competitive advantage except for brief periods of time.
d. competitive advantages that are shielded from imitation.
ANSWERS a

97. The competitive actions and responses in markets are designed to seek large
market shares, to gain customer loyalty through brand names, and to carefully
control the firm's operations in order to consistently provide the same positive
experience for customers.
a. standard-cycle
b. fast-cycle
c. slow-cycle
d. intermediate-cycle
ANSWERS a

98. The flat-panel television market where prices have come down and
competition has become more stable is best characterized as
a. standard-cycle.
b. fast-cycle.
c. slow-cycle.
d. competitive rivalry.
ANSWERS a

99. Consumer goods producers are innovating in terms of healthy products. This
type of incremental innovation is typical of
a. fast-cycle markets.
b. standard-cycle markets.
c. incremental-cycle markets.
d. slow-cycle markets.
ANSWERS b

100. In order to compete effectively, standard-cycle firms need all of the

following EXCEPT
a. large market share.
b. customer loyalty through brand name.
c. careful control of operations to preserve consistency for customers.
d. rapid and continuous product introductions.
ANSWERS d

Chapter 6:

62. GE (Chapter 6 Opening Case) is unusual in that it

a. is widely diversified but competes only in manufacturing industries.
b. has had an unblemished environmental record.
c. is one of the few large diversified large firms that have been successful over
time.
d. restricted its investments to only developed economies.

ANSWERS c

63. As noted in the Chapter 6 Opening Case, GE is now a major player in the
"clean energy" industry such as wind
turbines and solar power. A major reason GE moved in this direction was
a. to narrow the focus of its portfolio around energy-related industries.
b. to overcome and correct its record in environmental issues.
c. to further diversify its portfolio away from services.
d. the clean energy industry was guaranteed to be profitable for the next several
years.
ANSWERS b

64. GE (Chapter 6 Opening Case) was diversified and manages businesses that
have only a few links between them.
This corporate-level strategy is best described as diversification.
a. related constrained
b. related linked
c. unrelated
d. conglomerate
ANSWERS b

65. Corporate-level strategy is concerned with and how to manage these

businesses.

a. whether the firm should invest in global or domestic businesses

b. what product markets and businesses the firm should be in
c. whether the portfolio of businesses should generate immediate above-
average returns or should be troubled
businesses which will create above-average returns only after restructuring
d. whether to integrate backward or forward.
ANSWERS b

66. The ultimate test of the value of a corporate-level strategy is whether the
a. corporation earns a great deal of money.
b. top management team is satisfied with the corporation's performance.
c. businesses in the portfolio are worth more under the management of the
company in question than they would be under any other ownership.
d. businesses in the portfolio increase the firm's financial returns.
ANSWERS c

67.The more "constrained" the relatedness of diversification,

a. the fewer the linkages between the businesses within the portfolio owned by
the firm.
b. the wider the variation in the portfolio of businesses owned by the firm.
c. the more links there are among the businesses owned by an organization.
d. the lower the proportion of total organizational revenue derived from the
dominant business.
ANSWERS c

68. Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley
bought Life Savers (a line of candy
mints) and Altoids (a line of breath mints) from Kraft, chewing gum then
constituted less than 95 percent of
revenues. Thus, Wrigley
a. was moving away from its traditional single-business strategy toward a
dominant strategy.
b. was moving away from its traditional dominant strategy toward a related
linked strategy.
c. became a conglomerate since Life Savers and Altoids are unrelated
businesses.
d. probably planned to restructure these companies and sell them off.
ANSWERS a

69. Usually a company is classified as a single business firm when revenues

generated by the dominant business are greater than…………… percent.
a. 99
b. 95
c. 90
d. 70
ANSWERS b
70. The more sharing of resources and activities among businesses, the
more…….. is the relatedness of the diversification.
a. linked
b. constrained
c. integrated
d. intense
ANSWERS b

71. A firm that earns less than 70 percent of revenue from its dominant
business and has direct connections between
its businesses is engaging in diversification.
a. unrelated
b. related constrained
c. related linked
d. dominant business
ANSWERS b

72. Revenues for United Parcel Service (UPS) come from the following
business segments: 60 percent from U.S.
package delivery operations, 22 percent from international package delivery,
and 18 percent from non-packaging
operations. Which best describes the corporate level strategy of UPS?
a. single business
b. dominant business
c. related constrained
d. related linked
ANSWERS b

73. Which acquisition would be considered the LEAST related?

a. A candy manufacturer purchases a chemical laboratory specializing in food
flavorings.
b. A chain of garden centers acquires a landscape architecture firm.
c. A hospital acquires a long-term care nursing home.
d. An upscale "white-tablecloth" restaurant chain acquires a travel agency.
ANSWERS d

74. The lowest level of diversification is the…………. level.

a. single-business
b. dominant business
c. related constrained
d. unrelated
ANSWERS a
75. The main difference between the related constrained level of diversification
and the related linked level of
diversification is
a. the percentage of total organizational profitability that comes from the
dominant business.
b. the level of resources and activities shared among the businesses.
c. whether the diversification is vertical or horizontal.
d. whether the diversification is value-creating or value-neutral.
ANSWERS b

76. The Publicis Groupe has three major groups of business (advertising,
media, and digital) that share resources and
capabilities. Publicis Groupe is using a diversification strategy.
a. related linked
b. related constrained
c. unrelated
d. dominant
ANSWERS b

77. The Publicis Groupe uses the digital technology from its digital business to
enhance the advertising products in its advertising group. This sharing of
activities is characteristic of………… the diversification strategy.
a. related constrained
b. related linked
c. unrelated
d. dominant
ANSWERS a

78. The term "conglomerates" refers to firms using the………….

diversification strategy.
a. unrelated
b. related constrained
c. related linked
d. global
ANSWERS a

79. Hutchison Whampoa Limited (HWL) has businesses in ports and related
services, telecommunications, property
and hotels, retail and manufacturing, and energy and infrastructure. HWL
makes no efforts to share activities or
transfer core competencies among the businesses. HWL is following a strategy
of diversification.
a. dominant business
b. related constrained
c. related linked
d. unrelated
ANSWERS d

80. Firms use corporate-level diversification strategies for all the following
reasons EXCEPT
a. value-creating.
b. value-neutral.
c. value-reducing.
d. value-diversifying.
ANSWERS d

81. Which of the following reasons for diversification is most likely to increase
the firm's value?
a. increasing managerial compensation
b. reducing costs through business restructuring
c. taking advantage of changes in tax laws
d. conforming to antitrust regulation
ANSWERS b

82. Which of the following is a value-reducing reason for diversification?

a. enhancing the strategic competitiveness of the entire company
b. expanding the business portfolio in order to diversify managerial
employment risk
c. gaining market power relative to competitors
d. conforming to antitrust regulation
ANSWERS b

83. An office management firm has developed a system for efficiently

organizing small medical and dental practices both through proprietary
software and through unique training programs for staff. /t has recently
acquired a firm specializing in providing management services for veterinary
practices. The office management firm is hoping to
a. achieve economies of scope.
b. implement vertical integration.
c. achieve financial economies through an unrelated acquisition.
d. acquire specialized talent from the veterinary management company.
ANSWERS a

84. Firms that have selected a related diversification corporate-level strategy

seek to exploit
a. control shared among business-unit managers.
b. economies of scope between business units.
c. the favorable demand of buyers.
d. market power.
ANSWERS b

85. Firms seek to create value from economies of scope through all of the
following EXCEPT
a. activity sharing.
b. skill transfers.
c. transfers of corporate core competencies.
d. de-integration.
ANSWERS d

86. The basic types of operational economies through which firms seek value
from economies of scope are
a. synergies between internal and external capital markets.
b. the leveraging of individual tangible resources.
c. the sharing of value chain activities and support functions.
d. joint ventures and outsourcing.
ANSWERS c

87. Operational relatedness is created by of

a. sharing; core competencies.
b. sharing; activities.
c. transferring; core competencies.
d. transferring; activities.
ANSWERS b

88. Procter & Gamble (P&G) has a paper towel and baby diaper business, both
of which use paper products. The
firm's paper production plant produces inputs for both businesses. P&G most
likely uses the diversification strategy to create
a. related constrained; operational relatedness.
b. related linked; corporate relatedness.
c. related constrained; corporate relatedness.
d. related linked; operational relatedness.
ANSWERS a

89. Which of the following is TRUE?

a. Conglomerates no longer exist in the U.S. business scene, but are common in
emerging markets.
b. Unrelated diversified firms seek to create value through economies of scope.
c. The sharing of intangible resources, such as know-how, between firms is a
type of operational sharing in related diversifications.
d. Related constrained firms share more tangible resources and activities
between businesses than do related linked firms.
ANSWERS d

90. Research has shown that horizontal acquisitions

a. tend to have disappointing financial results in the long run.
b. are being replaced by virtual acquisitions.
c. result in lower levels of performance than unrelated acquisitions.
d. are able to use activity sharing to successfully create economies of scope.
ANSWERS d

91. A noted professional art academy has founded an "artists and friends"
travel company specializing in tours for artists to scenic locales, using its
faculty as traveling teachers. /n addition, the art academy has purchased a
framing company to both make frames for academy art works, but also to sell
museum-quality framing services to the public. The art academy is engaging in
diversification based on relatedness.
a. operational
b. corporate
c. intellectual
d. constrained
ANSWERS a

92. Dragonfly Publishers of children's books has purchased White Rabbit,

another publisher of children's books. Both
companies' books are sold to the same retail stores and schools. Their content is
different, since Dragonfly
produces children's literature, whereas White Rabbit focuses on child-level
scientific and nature topics. Which of
the following statements is probably TRUE about this acquisition?
a. This is a horizontal acquisition.
b. This is an example of virtual integration.
c. Dragonfly is beginning to build a conglomerate.
d. Economies of scope are unlikely to result from this acquisition.
ANSWERS a

93. The purchasing of firms in the same industry is called

a. unrelated diversification.
b. vertical integration.
c. networking the organization.
d. horizontal acquisition.
ANSWERS d

94. The diversification strategy creates value in two ways. First, since the core
competence has
already been developed in one business, the firm does not have to allocate
resources to develop it. Second, since the resource is intangible, competitors
cannot easily imitate it.
a. related constrained
b. unrelated
c. related linked
d. dominant business
ANSWERS c

95. The drawbacks to transferring competencies by moving key people into

new management positions include all EXCEPT
a. the people involved may not want to move.
b. managerial competencies are not easily transferable to different
organizational cultures.
c. managers with these skills are expensive.
d. top-level managers may resist having these key people transferred.
ANSWERS b

96. Multipoint competition occurs when

a. firms have multiple retail outlets.
b. firms have multiple products in their primary industry.
c. diversified firms compete against each other in several markets.
d. firms have diversified portfolios of companies.
ANSWERS c

97. One method of facilitating the transfer of competencies between firms is to

a. virtually integrate the two firms.
b. transfer key people into new management positions.
c. share support activities, such as purchasing practices.
d. restructure the weaker firm to mirror the structure of the more successful
firm.
ANSWERS b

98. Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the

same industry in Ireland. It plans to transfer one of its key managers from its
plant in St. Louis to Ireland. What is the major threat to Xanadu's plan to
transfer competencies from itself to the Irish firm?
a. The St. Louis manager may quit Xanadu in order to remain in St. Louis.
b. American pharmaceutical manufacturing techniques may not transfer to
Ireland.
c. Irish managers will refuse to take direction from a foreign executive.
d. The cost of transferring U.S. managers overseas is usually not cost-effective.
ANSWERS a
99. Acquisitions to increase market power require that the firm have a(n)
diversification strategy.
a. unrelated
b. related
c. dominant-business
d. single-business
ANSWERS b

100. When diversification results in two companies, such as UPS and FedEx,
simultaneously competing in the same product areas or geographic markets,
this is called……… competition.
a. multiple
b. multiportal
c. multipoint
d. multiplicit
ANSWERS c

101. Virgin Group successfully transfers its marketing core competence across
airlines, cosmetics, music, drinks, mobile
phones, health clubs, and a number of other businesses. Virgin follows a(n)
diversification corporate strategy.
a. dominant-business
b. related constrained
c. related linked
d. unrelated
ANSWERS c

102. The Mars acquisition of the Wrigley assets was part of its related
constrained diversification and added market share to the Mars/Wrigley
integrated firm. It allowed Mars to gain……. the market level or reduce its
costs below the market level.
a. multipoint competition
b. virtual integration
c. market power
d. vertical integration
because it could sell its products above
ANSWERS c

103. Backward integration occurs when a company

a. produces its own inputs.
b. owns its own source of distribution of outputs.
c. is concentrated in a single industry.
d. is divesting unrelated businesses.
ANSWERS a
104. Pork Pride Foods produces hams and other meat products. It owns hog
raising operations. This is an example of a business.
a. de-integrated
b. vertically integrated
c. totally integrated
d. horizontally integrated
ANSWERS b

105. A company pursuing vertical integration can gain market power over its
competitors through all of the following EXCEPT
a. improved adjustment to technological changes.
b. savings on operations costs.
c. improved product quality.
d. avoidance of market costs.
ANSWERS a

106. Which of the following is NOT a limitation directly relating to vertical

integration?
a. bureaucratic costs
b. the loss of flexibility through investment in specific technologies
c. capacity balance and coordination problems from changes in demand
d. imitation of core technology by potential competitors
ANSWERS d

107. Specialty Steel, Inc., needs a particular type of brick to line its kilns in
order to safely achieve the high temperatures needed for the unusually strong
steel it produces. The clay to make this brick is very rare and only two brick
plants in the United States make this type of brick. Specialty Steel has decided
to buy one of these brick plants. This is an example of
a. backward integration.
b. forward integration.
c. horizontal integration.
d. virtual integration.
ANSWERS a

108. Specialty Steel, Inc., needs a particular type of brick to line its kilns in
order to safely achieve the high temperatures needed for the unusually strong
steel it produces. The clay to make this brick is very rare and only two brick
plants in the United States make this type of brick. Specialty Steel owns one of
these brick plants and buys all of its production. The other brick manufacturer
has recently developed an inexpensive new technology whereby ordinary
clay can be used to make this fire brick. This significantly reduces the
production cost of this type of brick.
a. Specialty Steel has less flexibility now than if it were not vertically
integrated.
b. This is an example of a capacity balance problem.
c. This is a result of conflicts of interest between the managers of the brick
plant and the executives of Specialty Steel.
d. The market power of Specialty Steel has been de-integrated.
ANSWERS a

109. Walt Disney Company has successfully used related diversification to

create value by
a. sharing activities.
b. sharing activities and transferring core competencies.
c. transferring core competencies.
d. efficient internal capital allocation and restructuring.
ANSWERS b

110. The value of the assets of a firm using a diversification strategy to create
both operational and corporate relatedness tend to be
a. discounted by investors.
b. inflated by investors.
c. completely ignored by investors.
d. highly valued by investors.
ANSWERS a

111. When a firm simultaneously practices operational relatedness and

corporate relatedness,
a. it is difficult for investors to observe the value created by the firm.
b. the firm is likely to be overvalued by investors.
c. the firm will suffer from diseconomies of scope that outweigh cost savings
generated.
d. the firm is seeking to create value through financial economies.
ANSWERS a

112. Which type of diversification is most likely to create value through

financial economies?
a. related constrained
b. operational and corporate relatedness
c. unrelated
d. related linked
ANSWERS c

113. An ability to efficiently allocate capital through an internal market may

help the firm protect the competitive advantages it develops
a. through reduced disclosure to outside parties.
b. by the ability to not report losses to investors.
c. by the ability to increase pay to managers without shareholders being aware.
d. through the ability to reinvest cash in dividends to shareholders.
ANSWERS a

114. A firm practicing unrelated diversification can make better capital

allocations to its subsidiary businesses than the external capital market can for
all the following reasons EXCEPT
a. corporate headquarters can allocate capital according to more specific
criteria than is possible with external market allocations.
b. corporate headquarters has more complete information about the subsidiary
businesses than the external capital market.
c. the firm can acquire other firms with innovative products instead of
allocating capital to research and development.
d. corporate headquarters can more effectively discipline underperforming
management teams through resource allocation than can the external market.
ANSWERS c

115. Although a(n) ………………… firm, GE (discussed in the Chapter 6

Opening Case) has done an exceptional job of ……………its four major
strategic business units.
a. related linked; allocating capital across
b. related constrained; restructuring
c. unrelated; sharing activities across
d. unrelated; transferring core competencies across
ANSWERS a

116. Large diversified businesses often face what is known as the

"conglomerate discount." This discount means that investors
a. understand that the financial efficiencies of this strategy automatically make
these stocks worth more than their current market valuation.
b. believe that the value of conglomerates is less than the value of the sum of
their parts.
c. increase the expected future earnings of conglomerates.
d. have found that over time, conglomerates earn more than the component
companies would have earned independently.
ANSWERS b

117. Large diversified businesses often face a……… , which results from
analysts not knowing how to value a vast array of large businesses with
complex financial reports.
a. threat of regulation by the Securities and Exchange Commission
b. high CEO turnover
c. threat of takeover
d. conglomerate discount
ANSWERS d
118. Successful unrelated diversification through restructuring is typically
accomplished by
a. focusing on mature, low-technology businesses.
b. a "random walk" of good luck in picking firms to buy.
c. seeking out high technology firms in high-growth industries.
d. a top management team that is not constrained by pre-established ideas of
how the firm's portfolio should be developed.
ANSWERS a

119. The risk for firms that follow the unrelated diversification strategy in
developed economies is that
a. external investors tend to dump the stocks of conglomerates during
economic downturns.
b. conglomerates are typically owned by one powerful entrepreneur and do not
survive his/her retirement or death.
c. government regulations, especially in Europe, have periodically forced the
dissolution of conglomerates.
d. competitors can imitate financial economies more easily than they imitate
economies of scope.
ANSWERS d

120. What is the similarity between high-technology firms and service-based

firms that makes them risky as
restructuring candidates?
a. They are human-resource dependent.
b. They have few tangible assets.
c. Both types of firm rely on financial economies.
d. The demand for their products is highly sensitive to economic downturns.
ANSWERS a

121. Which of the following firms would be the most likely to be a successful
candidate for acquisition and restructuring?
a. a medical practice
b. a management consulting firm that has a tradition of long term client-
consultant relationships
c. a tire manufacturer established in 1910
d. a start-up communications technology firm
ANSWERS c

122. Among the value-neutral incentives to diversify, some come from the
firm's external environment while others are
internal to the firm. External incentives to diversify include
a. the fact that other firms in an industry are diversifying.
b. pressure from stockholders who are demanding that the firm diversify.
c. changes in antitrust regulations and tax laws.
d. a firm's low performance.
ANSWERS c

123. Of the value-neutral incentives to diversify, all of the following are

internal firm incentives EXCEPT
a. overall firm risk reduction.
b. uncertain future cash flows.
c. stricter interpretation of antitrust laws.
d. low performance.
ANSWERS c

124. Because of the tax laws of the 1960s and 1970s, when dividends were
taxed more heavily than capital gains,
shareholders preferred that corporations
a. pay dividends annually.
b. keep free cash flows for investment in acquisitions.
c. distribute capital gains regularly.
d. increase managerial salaries.
ANSWERS b

125. Free cash flows are

a. liquid financial assets for which investments in current businesses are no
longer economically viable.
b. liquid financial assets that for tax purposes must be reinvested in the firm if
not distributed as dividends to shareholders.
c. the profits resulting after a restructured firm has been sold.
d. dividends that have been distributed to shareholders that are taxed as capital
gains.
ANSWERS a

126. Certain regulatory changes (such as antitrust regulation and tax laws)
create incentives or disincentives for diversification that
a. create value.
b. reduce value.
c. are value-neutral.
d. are managerial motives to diversify.
ANSWERS c

127. The curvilinear relationship of corporate performance and diversification

indicates that
a. dominant-business corporate strategies tend to be higher performing than
related constrained or unrelated business strategies.
b. the highest performing business strategy is related constrained
diversification.
c. the less related the businesses acquired, the higher performing the
organization.
d. none of the strategies consistently outperforms the others.
ANSWERS b

128. As the threat of corporate failure increases due to relatedness between a

firm's business units, firms may decide to
a. increase the firm's level of retained resources.
b. diversify into less risky environments.
c. reduce the level of diversity in its investments.
d. pursue unproven product lines.
ANSWERS b

129. Synergy exists when

a. cost savings are realized through improved allocations of financial resources
based on investments inside or outside the firm.
b. two units create value by utilizing market power in their respective
industries.
c. firms utilize constrained related diversification to build an attractive portfolio
of businesses.
d. the value created by business units working together exceeds the value the
units create when working independently.
ANSWERS d

130. The downside of synergy in a diversified firm is

a. increasing independence of businesses.
b. the reduction of activity sharing.
c. excessive focus on risky innovation.
d. the loss of flexibility.
ANSWERS d

131. The Cherrywood Fine Furniture Company finds itself with excess capacity
in its plant and equipment for furniture
manufacturing. This excess capacity will be useful in
a. unrelated diversification.
b. related diversification projects.
c. corporate restructuring.
d. multipoint competition
ANSWERS b

132. Which of the following resources are more likely to create value in the
diversification process?
a. plant and equipment
b. tacit knowledge
c. excess capacity
d. financial resources
ANSWERS b

133. Compared with diversification based on intangible resources,

diversification based on financial resources is
a. less imitable and less likely to create value on a long-term basis.
b. more imitable and less likely to create value on a long-term basis.
c. less imitable and more likely to create value on a long-term basis.
d. more imitable and more likely to create value on a long-term basis.
ANSWERS b

134. Managerial motives to seek diversification include a desire to

a. improve their marketability to other firms.
b. effectively use corporate resources.
c. provide higher returns to corporate stakeholders.
d. increase their compensation.
ANSWERS d

135. /sidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring

Carolina Textiles, a firm in an unrelated
industry. Some members of the board of directors are questioning Crocker's
motives for the acquisition. They argue
that it is not uncommon for CEOs to push for acquisitions because
a. a successful acquisition will increase the CEO's power over the board of
directors.
b. making an acquisition is an easier route to increased firm value than is
improving the firm's core
competencies.
c. higher CEO pay is related to larger organization size.
d. CEOs nearing retirement seek to create empires to continue their legacy.
ANSWERS c

136. During the 1990s top executives of Titanic, /nc., followed a pattern of
aggressive acquisitions and diversification. Now, Titanic is performing poorly
and earning below average returns. Lusitania, a large conglomerate firm, is in
the final stages of purchasing Titanic. Lusitania has announced that it will fire
Titanic's current top executives. The Titanic executives may not be worried
about their impending job loss if they
a. plan to take poison pills.
b. have golden parachutes.
c. have silver handcuffs.
d. have ironclad contracts.
ANSWERS b
 137. Which of the following is NOT a governance mechanism that may limit
managerial tendencies to over-diversify?
a. the market for corporate control
b. the Board of Directors
c. surveillance technologies
d. executive compensation practices
ANSWERS c

138. /n making a decision to diversify, managers should use value-creating

reasons or face the risk that their firms will be acquired and they could lose
their jobs. Which of the following is a value-creating reason to diversify?
a. economies of scope
b. desire for increased compensation
c. reduced managerial risk
d. low performance
ANSWERS a

139. Research suggests that has decreased while has increased possibly due to
the restructuring that took place in the 1990s and early twenty-first
century.
a. forward vertical integration; backward vertical integration
b. backward vertical integration; forward vertical
integration c. related diversification; unrelated
diversification
d. unrelated diversification; related diversification
ANSWERS d

Chapter 7:

MULTIPLE CHOICE

1. According to the chapter Opening Case, despite recent declines both globally and
domestically, M&A opportunities seem strong in sectors such as ________and ________.
a. automobiles; hotels
b. health care; software
c. energy; health care
d. energy; biotechnology
ANS: C

2. According to the chapter Opening Case, cross-border M&A activity ______ in the 1990s
and ___________ in 2008 and 2009.
a. declined; increased
b. declined; declined
c. increased; increased
 d. increased; declined
ANS: D

3. Researchers have found that shareholders of acquired firms often

a. earn above-average returns.
b. earn below-average returns.
c. earn close to zero as a result of the acquisition.
d. are not affected by the acquisition.
ANS: A

4. Company experience and research findings have shown acquisitions typically ____ for the
acquiring firm.
a. result in above-average returns
b. provide approximately average returns
c. result in returns near zero
d. take some time to achieve private synergy, but eventually result in above-average
returns
ANS: C

5. All of the following statements are correct EXCEPT

a. immediately after the announcement of a planned acquisition, the stock price of the
majority of acquiring firms declines.
b. shareholders of acquired firms often earn above-average returns from an
acquisition.
c. the majority of acquisitions increase long-term value for the acquiring firm.
d. shareholders of acquiring firms typically earn returns from the transaction that are
close to zero.
ANS: C

6. Currently, the rationale for making an acquisition includes each of the following EXCEPT
a. To increase market power.
b. To decrease taxes paid by shareholders.
c. To overcome entry barriers.
d. To increase diversification.
ANS: B

7. Claude holds a large number of shares of Bayou Beauty, a regional brewing company
that is considered a likely takeover target by a major international brewer. It would
probably be in Claude’s financial interest if Bayou Beauty’s owners
a. resisted selling at any price.
b. sold the company to the larger brewer.
c. designed a poison pill to discourage a takeover.
d. looked for smaller brewers to acquire instead of selling to the larger brewer.
ANS: B

8. In a merger
a. one firm buys controlling interest in another firm.
b. two firms agree to integrate their operations on a relatively coequal basis.
c. two firms combine to create a third separate entity.
d. one firm breaks into two firms.
 ANS: B

9. There are few true mergers because

a. few firms have complementary resources.
b. integration problems are more severe than in outright acquisitions.
c. one firm usually dominates in terms of market share, size, or value of assets.
d. of managerial resistance. True mergers result in significant managerial-level
layoffs.
ANS: C

10. A(an) ____ occurs when one firm buys a controlling, or 100% interest, in another firm.
a. merger
b. acquisition
c. spin-off
d. restructuring
ANS: B

11. When the target firm does not solicit the acquiring firm’s bid, it is referred to as a(an)
a. stealth raid.
b. adversarial acquisition.
c. hostile takeover.
d. leveraged buyout.
ANS: C

12. Market power is derived primarily from the

a. core competencies of the firm.
b. size of a firm and its resources and capabilities.
c. quality of a firm’s top management team.
d. depth of a firm’s strategy.
ANS: B

13. Toys “R” Us Inc. recently acquired specialty toy retailer FAO Schwarz. This is a _________
acquisition and is most likely intended to _________ .
a. vertical; increase diversification
b. horizontal; increase market power
c. vertical; overcome entry barriers
d. related; increase speed to market
ANS: B

14. A primary reason for a firm to pursue an acquisition is to

a. avoid increased government regulation.
b. achieve greater market power.
c. exit a hyper-competitive market.
d. achieve greater financial returns in the short run.
ANS: B

15. When a firm acquires its supplier, it is engaging in a(an)

a. merger.
b. unrelated acquisition.
 c. hostile takeover.
d. vertical acquisition.
ANS: D

16. The acquisition of Caremark Rx, Inc., (a pharmacy benefits manager) by CVS Corporation
(a retail pharmacy) is an example of a ____________________.
a. backward vertical acquisition.
b. forward vertical acquisition.
c. horizontal acquisition.
d. merger of equals.
ANS: C

17. Horizontal, vertical, and related acquisitions to build market power

a. are likely to undergo regulatory review and analysis by financial markets.
b. are rarely permitted to occur across international borders.
c. typically involve a firm purchasing one of its suppliers or distributors.
d. concentrate on capturing value at more than one stage in the value chain.
ANS: A

18. Baby Doe’s, a designer and manufacturer of children’s clothing, has decided to purchase
a retail chain specializing in children’s clothing. This purchase is a(an)
a. merger.
b. unrelated acquisition.
c. horizontal acquisition.
d. vertical acquisition.
ANS: D

19. Manny Inc. recently completed the purchase of its primary supplier. Manny intends to
begin expanding the market to which the suppliers’ products are sold. This purchase is
a(an)
a. merger.
b. unrelated acquisition.
c. horizontal acquisition.
d. vertical acquisition.
ANS: D

20. Cross-border acquisitions are typically made to

a. increase a firm’s market power.
b. reduce the cost of new product development.
c. take advantage of higher education levels of labor in developed countries.
d. circumvent barriers to entry in another country.
ANS: D

21. The presence of barriers to entry in a particular market will generally make acquisitions
____ as an entry strategy.
a. less likely
b. more likely
c. prohibitive
d. illegal
 ANS: B

22. SpeakEasy, a U.S. software company that specializes in voice-recognition software,

wishes to rapidly enter the growing technical translation software market. This market
is dominated by firms making highly differentiated products. To enter this market,
SpeakEasy would be best served if it considers a/an
a. vertical acquisition of a firm that uses technical translation products.
b. acquisition of a highly related firm in the technical translation market.
c. cross-border merger, preferably with an Indian or Chinese company.
d. strategy of internally developing the technical translation products needed to
compete in this market.
ANS: B

23. Cross-border acquisitions are critical to U.S. firms competing internationally

a. if they are to develop differentiated products for markets served.
b. when market share growth is the focus.
c. where consolidated operations are beneficial.
d. if they wish to overcome entry barriers to international markets.
ANS: D

24. All of the following are correct about cross-border acquisitions EXCEPT
a. global M&A activity declined in the first half of 2009.
b. there was a significant increase in cross-border activity during the 1990s.
c. cross-border acquisitions remain popular as a viable path to firm growth and
strategic competitiveness.
d. global M&A activity grew in the first half of 2009.
ANS: D

25. All of the following are changes taking place in cross-border activity EXCEPT
a. global M&A activity declined in the first half of 2009.
b. there was a significant increase in cross-border activity during the 1990s.
c. North American and European companies are the most active acquirers of
companies outside their domestic markets.
d. global M&A activity grew in the first half of 2009.
ANS: C

26. The majority of new product innovations are copied by rivals within ____ years of
introduction.
a. one
b. three
c. four
d. six
ANS: C

27. Which of the following is NOT one of the primary reasons many pharmaceutical firms
use acquisitions?
a. entering markets quickly.
b. overcoming the high costs of internal product development.
c. improving predictability of returns on investment.
d. extending patent rights on developed pharmaceuticals.
 ANS: D

28. Internal product development is often viewed as

a. carrying a high risk of failure.
b. the only reliable method of generating new products for the firm.
c. a quicker method of product launch than acquisition of another firm.
d. critical to the success of biotech and pharmaceutical firms.
ANS: A

29. According to the chapter Strategic Focus, because of the high levels of uncertainty
associated with ____________a number of pharmaceutical companies use ____________to gain
access to new products.
a. acquisitions; internal product development
b. horizontal acquisitions; unrelated diversification
c. internal product development; acquisitions
d. diversification; internal product development
ANS: C

30. According to the chapter Strategic Focus, all of the following are reasons why Pfizer
concluded that the acquisition of Wyeth was in the best interest of stakeholders EXCEPT
a. Wyeth had been investing heavily in biotechnology and vaccines for about three
decades.
b. Pfizer wanted to gain access to new products that might flow from Wyeth’s
biotechnology-oriented R&D investments.
c. Lipitor was a failure for Pfizer and Wyeth had the potential to contribute a top-
selling drug.
d. Wyeth could contribute to Pfizer’s sales revenue which was expected to decline
when Lipitor came off patent.
ANS: C

31. According to analysts, the core problem of the Pfizer acquisition of Wyeth was that
a. Wyeth had been investing heavily in biotechnology and vaccines for about three
decades.
b. Pfizer wanted to gain access to new products that might flow from Wyeth’s
biotechnology-oriented R&D investments.
c. Lipitor was a failure for Pfizer and Wyeth did not have the potential to contribute a
top-selling drug.
d. it did not deal with the fact that Pfizer was struggling to develop new products in-
house.
ANS: D

32. A manager in your company is proposing the acquisition of Taylor Company, which has
developed a new, innovative product instead of a strategy of developing new products
in-house. All of the following arguments are correct EXCEPT
a. The acquisition of Taylor should be primarily for defensive rather than strategic
reasons.
b. Research suggests that acquisition strategies are a common means of avoiding risky
internal ventures.
c. The outcomes of acquisitions can be estimated more easily and accurately than the
outcomes for an internal product development process.
d. Acquisitions could become a substitute for innovation within your firm.
 ANS: A

33. Entering new markets through acquisitions of companies with new products is not risk-
free, especially if acquisition becomes a substitute for
a. market discipline.
b. innovation.
c. risk analysis.
d. international diversification.
ANS: B

34. Compared to internal product development, acquisitions allow

a. immediate access to innovations in mature product markets.
b. more accurate prediction of return on investment.
c. slower market entry.
d. more effective use of company core competencies.
ANS: B

35. Research has shown that the more ____, the greater is the probability that an acquisition
will be successful.
a. related the acquired and acquiring firms are
b. diverse the resulting portfolio of competencies
c. disparate the corporate cultures
d. involved investment banking firms are in the due diligence process
ANS: A

36. When a firm is overly dependent on one or more products or markets, and the intensity
of rivalry in that market is intense, the firm may wish to ____ by making an acquisition.
a. increase new product speed to market
b. broaden its competitive scope
c. increase its economies of scale
d. overcome entry barriers
ANS: B

37. The fastest and easiest way for a firm to diversity its portfolio of businesses is through
acquisition because
a. of barriers to entry in many industries.
b. it is difficult and time intensive for companies to develop products that differ from
their current product line.
c. innovation in both the acquired and the acquiring firm is enhanced by the exchange
of competencies resulting from acquisition.
d. unrelated acquisitions are usually uncomplicated because the acquired firm is
allowed to continue to function independently as it did before acquisition.
ANS: B

38. Sales of watches among teenagers and 20-somethings are declining rapidly as this age
group uses cellphones, iPods, and other devices to tell time. A company that specializes
in selling inexpensive watches to this age group may wish to consider ____ in order to
develop new products other than watches.
a. unrelated diversification.
b. backward integration.
 c. forward integration.
d. horizontal acquisitions.
ANS: A

39. Each of the following is a rationale for acquisitions EXCEPT

a. achieving greater market power.
b. overcoming significant barriers to entry.
c. increasing speed of market entry.
d. positioning the firm for a tactical competitive move.
ANS: D

40. According to the chapter Strategic Focus, the use of acquisition strategies by Chinese
energy companies was primarily to
a. achieve increased market power.
b. achieve lower risk compared to developing new products.
c. achieve increased diversification.
d. reshape the firm’s competitive scope.
ANS: A

41. As noted in the Strategic Focus, Chinese energy companies took advantage of the
____________ which resulted in _______________ for oil and gas assets.
a. WTO membership of China; opportunities
b. low entry barriers; easy acquisition
c. stable global economic conditions; fewer risks
d. global financial crisis; depressed prices
ANS: D

42. Research shows that about ____ percent of mergers and acquisitions are successful.
a. 20
b. 40
c. 60
d. 80
ANS: A

43. Problems associated with acquisitions include all of the following EXCEPT
a. Managers overly focused on acquisitions.
b. Integration difficulties.
c. Large or extraordinary debt.
d. Excessive time spent on the due diligence process.
ANS: D

44. The factors that lead to poor long-term performance by acquisitions include all of the
following EXCEPT firms
a. with insufficient diversification.
b. having too much debt.
c. being unable to achieve synergy.
d. growing too large.
ANS: A
45. The ____ phase is probably the single most important determinant of shareholder value
creation in mergers and acquisitions.
a. pre-acquisition negotiations
b. pre-acquisition due diligence
c. post-acquisition integration
d. post-acquisition restructuring
ANS: C

46. Without effective due diligence the

a. acquiring firm is likely to overpay for an acquisition.
b. firm may miss its opportunity to buy a well-matched company.
c. acquisition may deteriorate into a hostile takeover, reducing the value creating
potential of the action.
d. firm may be unable to act quickly and decisively in purchasing the target firm.
ANS: A

47. Due diligence includes all of the following activities EXCEPT assessing
a. differences in firm cultures.
b. tax consequences of the acquisition.
c. the level of private synergy between the two firms.
d. financing for intended transaction.
ANS: C

48. Pappelbon Enterprises recently acquired a chain of convenience stores offering both
fuel and food. Pappelbon is now surprised and dismayed to find that the gas pumps have
been poorly maintained and will need to be replaced at considerable expense. Each of
the following statements accurately reflect this EXCEPT
a. Pappelbon did not fully evaluate the target.
b. Pappelbon overpaid.
c. Pappelbon’s due diligence was not fully effective.
d. Pappelbon’s management was overly focused on acquisitions.
ANS: D

49. The use of high levels of debt in acquisitions has contributed to

a. the increase in above-average returns earned by acquiring firms.
b. an increased risk of bankruptcy for acquiring firms.
c. the confidence of the stock market in firms issuing junk bonds.
d. an increase in investments that have long-term payoffs.
ANS: B

50. ____ are unsecured obligations that are not tied to specific assets for collateral.
a. Bearer bonds
b. No-load stocks
c. Penny stocks
d. Junk bonds
ANS: D

51. South Korea’s Kimbo Asiana Group’s decision to divest its Daewoo Engineering &
Construction Co. because its liquidity was being questioned illustrates the acquisition
problem of
 a. integration difficulties.
b. inability to achieve synergy.
c. large or extraordinary debt.
d. managers overly focused on acquisitions.
ANS: C

52. Which of the following statements is FALSE?

a. Synergy resulting from an acquisition generates gains in shareholder wealth
beyond what they could achieve through diversification of their own portfolios.
b. Private synergy results when the combination of two firms yields competencies and
capabilities that could not be achieved by combining with any other firm.
c. Private synergy is easy for competitors to understand and imitate.
d. Private synergy is more likely when the two firms in an acquisition have
complementary assets.
ANS: C

53. Private synergy

a. occurs in most related acquisitions and allows firms to see increased returns.
b. is frequently achieved in conglomerates.
c. is not easy for competitors to understand and imitate.
d. is assessed by managers during the due diligence process.
ANS: C

54. The expenses incurred by firms trying to create synergy through acquisition are called
____ costs.
a. differentiation
b. diversification
c. transaction
d. interaction
ANS: C

55. Transaction costs include all of the following EXCEPT

a. charges from investment bankers who complete due diligence for the acquiring
firm.
b. the loss of key employees following the acquisition.
c. managers’ time spent evaluating target firms.
d. managers’ time spent planning the diversification strategy of the firm.
ANS: D

56. Which of the following is NOT a result of over-diversification?

a. Executives do not have a rich understanding of all of the firm’s business units.
b. Managers emphasize strategic controls rather than financial controls.
c. Firms use acquisition as a substitute for innovation.
d. Managers become short-term in their orientation.
ANS: B

57. Evidence suggests that firms using acquisitions as a substitute for internally developed
innovations
a. are able to offset the loss of research and development competencies by
competencies in other areas.
 b. extend their time-to-market for new product launches.
c. eventually encounter performance problems.
d. can leverage their core competencies across a broader range of products.
ANS: C

58. When managers become overly focused on making acquisitions, it is

a. because the skills of top executives are better used in making acquisitions than they
are in daily organization operations.
b. because it is more fun to do deals than to run the company.
c. due to pressure from major stakeholders to diversify the firm.
d. because acquisitions are a quick way to improve the financial standing of the firm.
ANS: B

59. Acquisitions can become a time sink for top level managers for all the following reasons
EXCEPT
a. the integration process after acquisition requires managerial attention.
b. they must prepare for acquisition negotiations.
c. managers are involved in the search for viable acquisition candidates.
d. only top managers can perform the required due diligence.
ANS: D

60. The leadership of apparel maker Liz Claiborne acquired a number of firms in sportswear
apparel growing from 16 to 36 brands. While its managers were focused on making
acquisitions, industry consolidation was taking place, leaving less room for so many
brands. Additionally, competitors were gaining favor with customers leaving fewer
sales for Claiborne products. This situation was the result of
a. Claiborne managers focusing too much on acquisitions at the expense of managing
their existing businesses.
b. key managers leaving from the acquired firms which left the firms with inferior
management talent.
c. the firm becoming too vertically integrated.
d. the firm becoming too large.
ANS: A

61. One problem with becoming too large is that large firms
a. become excessively diverse and have difficulty focusing on strategic goals.
b. tend to have inadequate financial controls.
c. become attractive takeover targets.
d. usually increase bureaucratic controls.
ANS: D

62. Thomas is an upper-middle level manager for a firm that has been actively involved in
acquisitions over the last 10 years. The firm has grown much larger as a result. Thomas
has been dismayed to find that recently the managerial culture of the firm has been
turning more and more to ____ controls.
a. bureaucratic
b. strategic
c. tactical
d. organic
ANS: A
63. A friendly acquisition
a. raises the price that has to be paid for a firm.
b. enhances the complementarity of the two firms’ assets.
c. facilitates the integration of the acquired and acquiring firms.
d. allows joint ventures to be developed.
ANS: C

64. ____ typically result(s) in the acquiring firm being able to prevent valuable human
resources in the acquired firm from leaving.
a. Financial slack
b. Private synergy
c. Friendly acquisitions
d. High compensation
ANS: C

65. Which of the following is NOT an attribute of a successful acquisition?

a. The acquiring firm has a large amount of financial slack.
b. The acquired and acquiring firms have complementary assets and/or resources.
c. Innovation and R&D investments continue as part of the firm's strategy.
d. Investments in advertising and image building are made quickly.
ANS: D

66. Typically, in a failed acquisition, the organization will

a. restructure.
b. go into bankruptcy.
c. focus on building private synergy.
d. increase integration.
ANS: A

67. Ambrose is a scientist working for a pharmaceutical company. His company was
acquired by a rival pharmaceutical company, and now it is involved in downsizing and
downscoping. Ambrose is concerned about his job security, since he is actively involved
in amateur sports in his community and does not wish to disrupt his current lifestyle.
Ambrose’s job will be most likely to be secure if
a. Ambrose’s research is in a non-core activity.
b. the acquisition has been financed by junk bonds.
c. Ambrose is in a position to take a poison pill.
d. Ambrose is a key employee in the firm’s primary business.
ANS: D

68. Magma, Inc., acquired Vulcan, Inc., three years ago. Effective integration of the two
companies’ culture was never achieved, and the two firms’ assets were not
complementary. It is very likely that Magma will
a. go public through an IPO.
b. review the due diligence information collected before the acquisition.
c. restructure.
d. review its tactical-level strategies.
ANS: C
69. Which of the following is NOT one of the three main restructuring strategies?
a. realigning
b. downsizing
c. downscoping
d. leveraged buyouts
ANS: A

70. ___________ is often used when the acquiring firm paid too high a premium to acquire the
target firm.
a. Management buyout
b. Leveraged buyout
c. Downscoping
d. Downsizing
ANS: D

71. ___________ may be necessary because acquisitions create a situation in which the newly
formed form has duplicate organizational functions such as sales, manufacturing,
distribution, and human resource management.
a. Management buyout
b. Leveraged buyout
c. Downsizing
d. Downscoping
ANS: C

72. _________ refers to a divestiture, spin-off, or some other means of eliminating businesses
that are unrelated to a firm’s core business.
a. Downsizing
b. Hostile takeovers
c. Shakeouts
d. Downscoping
ANS: D

73. Failing to ____________ appropriately will result in too many employees doing the same
work and prevent the new firm from realizing the cost synergies it anticipated.
a. downsize
b. spin-off
c. downscope
d. buyout
ANS: A

74. An investor is analyzing two firms in the same industry. She is looking for long term
performance from her investment. Both firms are basically identical except one firm is
involved in substantial downsizing and the other firm is undertaking aggressive
downscoping. The investor should invest in the
a. downscoping firm because the higher debt load will discipline managers to act in
shareholders’ best interests.
b. downscoping firm because it will be focusing on the firm’s core businesses.
c. downsizing firm because it will be making decisions based on tactical strategies.
d. downsizing firm because it is eliminating employees who are essentially “dead
weight” and are dragging down the firm’s profitability.
 ANS: B

75. Compared with downsizing, ____ has (have) a more positive effect on firm performance.
a. reconfiguring
b. downscoping
c. leveraged buyouts
d. acquisitions
ANS: B

76. A leveraged buyout refers to

a. a firm restructuring itself by selling off unrelated units of the company’s portfolio.
b. a firm pursuing its core competencies by seeking to build a top management team
that comes from a similar background.
c. a restructuring action whereby a party buys all of the assets of a business, financed
largely with debt, and takes the firm private.
d. an action where the management of the firm and/or an external party buy all of the
assets of a business financed largely with equity.
ANS: C

77. The term “leverage” in leveraged buyouts refers to the

a. firm’s increased concentration on the firm’s core competencies.
b. amount of new debt incurred in buying the firm.
c. fact that the employees are purchasing the firm for which they work.
d. process of removing the firm’s stock from public trading.
ANS: B

78. Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT
a. large debt and increased financial risk.
b. failure to invest in R&D.
c. risk-averse management.
d. inefficient operations.
ANS: D

79. After a leveraged buyout, ____ typically occur(s).

a. selling of assets
b. further rounds of acquisitions
c. due diligence
d. private synergy
ANS: A

Chapter 8—International Strategy

MULTIPLE CHOICE
1. According to the Opening Case about entry into China, a common entry strategy for
automobile firms such as General Motors and Volkswagen is
a. exporting.
b. acquisitions.
c. licensing.
d. joint ventures.
ANS: D \

2. The Opening Case indicates that many Chinese firms are doing all of the following EXCEPT
a. forming joint ventures with U.S. and other foreign firms.
b. competing in global markets such as the U.S. and Europe.
c. focusing on the Chinese domestic market only because of the influx volume of foreign
entrants.
d. competing in both manufacturing and service industries.
ANS: C
3. International strategy refers to a(an)
a. action plan pursued by American companies to compete against foreign companies
operating in the United States.
b. strategy through which the firm sells products in markets outside the firm’s domestic
market.
c. political and economic action plan developed by businesses and governments to cope with
global competition.
d. strategy American firms use to dominate international markets.
ANS: B
4. Raymond Vernon states that the classic rationale for international diversification is to
a. pre-emptively dominate world markets before foreign companies can establish dominance.
b. avoid domestic governmental regulation.
c. extend the product’s life cycle.
d. avoid international governmental regulation.
ANS: C

5. Which of the following is NOT a motive for firms to become multinational?

a. to take advantage of potential opportunities to expand the market for the firm’s products.
b. to secure needed resources.
c. to avoid high domestic taxation on corporate income.
d. increasing universal product demand.
ANS: C

6. The increased pressures for global integration of operations have been driven mostly by
a. new low cost entrants.
b. universal product demand.
c. increased levels of joint ventures.
d. the rise of governmental regulation.
ANS: B

7. The benefits of expanding into international markets include each of the following
opportunities EXCEPT
 a. increasing the size of the firm’s potential markets.
b. increased return on investment.
c. gaining a competitive advantage through location.
d. favorable tax concessions and economic incentives by home-country governments.
ANS: D

8. U.S. companies moving into the international market need to be sensitive to the need for local
country or regional responsiveness because of
a. increasing rejection of American culture across much of the world.
b. the sophistication of the international consumer because of the Internet.
c. Consumer needs, political and legal structures, and social norms vary by country
d. the increasing loss of economies of scale.
ANS: C

9. Which of the following is NOT a factor pressuring companies for local responsiveness?
a. differences in employment laws
b. customization due to cultural differences
c. government pressure for firms to use local sources for procurement
d. availability of low labor costs
ANS: D

10. U.S. cola companies entered the global market because of

a. Limited growth opportunities in their domestic market
b. lower labor costs in the emerging markets.
c. economies of scale that offset research and development costs.
d. an increase in the return on investment from their U.S. bottling plants.
ANS: A

11. Moving into international markets is a particularly attractive strategy to firms whose domestic
markets
a. demand a differentiation strategy for success.
b. are limited in opportunities for growth.
c. have developed unfriendly business attitudes toward the industry.
d. have too much regulation.
ANS: B

12. Most R&D intensive industries are international because

a. of the need to make use of scientific talent in many nations.
b. large markets are necessary for earning above-average returns on investments.
c. of mandatory requirements by emerging economies that firms take part in joint ventures or
direct investment in the country in order to sell their products in that country.
d. intellectual property is copied so rapidly that firms must move products into the
international market immediately.
ANS: B

13. The size of an international market affects a firm’s willingness to invest in R&D. Larger
markets usually offer ____ potential returns and pose ____ risk for a firm’s investments.
 a. lower; less
b. lower; more
c. higher; less
d. higher; more
ANS: C

14. Optimal economies of scale in the international market for a standardized product derive from
a. the ability to have production facilities similar to those already used in the home market.
b. effective investment in research and development.
c. access to a low-cost labor force in the host market.
d. rapid advances in new technology with unique demands in each host market.
ANS: A

15. Firms with core competencies that can be exploited across international markets are able to
a. achieve synergies and produce high quality goods at lower costs.
b. enter new markets more quickly.
c. enhance their market image and brand loyalty among local consumers.
d. meet local government requirements more quickly than their international competitors.
ANS: A

16. The location advantages associated with locating facilities in other countries can include all of
the following EXCEPT
a. lower cost labor.
b. access to critical supplies.
c. access to customers.
d. evasion of host country governmental regulations.
ANS: D

17. Factors of production in Porter’s model of international competitive advantage include all of
the following EXCEPT
a. labor.
b. capital.
c. infrastructure.
d. technology.
ANS: D

18. In Porter’s model, a specialized factor of production would include

a. abundant natural resources.
b. a large workforce.
c. an extensive highway transportation system.
d. workers with advanced engineering skills.
ANS: D

19. In Porter’s model, if a country has both ________ and __________ production factors, it is
likely to serve an industry well by spawning strong home-country competitors that can also be
successful global competitors.
a. basic; advanced
 b. advanced; generalized
c. basic; generalized
d. advanced; specialized
ANS: D

20. Japan, due to a lack of undeveloped land, would be an unusual choice of location for a U.S.
cattle company to set up local grazing operations. This limiting factor would be identified in
what part of Porter’s determinants of national advantage?
a. Factors of production
b. Demand conditions
c. Related and supporting industries
d. Firm strategy, structure and rivalry
ANS: A

21. A fundamental reason for a country’s development of advanced and specialized factors of
production is often its
a. lack of basic resources.
b. monetary wealth.
c. small workforce.
d. protective tariffs.
ANS: A

22. The four aspects of Porter’s model of international competitive advantage include all of the
following EXCEPT
a. factors of production.
b. demand conditions.
c. political and economic institutions.
d. related and supporting industries.
ANS: C

23. Which pair of industries would NOT be considered as “related and supporting” under Porter’s
diamond model?
a. Japanese cameras and copiers
b. Italian leather-processing and shoes
c. U.S. computers and software
d. Highway systems and the supply of debt capital
ANS: D

24. In France, fine dressmaking and tailoring have been a tradition predating Queen Marie
Antoinette. Cloth manufacturers, design schools, craft apprenticeship programs, modeling
agencies, and so forth, all exist to supply the clothing industry. This is an example of the ____
in Porter’s model.
a. strategy, structure and rivalry among firms
b. related and supporting industries
c. demand conditions
d. factors of production
ANS: B
25. A large domestic market can provide the country’s industries a chance at dominating the
world market because
a. they have been able to develop economies of scale at home.
b. they have access to abundant and inexpensive factors of production.
c. the related and supporting industries will have been developed.
d. the nation’s culture and educational system will be adapted to producing the labor force
needed for the industry.
ANS: A

26. In addition to the four basic dimensions of Porter’s “diamond” model, ____ may also
contribute to the success or failure of firms.
a. national work ethic
b. educational requirements
c. government policy
d. national pride
ANS: C

27. In the chapter Strategic Focus, Sun Tech’s success has been attributed in part to
a. national work ethic.
b. educational requirements.
c. country conditions such as low-cost manufacturing and strong engineering talents.
d. related and supporting industries.
ANS: C

28. In the chapter Strategic Focus, the success of both Sun Tech in China and Yandex in Russia
was attributed to
a. related and supporting industries.
b. country conditions.
c. firm strategy, structure, and rivalry.
d. related and supporting industries.
ANS: B

29. Under industry structural analysis (chapter 2), ____ rivalry is viewed as detrimental to
profitability. Under the model of national advantage (chapter 8), ____ rivalry is viewed as
____ as it results in competition and surviving firms are able to compete against global rivals.
a. low; low; beneficial
b. low; low; detrimental
c. high; high; beneficial
d. high; high; detrimental
ANS: C

30. All of the following are international corporate-level strategies EXCEPT the ____ strategy.
a. multidomestic
b. universal
c. global
d. transnational
ANS: B
31. International corporate-level strategy focuses on
a. the scope of operations through both product and geographic diversification.
b. competition within each country.
c. economies of scale.
d. sophistication of monitoring and controlling systems.
ANS: A

32. To maximize profitability, the best international corporate-level strategy to use always
a. is the multidomestic strategy.
b. is the transnational strategy
c. is the global strategy.
d. depends on the product or service being offered.
ANS: D

33. A multidomestic corporate-level strategy is one in which

a. a corporation chooses not to compete internationally but where there are a number of
international competitors in the firm’s local marketplace.
b. the firm produces a standardized product, but markets it differently in each country in which
it competes.
c. the firm customizes the product for each country in which it competes.
d. the firm competes in a number of countries, but it is centrally coordinated by the home
office.
ANS: C

34. A multidomestic corporate-level strategy has ____ need for global integration and ____ need
for local market responsiveness.
a. low; low
b. low; high
c. high; low
d. high; high
ANS: B

35. A global corporate-level strategy differs from a multidomestic corporate-level strategy in that
in a global strategy,
a. competitive strategy is dictated by the home office.
b. competitive strategy is decentralized and controlled by individual strategic business units.
c. products are customized to meet the individual needs of each country.
d. the firm sells in multiple countries.
ANS: A

36. A global corporate-level strategy emphasizes

a. differentiated products.
b. economies of scale.
c. sensitivity to local product preferences.
d. decentralizing control and limited monitoring.
ANS: B
37. A global strategy
a. is easy to manage because of common operating decisions across borders.
b. achieves efficient operations without sharing resources across country boundaries.
c. increases risk because decision-making is centralized at the home office.
d. lacks responsiveness to local markets.
ANS: D

38. A global corporate-level strategy assumes

a. efficiency and customization can be achieved simultaneously.
b. a rise in income levels across the world.
c. increasing levels of cultural differences among nations.
d. more standardization of products across country markets.
ANS: D

39. A transnational corporate-level strategy seeks to achieve

a. customization for the local market.
b. economies of scale and centralized strategic control.
c. global efficiency and local responsiveness.
d. standardization of products across countries.
ANS: C

40. The transnational strategy is becoming increasingly necessary to compete in international

markets for all the following reasons EXCEPT
a. the growing number of competitors heightens the requirements to keep costs down.
b. the desire for specialized products to meet consumers’ needs.
c. differences in culture and institutional environments also require firms to adapt their
products and approaches to local environments.
d. it is easy to use.
ANS: D

41. Increasingly, customers worldwide are demanding emphasis on local requirements and
companies are needing efficiency as global competition increases. This has triggered an
increase in the number of firms using the ____ strategy.
a. multidomestic
b. transnational
c. universal
d. global
ANS: B

42. Terrorist attacks and the war in Iraq

a. encourage firms to take truly global corporate strategies in order to offset losses in one
region with gains in another.
b. are considered a “cost of doing business” by international firms.
c. have not decreased the level of international investment in any region except those involved
in active wars.
d. have increased the liability of foreignness for firms.
ANS: D
43. Disney suffered lawsuits in France at Disneyland Paris as a result of the lack of fit between its
transferred personnel policies and the French employees charged to enact them. This is an
example of
a. the effects of regionalization.
b. the risks of a multidomestic strategy.
c. the liability of foreignness.
d. the effect of demand conditions.
ANS: C

44. Research shows that ____ strategies are not as prevalent as once thought, and that they are
very difficult to implement. In fact, these strategies are becoming relatively less attractive to
firms than other approaches to international competitiveness. To some extent, this is a result
of the liability of foreignness.
a. transnational
b. multidomestic
c. global
d. regional
ANS: C

45. International associations such as the European Union, Organization of American States, and
the North American Free Trade Association, encourage
a. global strategies.
b. domestication.
c. regional strategies.
d. nationalization.
ANS: C

46. A firm may narrow its focus to a specific region of the world
a. because that market is most different from its domestic market and so represents an
unexploited “greenfield opportunity” for its products.
b. in order to obtain greater economies of scale.
c. So that it can better understand the cultures, legal and social norms, and other factors that
are important for effective competition in those markets.
d. to take advantage of limited protections of intellectual property so that it can manufacture
innovative products without restrictions.
ANS: C

47. Skaredykat Inc. is considering initial expansion beyond its home market. The firm has
decided not to enter markets that differ greatly from its home market, instead expanding
within the twelve-nation region that includes its home country.
a. The firm is not engaging in international trade.
b. The firm is using a regional approach to international expansion.
c. The firm will not be able understand the cultures, legal and social norms of this market.
d. Skaredykat is a scaredy-cat.
ANS: B
48. Most firms enter international markets sequentially, introducing their ____ first.
a. most innovative products
b. largest and strongest lines of business
c. most generic products, which will be more likely to generate universal product demand,
d. products customized to the region
ANS: B

49. A U.S. manufacturer of adaptive devices for persons with disabilities is considering
expanding internationally. It is a fairly small company, but it is looking for growth
opportunities. This company should primarily consider the option of
a. licensing.
b. exporting.
c. a strategic alliance.
d. a greenfield venture.
ANS: B

50. The choices that a firm has for entering the international market include all of the following
EXCEPT
a. exporting.
b. licensing.
c. leasing.
d. acquisition.
ANS: C

51. The problems associated with exporting include

a. merging corporate cultures.
b. a partner’s incompatibility.
c. difficulty in negotiating relationships.
d. high transportation costs.
ANS: D

52. Which of the following is NOT a disadvantage associated with exporting?

a. potential loss of proprietary technologies
b. high transportation costs
c. loss of control over distribution activities
d. tariffs imposed by local governments
ANS: A

53. A licensing agreement

a. results in two firms agreeing to share the risks and the resources of a new venture.
b. is best way to protect proprietary technology from future competitors.
c. allows a foreign firm to purchase the rights to manufacture and sell a firm’s products within
a host country.
d. can be greatly impacted by currency exchange rate fluctuations.
ANS: C
54. Which of the following is NOT a typical disadvantage of licensing?
a. little control over the marketing of the products
b. licensees may develop a competitive product after the license expires
c. lower potential returns than the use of exporting or strategic alliances
d. incompatibility of the licensing partners
ANS: D

55. Firms in with emerging economies may want to form strategic alliances with firms from
developing countries because
a. assets from the investing foreign company can be nationalized later.
b. disruption to the host-country’s economy will be minimal.
c. there will be less cultural conflict than in licensing arrangements.
d. it gains access to the foreign firm’s sophisticated technology.
ANS: D

56. One of the primary reasons for failure of cross-border strategic alliances is
a. the incompatibility of the partners.
b. conflict between legal and business systems.
c. security concerns and terrorism.
d. high debt financing.
ANS: A

57. If conflict in a strategic alliance or joint venture is not manageable, a(n) _______may be a
better option.
a. licensing strategy
b. exporting strategy
c. acquisition
d. new wholly owned subsidiary
ANS: C

58. Which of the following is NOT a disadvantage of international acquisitions?

a. They are very expensive and often require debt financing.
b. The acquiring firm has to deal with the regulatory requirements of a host country.
c. Merging the acquired and acquiring firm is difficult.
d. It is the slowest way to enter a new market.
ANS: D

59. The means of entry into international markets that offers the greatest control is
a. licensing.
b. acquisitions.
c. joint ventures.
d. greenfield ventures.
ANS: D

60. Which of the following is an advantage associated with greenfield ventures?

a. governmental support and subsidies in the host country
b. the lower cost of this type of venture
 c. the level of control over the firm’s operations
d. the lower level of risks involved
ANS: C

61. If intellectual property rights in an emerging economy are not well-protected, the number of
firms in the industry is rapidly growing, and the need for global integration is high, ____ is
the preferred entry mode.
a. exporting
b. strategic alliance
c. a joint venture or wholly-owned subsidiary
d. licensing
ANS: C

62. The decision of what entry mode to use is primarily based on all of the following factors
EXCEPT
a. the industry’s competitive conditions.
b. the country’s situation and government policies.
c. the worldwide economic situation.
d. the firm’s unique set of resources, capabilities, and core competencies.
ANS: C

63. When a firm INITIALLY becomes internationally diversified, its returns

a. remain stable.
b. decrease.
c. become more variable.
d. increase.
ANS: B

64. Which of the following is NOT one of the advantages associated with international
diversification?
a. reduction of overall risk
b. ease of coordination
c. economies of scale
d. stabilization of returns
ANS: B

65. A nation’s competitiveness depends on the capacity of its industry to ____ and thereby
maintain its competitive advantage.
a. diversify internationally
b. have access to critical resources
c. protect its proprietary capabilities
d. innovate
ANS: D

66. Internationally diversified firms

a. earn greater returns on their innovations through larger or more numerous markets.
b. are more likely to produce below-average returns for investors in the long run.
 c. may need to decrease international activities when domestic profits are poor.
d. are generally unable to achieve high levels of synergy because of differences in cultures.
ANS: A

67. Bunyan Heavy Equipment, a U.S. firm, is investigating expanding into Russia using a
greenfield venture. The committee researching this project has delivered a negative report.
The MAIN concern of the committee is probably
a. loss of intellectual property due to Russian piracy.
b. the fluctuation in the value of the ruble.
c. the numerous and conflicting legal authorities in Russia.
d. Russia’s recent actions to gain state control of private firms’ assets.
ANS: D

68. Terrorism creates an economic risk for firms which

a. reduces the amount of investment foreign companies will make in a country perceived to be
terror-prone.
b. is created by governmental bans on doing business with terrorist regimes.
c. is offset by the above-average returns for firms which have learned how to operate in such
an environment.
d. is absorbed by firms which are highly geographically diversified and which operate in both
secure and insecure locations.
ANS: A

69. Arkadelphia Polymers, Inc., earns 60% of its revenue from exports to Europe and Asia. The
CEO of the company would be
a. concerned if the value of the dollar strengthened.
b. pleased if the value of the dollar strengthened.
c. unconcerned about the fluctuation in the value of the dollar because the company is widely
diversified geographically.
d. likely to consider moving to international strategic alliances or acquisitions if the value of
the dollar fell and remained low.
ANS: A

70. According to the chapter Strategic Focus, counterfeit products are especially problematic for
firms that have significant profit margins associated with all of the following EXCEPT
a. software makers.
b. music producers.
c. branded products.
d. generic drugs.
ANS: D

71. According to the chapter Strategic Focus, all of the following are correct about counterfeiting
EXCEPT
a. Many counterfeit products are sold on the Internet.
b. Some counterfeit products could cause fatalities.
c. Legal challenges to counterfeiting are generally successful in emerging economies such as
China and Russia
d. China is one of the main sources of counterfeit products.
 ANS: C

72. The positive results associated with increasing international diversification have been shown
to
a. continue as the level of international diversification increases.
b. level off and become negative as diversification increases past some point.
c. become negative quickly.
d. be centered in only one or two industries.
ANS: B

73. All of the following complicate the implementation of an international diversification strategy
EXCEPT
a. widespread multilingualism.
b. increased costs of coordination between business units.
c. cultural diversity.
d. logistical costs.
ANS: A

LINKTEN EKLENENLER

74. Which of the following is NOT an incentive for firms to become multinational?
a.to gain access to consumers in emerging markets
b. to gain easier access to raw materials
c. to avoid high domestic taxation on corporate income
d. opportunities to integrate operations on a global scale

ANSWER: c

75. Working in multiple international markets can provide firms with …………perhap seven
in terms of
a. location advantages; larger markets.
b. research and development activities; larger markets.
c. new learning opportunities; research and development activities.
d. economies of scale and learning; larger markets.

ANSWER:c

76. Firms able to standarize the processes used to produce, sell, distribute, and service their
products across country borders enhance their ability to
a. learn how to continuously reduce costs while increase the value of their products.
b. increase investment inrese arch and development.
c. Access to alow-cost labor force in the host market.
d. mitigate cultural differences.

ANSWER:a

77.All of the following are correct about what managers should know about firms based in a
country with a national competitive advantage EXCEPT
a. success is not guaranteed as the firm implements its chosen international business-level
strategy.
b.the actual strategic choices made are most compelling reasons for success or failure.
c. success is guaranteed as the firm implements its chosen international business-level
strategy.
d. the determinants of national competitive advantage provide a foundation for a firm's
competitive advantages.

ANSWER:c

78. Effectively implementing the international corporate-level strategy of ten produces higher
performance than does implementing either the_______or_________strategies.
a. multidomestic; global; transnational
b. global;multidomestic;transnational
c. cost leadership; differentation; focus
d. transnational; multidomestic; global

ANSWER:d

79.In China, Starbucks is standardizing its operations while simultaneously decentralizing

some decision-making responsibility to local levels to meet customers tastes. Starbucks is
following the corporate-level strategy
a. transnational
b. global
c. differentiation
d. multidomestic international

ANSWER: a

80. The two important environmental trends that influence a firm's choice and use of
international corporate- level strategies are_________and
a. culture; geographicscope.
b. cost; quality.
c. regionalization; globalization.
d. liability of foreignness; regionalization.

ANSWER:d

81. ………….is the set of costs associated with unfamiliar operating environments;
economic, administrative and cultural differences; and the challenges of coordination over
distances.
a. Transnational risk
b. Regionalization
c. Liability of foreignness
d. International risk

ANSWER: c

82. Associations such as the European Union, Organization of American States, and the North
American Free Trade Association, encourage
a. global strategies.
b. domestication.
c. regional strategies.
d. nationalization.

ANSWER: c
83. All of the following are reasons why firms use international strategic alliances EXCEPT
 a. sharing of risks and resources.
b. alliances facilitate the development of new capabilities.
c. learning new competencies particularly those related to technology.
d. strategic alliances are easy to manage.

ANSWER:d

84. An international diversification strategy is one in which a firm

a. expands into near by markets.
b. expands into a potentially large number of geographic locations and markets.
c. expands into one or a few markets.
d. acquires a firm in a foreign country.

ANSWER:b

Chapter 9—Cooperative Strategy

MULTIPLE CHOICE

1. According to the Opening Case, IBM once teamed with longtime rival Sun Microsystems to
produce software in competition with Hewlett-Packard. This is an example of a(an)
a. equity-based vertical complementary alliance.
b. equity-based horizontal complementary alliance
c. nonequity-based vertical complementary alliance.
d. nonequity-based horizontal complementary alliance.
ANS: C

2. The main reason that IBM is involved in multiple alliances is to

a. consolidate a fragmented industry and thus gain market power.
b. leverage its core competencies and grow and improve its performance.
c. capture the intangible resources of competitors in order to gain a competitive advantage
against them in the future.
d. avoid government anti-trust regulations which would apply if IBM were to acquire the
firms it allies itself with.
ANS: B

3. A cooperative strategy
a. is an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a competitive advantage.
b. is a strategy in which firms work together to achieve a shared objective.
c. is an integrated and coordinated set of commitments and actions the firm uses to gain a
competitive advantage by exploiting core competencies in specific product markets.
d. specifies actions a firm takes to gain a competitive advantage by selecting and managing a
group of different businesses competing in different product markets.
ANS: B

NOT: Strategy (chapter 1, pg. 4) is "an integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain a competitive advantage." A business-
 level strategy is "an integrated and coordinated set of commitments and actions the firm uses
to gain a competitive advantage by exploiting core competencies in specific product markets"
(chapter 4, p. 100). A corporate-level strategy "specifies actions a firm takes to gain a
competitive advantage by selecting and managing a group of different businesses competing
in different product markets" (chapter 6, pg. 158).

4. A strategy in which firms work together to achieve a shared objective is a

a. functional-level strategy.
b. business-level strategy.
c. corporate-level strategy.
d. cooperative strategy.
ANS: D

5. When using cooperative strategies, a firms most frequently develop strategic alliances that
a. enhance the firm’s reputation in the marketplace.
b. are long-lived.
c. will reduce the firm’s political risk.
d. create a competitive advantage.
ANS: D

6. The use of strategic alliances

a. is unlikely to yield success if partnering firms are headquartered in the same country.
b. may be too restrictive to facilitate entry into new markets.
c. usually increases the investment necessary to introduce new products.
d. is more frequent than other types of cooperative strategies.
ANS: D

7. In a(an) ____, two or more firms create a legally independent company to share some of their
resources and capabilities to develop a competitive advantage.
a. equality-based strategic alliance
b. non-equity strategic alliance
c. joint venture
d. equity strategic alliance
ANS: C

8. A competitive advantage that is developed through a cooperative strategy is called a

collaborative or a ____ advantage.
a. economic
b. collusive
c. alliance
d. relational
ANS: D

9. Which type of strategic alliance is best at passing tacit knowledge between firms?
a. primary cooperative strategic alliances
b. joint ventures
c. equity strategic alliances
d. nonequity strategic alliances
 ANS: B

10. Moon Flower cosmetics company executives are aware that their Asian customer base is
interested in advanced skin care treatments beyond Moon Flower’s traditional herbal and
organic compounds. Moon Flower and a large American chemical company are in
discussions to create a 50-50 partnership in a new firm which would create skin care
treatments based on innovative chemical formulations which would be marketed both in Asia
and in the U.S. Beyond being a cross-border alliance, this partnership can be called a(an)
a. nonequity strategic alliance.
b. joint venture.
c. horizontal complementary alliance.
d. equity strategic alliance.
ANS: B

11. Hewlett-Packard licenses some of its intellectual property through strategic alliances. Which
of the following is correct about this relationship?
a. This is a joint venture because in licensing arrangements, a new company is created.
b. This is an equity strategic alliance because licensing does not involve the creation of a new
company, but does involve an equity commitment.
c. The firms risk charges of collusion because most licensing relationships between
competitors involve explicit collusion.
d. This is a nonequity strategic alliance with Hewlett-Packard leveraging its unique
capabilities.
ANS: D

12. BPM Corp. is a manufacturer of radar systems for regional-sized jet aircraft. The company
has announced plans to enter into a joint venture with J3 Composites, a producer of advanced
composite materials. The announced venture will produce a new, combined product
consisting of the radar unit and protective composite cover. Which of the following is an
accurate interpretation of this announcement?
a. BPM will own more than 50 percent of the venture and a new company will be formed.
b. J3 will own more than 50 percent of the venture and a new company will be formed.
c. BPM and J3 will both own 50 percent of the venture and a new company will be formed.
d. BPM and J3 will both own 50 percent of the venture but no new company will be formed.
ANS: C

13. A strategic alliance in which the partners own different percentages of the new company they
have formed is called a(an)
a. equity strategic alliance.
b. joint venture.
c. nonequity strategic alliance.
d. cooperative arrangement.
ANS: A

14. Meredith Inc. is a manufacturer of art supplies. The company has announced plans to enter
into an equity strategic alliance with JaZz Paper to develop a line of specialty papers for use
with a line of specialty paints Meredith manufactures. Which of the following would be the
accurate interpretation of this announcement?
 a. Meredith will own a majority equity stake in the new venture.
b. JaZz will own a majority equity stake in the new venture.
c. Meredith or JaZz will own an equal equity stake in the new venture.
d. Either Meredith or JaZz will own a majority equity stake, but we do not know which one
based on the announcement.
ANS: D

15. China allows U.S. companies to ally with Chinese firms by purchasing minority ownership
positions in the Chinese firms. These relationships are called
a. joint ventures.
b. network strategies.
c. equity strategic alliances.
d. nonequity strategic alliances.
ANS: C

16. A nonequity strategic alliance exists when

a. two firms join together to create a new company.
b. two or more firms have a contractual relationship to share resources and capabilities.
c. two partners in an alliance own unequal shares in the combined entity.
d. the partners agree to sell bonds instead of stock in order to finance a new venture.
ANS: B

17. Burgess Corp. manufactures a line of heavy construction equipment. The company has
announced an alliance with FS Electronics whereby FS will supply Burgess with advanced
GPS navigation and guidance systems. These systems will be an option on all bulldozers,
dump trucks, and road graders Burgess produces. What type of alliance is this?
a. Joint venture
b. Equity strategic alliance
c. Nonequity strategic alliance
d. Competition reduction alliance
ANS: C

18. Firms participate in strategic alliances for all the following reasons EXCEPT to
a. reduce competition.
b. enhance their competitive capabilities.
c. gain access to resources.
d. retain tight control over intangible core competencies.
ANS: D

19. The global airline industry is one in which

a. national political interests prevent airlines from making international alliances.
b. the fast-cycle nature of the industry mandates heavy use of alliances.
c. most alliances tend to be vertical complementary.
d. alliance versus alliance competition dominates firm versus firm competition.
ANS: D
20. Which of the following firms would be most likely to enter an alliance in order to maintain
market stability?
a. large home appliance manufacturing
b. electronic consumer goods manufacturing
c. natural gas utility
d. clothing retailing
ANS: C

21. A relatively young firm has developed a method of transferring photographic images of
surface textures onto any type of hard surface. This potentially has a huge market in the
home-decorating field as well as any hard surface that is typically painted, such as car bodies.
The type of alliance partner this firm would be searching for would be one with
a. low-cost labor production facilities in another country.
b. similar products who could help the firm establish economies of scale.
c. access to franchises in new markets.
d. excess resources for investing.
ANS: D

22. A state-wide alliance of independent hospitals has formed in order to do group purchasing of
medical supplies. Group purchasing allows the hospital alliance to negotiate lower prices with
suppliers because of the large quantity of materials ordered. This is an example of the
advantage of ____ resulting from an alliance.
a. explicit collusion
b. economies of scale
c. opportunistic behavior
d. distribution opportunities
ANS: B

23. Firms in a standard-cycle market may form alliances in order to

a. take advantage of opportunities in emerging market countries.
b. more quickly distribute new products.
c. capture economies of scale.
d. share risky R&D investments.
ANS: C

24. Firms in ____ markets cooperate to pool resources and gain market power.
a. slow-cycle
b. standard-cycle
c. fast-cycle
d. hyper-cycle
ANS: B

25. The two types of complementary strategic alliances are

a. vertical and horizontal.
b. macro and micro.
c. outsourcing and insourcing.
d. network and complementary.
 ANS: A

26. All of the following are business-level cooperative strategic alliances EXCEPT
a. synergistic strategic alliances.
b. uncertainty reduction strategic alliances.
c. complementary strategic alliances.
d. competition response strategic alliances.
ANS: A

27. A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and
vineyard growing rare strains of fruit. This is a(an) ____ strategy.
a. vertical complementary
b. horizontal complementary
c. uncertainty reduction
d. network
ANS: A

28. ____ are LEAST likely to involve potential or current competitors.

a. Mutual forbearance strategies
b. Tacit collusion strategies
c. Horizontal complementary strategic alliances
d. Vertical complementary strategic alliances
ANS: D

29. Smith Commercial Lighting, Inc., which sells lighting for factories and businesses, has
entered into an alliance with Revelation Lighting, Inc., a retailer of home decor lighting, in
order to expand into the trend of using industrial-type lighting in non-traditional style homes.
Smith has invested 40% and Revelation has invested 60% into the new operation. This is an
example of a(an)
a. joint venture.
b. nonequity alliance.
c. horizontal complementary strategic alliance.
d. vertical complementary strategic alliance.
ANS: C

30. The chapter Strategic Focus showed that relationships __________ between
________alliance partners because of the recent economic downturn.
a. improved; vertical
b. became more strained; horizontal
c. improved; horizontal
d. became more strained; vertical
ANS: D

31. Reduction of competition can be accomplished through all of the following EXCEPT
a. predatory alliances.
b. explicit collusion.
c. tacit collusion.
 d. mutual forbearance.
ANS: A

32. The three main luxury hotels in a major tourist destination keep very close track of their
competitors’ room pricing, restaurant offerings, tour packages, and special services, such as
airport transportation and spa privileges. When one hotel makes adjustments in prices or
offerings, the other hotels follow suit. It is possible that these hotels are
a. engaging in tacit collusion.
b. following uncertainty reducing strategies.
c. monitoring business competitors for opportunistic behaviors.
d. following a competitive response strategy.
ANS: A
33. Mutual forbearance is
a. illegal in the U.S.
b. a type of competition reducing strategy.
c. a variety of risk-sharing by firms in highly fragmented industries.
d. exercised when alliance partners refrain from opportunistic behaviors.
ANS: B

34. The fact that the prices consumers pay for branded breakfast cereals are above the prices that
would exist if there were true competition suggests that the cereal manufacturers are engaging
in
a. excessive cooperation.
b. joint ventures.
c. tacit collusion.
d. horizontal strategic alliances.
ANS: C

35. In the U.S., cooperative strategies to reduce competition may result in ____ if they are
explicit.
a. increased tax liabilities
b. litigation
c. government takeover of the firms
d. dissolution of the firm
ANS: B

36. In free market economies, ____ must decide how rivals can collaborate with their competitors
without violating established regulations.
a. the invisible hand
b. the government
c. consumers
d. the business community
ANS: B

37. The risks of being accused of collusion are MOST likely under what type of alliance?
a. equity-based vertical complementary alliance.
b. equity-based horizontal complementary alliance
c. nonequity-based vertical complementary alliance.
 d. nonequity-based horizontal complementary alliance.
ANS: D

38. Why are alliances in the airline industry unstable?

a. Unstable industries make for unstable alliances.
b. The potential for firms to take opportunistic actions is too widespread.
c. The industry is declining and profits are not sufficient to divide among alliance partners.
d. The alliances require cooperation among firms that must also compete with one another.
ANS: D

39. A ____ cooperative strategy helps the firm diversify in terms of products offered, markets
served, or both.
a. corporate-level
b. business-level
c. national-level
d. industry-level
ANS: A

40. Of the various business-level strategic alliances, ____ alliances have the most probability of
creating sustainable competitive advantage, and ____ have the lowest.
a. horizontal complementary, vertical complementary
b. vertical complementary, competition reducing
c. competition reducing, horizontal complementary
d. uncertainty reducing, competition reducing
ANS: B

41. ____ strategic alliances have stronger focus on value creation than do ____ alliances.
a. competition reducing, complementary
b. complementary, competition reducing
c. uncertainty reducing, complementary
d. collusive, uncertainty reducing
ANS: B

42. For the purpose of diversification, a corporate-level cooperative strategy may be preferable to
a merger or acquisition for all the following reasons EXCEPT
a. a host nation may forbid a merger or acquisition.
b. opportunistic behaviors are less likely.
c. cooperative strategies require fewer resources.
d. cooperative strategies allow greater flexibility in diversifying the firm’s portfolio .
ANS: B

43. Disney’s ABC and Google’s YouTube formed an alliance that will allow Disney to advertise
movies and products by showing short clips and selling ads. This type of alliance is classified
as a(n)________ alliance.
a. synergistic
b. opportunistic
c. horizontal
d. diversifying
 ANS: A

44. Firms entering into synergistic strategic alliances expect to attain

a. technological complexity.
b. economies of scope.
c. monopolistic market power.
d. learning curve efficiencies.
ANS: B

45. Cisco developed partnership agreements with Accenture Ltd., and India-based Tata
Consulting Services Ltd. to help market Cisco’s products to businesses around the world.
This is an example of a
a. joint venture.
b. synergistic alliance.
c. horizontal complementary alliance.
d. dynamic alliance network.
ANS: B

46. ____ are sometimes used to consolidate and spin off poor performing businesses and to allow
a company to focus on its core businesses, thus lowering the firm’s level of diversification.
a. Joint ventures
b. Synergistic alliances
c. Horizontal complementary alliances
d. Dynamic alliance networks
ANS: A

47. The primary responsibility of the franchisor, such as McDonald’s or Hilton International is to
a. learn about the brand and technology from the franchisee.
b. test the franchisee for potential future acquisition.
c. transfer to the franchisee knowledge and skills needed to compete at the local level.
d. provide feedback to the franchisee regarding how the franchisor could become more
effective and efficient.
ANS: C

48. Which of the following statements is FALSE?

a. Franchising is most appropriate in fragmented industries.
b. Franchising provides corporate growth with less risk than do mergers and acquisitions.
c. Successful franchising allows transfer of knowledge and skills from the franchisor to the
franchisee.
d. Franchising agreements require more trust between firms than do other cooperative
strategies.
ANS: D

49. In the franchising strategy, the most important competitive advantage for the franchisee is the
franchisor’s
a. brand name.
b. capital resources.
c. access to a consolidated market.
d. geographic locations.
 ANS: A

50. A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner
of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting
in franchising the Pet Resort brand. The Atlanta businessperson’s goal is to
a. get venture capital from Pet Resort.
b. gain access to Pet Resort’s tacit knowledge.
c. collude with Pet Resort to diminish
competition in the kennel industry in Atlanta.
d. join in a vertical complementary alliance with
Pet Resort.
ANS: B

51. McDonald’s, Hilton International, and Subway all heavily rely on the ____ strategy.
a. transnational
b. network cooperative
c. cross-border alliances
d. franchising cooperative
ANS: D

52. FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing
cooperative alliance with another firm. The expected synergies never were achieved, and
FrameCo lost most of its investment. The top management of FrameCo should
a. avoid future cooperative alliances because they lack the skills needed to manage them
successfully.
b. enter into future cooperative alliances only if the alliance is closely monitored by a third
party to prevent opportunistic behavior by the alliance partner.
c. realize that most cooperative alliances fail and that it should ally itself only with an
experienced alliance partner in the future.
d. internalize the knowledge about the successes and failures of this alliance so FrameCo can
learn from the experience.
ANS: D

53. The 20-year sporting event partnership between IMG Worldwide and China Central
Television which serves to broaden IMGs international reach would be characterized as a(an)
a. collusive tactic.
b. merger.
c. cross-border strategic alliance.
d. international acquisition.
ANS: C

54. Legitimately, a firm may pursue an international strategic alliance for all of the following
reasons EXCEPT
a. to enhance the compensation packages of top managers.
b. to leverage core competencies in new markets.
c. to operate within government restrictions in the local country.
d. to escape limited domestic growth opportunities.
ANS: A
55. In some countries, the only legal way for foreign firms to invest in the country is through
a. silent partner agreements.
b. franchising.
c. wholly-owned subsidiaries.
d. partnership with a local firm.
ANS: D
56. In a cross-border alliance, the local partner is often a useful source of information about
a. sources of capital.
b. the strengths of the foreign firm’s technology.
c. market synergies.
d. long-term planning.
ANS: A

57. In general, cross-border alliances are more ____ and ____ than domestic alliances, especially
in emerging markets.
a. uncertainty reducing, diversifying
b. complex, risky
c. highly leveraged, tightly monitored
d. flexible, trust-based
ANS: B

58. Stable alliance networks will most often

a. be used to enhance a firm’s internal operations.
b. appear in mature industries where demand is relatively constant and predictable.
c. emerge in industries with short product life cycles.
d. emerge in declining industries as a way to increase process innovations.
ANS: B

59. Dynamic alliance networks work best in industries

a. characterized by frequent product innovations and short product life cycles.
b. that are mature and stable in nature.
c. where the coordination of product and global diversity is critical.
d. that are characterized by predictable market cycles and demand.
ANS: A

60. Which of the following statements is TRUE?

a. Most cooperative strategies are successful if the basic agreements are well written and
include appropriate monitoring strategies.
b. As many as 50% of cooperative strategies fail.
c. Opportunistic behaviors are usually focused on gaining the use of the partner’s
manufacturing and financial resources.
d. Problems with international cooperative strategies usually concern financial-system
differences between the partners.
ANS: B

61. Which of the following is NOT a risk for firms engaged in cooperative strategies?
a. misrepresentation of a partner’s competencies
 b. partner acts opportunistically
c. insufficient variation in firms’ core competencies
d. failure of partners to make complementary resources available to the partnership
ANS: C

62. Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a

cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved
crops for the Asian market. The risks that Greentech should consider before entering this
alliance include all of the following EXCEPT:
a. Has AsiaFoods accurately represented its competencies?
b. Will AsiaFoods make alliance-specific investments?
c. Can Greentech expect opportunistic behavior from AsiaFoods?
d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods
alliance?
ANS: D

63. The chapter Strategic Focus about the TNK-BP joint venture between three Russian oil
tycoons and British Petroleum illustrated which of the following risks of cooperative
strategies?
a. Having a true perception of the partner’s trustworthiness.
b. Failing to make available to its partners the resources and capabilities that it committed to
the cooperative strategy.
c. The partner misrepresenting competencies it can bring to the partnership.
d. Opportunistic behavior and failure to make investments that are specific to the alliance.
ANS: D

64. DDD Partners, a U.S. business consulting firm is considering a cooperative alliance with an
Indian business consulting firm that has a wide practice in the Middle East and Asia. DDD
has some European clients, but it sees the Middle East and Asia as growth opportunities. It
hopes to learn how to navigate the different cultures and business practices in this part of the
world from its alliance with the Indian firm. DDD’s greatest risk here is that the Indian firm
will
a. insist on excessively close monitoring of DDD’s actions.
b. gain access to DDD’s core competencies and use them to become a future competitor.
c. not fully share its intangible resources.
d. not make equivalent investments to the alliance as does DDD.
ANS: C

65. In practice, the cost minimization strategy can be more expensive than the opportunity
maximization strategy. Which of the following is a way in which the cost minimization
strategy is less expensive than the opportunity minimization strategy?
a. the loss of unexpected opportunities
b. the cost of extensive monitoring mechanisms
c. the costs of writing detailed contracts
d. the prevention of opportunistic behavior by the partner(s)
ANS: D

66. The two basic approaches to successfully manage cooperative strategic alliances involve ____
 and ____.
a. cost minimization, opportunity maximization
b. monitoring systems, multiple management approaches
c. contractual systems, financial systems
d. equity approaches, nonequity approaches
ANS: A

67. Offshore Oil Exploration Partners (OOEP) has entered into a cooperative strategy with Malay
Petroleum. The resulting documents are long, formal, and detailed. They specify detailed
responsibilities of each partner and include methods of monitoring accounting and technical
procedures. OOEP and Malay Petroleum are using the ____ management approach.
a. cost minimization
b. trust but verify
c. opportunity maximization
d. pragmatic realism
ANS: A

68. One disadvantage of developing effective monitoring systems to manage a strategic alliance
is that
a. firms will have to accept greater risks.
b. trust will be eroded.
c. spontaneous opportunities are minimized.
d. power coalitions will still develop.
ANS: C

69. In managing cooperative strategies, research indicates that ____ can be a capability that is
valuable, rare, imperfectly imitable, and often nonsubstitutable giving these firms a
competitive advantage.
a. extensive capitalization
b. stability
c. trustworthiness
d. Internet competency
ANS: C

70. To increase the likelihood of success, ____ approach(es) should be used to manage
cooperative strategies.
a. the cost minimization
b. the opportunity maximization
c. both the cost minimization and opportunity maximization
d. none of the these
ANS: C

71. The opportunity maximization approach is more difficult to establish in international

relationships than in domestic relationships because of differences in all EXCEPT
a. laws.
b. culture.
c. trade policies.
d. technology.
ANS: D

LINKTEN EKLENENLER

52. The Renault Nissan alliance (Chapter 9 Opening Case) is an example of a scope by……..
created to gain economies of sharing resources and capabilities.
a. Diversifying strategic alliance
b. Vertical complementary alliance
c. Synergistic strategic alliance
d. Non equity-based horizontal complementary alliance

53.Within the Renault Nissanalliance (Chapter9OpeningCase), both Renault and Nissan have
each formed ……… strategic alliances at the business-unit level with other companies.
a.vertical complementary
b.horizontal complementary
c.synergistic
d.diversifying

62.Fujitsu Siemens Computers is a legally independent company of which Fujitsu and

Siemense achown 50 percent. This collaboration is an example of a ……….. , which is
effective at transferring
a.non equity strategic alliance; explicit knowledge.
b.jointventure;tacit knowledge.
c.jointventure;explicit knowledge.
d.equity strategic alliance; tacit knowledge.

67.Japanese telecom NTT DoCoMo Inc. and Chinese Internet search operator Baidu Inc.
established an alliance to distribute games and other mobile-phone content. Baidu will own
80 percent of this collaboration with DoCoMo holding the remaining 20 percent. This
collaborative arrangement is an example of a(n)
a.joint venture.
b.network strategy.
c.equity strategic alliance.
d.non equity strategic alliance.

72.U.S. Steel and Nucor (the two remaining major players in the U.S. steel industry) have
been forming alliances as a means to enter markets in Europe and Asia. The steel industry is
an example of a typically use alliances to gain market access.
a.fast-cycle
b.standard-cycle
c.slow-cycle
d.intermediate-cycle

74.The alliance between Nokia and Microsoft calls for Nokia to transition its smartphone
portfolio to Microsoft's Windows phone platform. This is an example of using analliance in a
new products and services.
a.slow-cyclemarket
b.medium-cyclemarket
c.standard-cyclemarket
d.fast-cyclemarket

95.The cooperation between Fiat and Chrysler to produce a Fiat-designed car in Chrysler's
Illinois factory is a(n) ……. Alliance because it allows the firms to share resources and
capabilities across multiple functions.
a.synergistic
b.opportunistic
c.horizontal
d.diversifying

97.The Renault Nissan alliance discussed in the Opening Case is an example of a in that the
firms seek to create economies of scope by sharing their resources and capabilities to develop
manufacturing platforms that can be used to produce cars that will be either a Renault or a
Nissan.
a.jointventure
b.synergisticalliance
c.horizontalcomplementaryalliance
d.dynamicalliancenetwork

98.A ……… is a strategy in which firms share some of the irresources and capabilities to
create economies of scope and is similar to the business-level horizontal complementary
alliance.
a.joint venture
b.synergistic strategic alliance
c.diversifying strategic alliance
d.dynamic alliance network

105.The collaboration between Volvo Aero (a subsidiary of Sweden's AB Volvo) and U.S.-
based Pratt&Whitney to produce a new jet engine would be characterized as a(n)
a.collusive tactic.
b.merger.
c.cross-border strategic alliance.
d.international acquisition

107.In some countries, the only legal way for foreign firms to invest in the country is through
a.acquisitions.
b.mergers.
c.green field ventures.
d.strategic alliance with a local firm.

115.Amylin Pharmaceuticals has an alliance with Eli Lilly&Co. to produce diabetes drugs.
Lilly, however, recently signed an alliance agreement with another company to also produce
diabetes drugs. As a result, Amylin sued Lilly for breech of the alliance agreement. Which of
the following risks of cooperative strategies discussed in the chapter is most likely occurring
here? a.having a true perception of the partner's trust worthiness
b.failing to make available to its partners there sources and capabilities that it committed to
the cooperative strategy
c.the partner misrepresenting competencies it can bring to the partnership
d.opportunistic behavior

120.The Microsoft/Nokia alliance that had hundreds of pages to specify each partner's
responsibilities would be closest to the approach to managing cooperative ventures. In
contrast, the Renault/Nissan alliance (Chapter9OpeningCase) was based on trust, respect, and
transparency and is an example of the ________ approach to managing cooperative ventures.
a.cost minimization; opportunity maximization
b.opportunity maximization; cost minimization
c.costmaximization; opportunity minimization
d.bureaucratic; organic

123.To increase the likelihood of success between partners assuming that trust exists, used to
manage cooperative strategies.
a.the cost minimization
b.the opportunity maximization
c.both the cost minimization and opportunity maximization
d.None of the these options are correct.

Chapter 10 Corporate Governance TRUEFALSE

69. Corporate governance is all of the following EXCEPT:

(A) mechanisms used to determine and control the strategic direction and
performance of organizations.
(B) a means to establish and maintain harmony between owners and top
managers whose interests may conflict.
(C) ensuring that top managers' interests are aligned with the interests of
stockholders.
(D) resolve conflicts among corporate employees.
Answer : (D)

70. In the United States, the fundamental goal of business is to:

(A) ensure customer satisfaction.
(B) maximize shareholder wealth.
(C) provide job security.
(D) generate profits.
Answer : (B)
71. In the United States, a firm's key stakeholder(s) is(are) the:
(A) government.
(B) executives.
(C) shareholders.
(D) customers.
Answer : (C)

72. Which of the following is NOT an internal governance mechanism?

(A) The board of directors
(B) Ownership concentration
(C) Executive compensation
(D) The market for corporate control
Answer : (D)

73. Corporate governance revolves around the relationship between which two
parties?
(A) Shareholders and the Board of Directors
(B) Shareholders and managers
(C) The Board of Directors and managers
(D) None of the the above
Answer : (B)

74. Corporate governance is important to nations because:

(A) shareholders want large stock returns.
(B) firms seek to invest in nations with national governance standards that are
acceptable to them.
(C) company Boards have lobbied for strong governance.
(D) the United States requires that other nations adopt its governance practices.
Answer : (B)

75. Amos Ball, Inc., is a printing company in Iowa that has been family owned
and managed for three generations. Which of the following statements is most
likely to be TRUE?
(A) Agency costs at Amos Ball are high.
(B) If research findings are valid, Amos Ball, Inc., will perform better if a family
member is CEO than if an outsider is CEO.
(C) At Amos Ball, the opportunity for managerial opportunism is high.
(D) The functions of risk-bearing and decision making are separate at Amos Ball.
Answer : (B)

76. Complete the following: In small firms, managers often own a ____ percentage
of the firm, which means there is ____ separation between ownership and
managerial control.
(A) small; small
(B) small; large
(C) large; small
(D) large; large
Answer : (C)
77. The separation between firm ownership and management creates a(n) ____
relationship.
(A) governance
(B) control
(C) agency
(D) dependent
Answer : (C)

78. An agency relationship exists when one party delegates:

(A) decision-making responsibility to a second party.
(B) financial responsibility to employees.
(C) strategy implementation actions to functional managers.
(D) ownership of a company to a second party.
Answer : (A)

79. Managerial employment risk is the:

(A) risk that managers will behave opportunistically.
(B) risk undertaken by managers to earn stock options.
(C) managers' risk of job loss, loss of compensation, and/or loss of reputation.
(D) risk managers will not find a new top management position if they should be
dismissed.
Answer : (C)

80. Managers may decide to invest ____ in products that are not associated with
the firm's current lines of business to increase the firm's level of diversification
and decrease their employment risk.
(A) unsubstantial profits
(B) free cash flows
(C) marginal profits
(D) frozen assets
Answer : (B)

81. Product diversification provides two benefits to managers that do not accrue
to shareholders: ____ and ____.
(A) greater experience in a wider range of industries; lessening of managerial
employment risk
(B) the manager frequently invests in the acquired firm, which allows him or her
extensive profits; the manager can frequently buy excess assets divested by the
acquired firm
(C) the manager's supervisory needs are lowered; the manager is allowed
greater time to oversee a wider range of activities
(D) the opportunity for higher compensation through firm growth; a reduction in
managerial employment risk
Answer : (D)

82. The top management team at Sierra Infusion is concerned about the
declining performance of firms in their industry. The team members are
becoming concerned about the security of their jobs at Sierra Infusion. At a
meeting over dinner, the top management team agrees to go to the Board of
Directors with a proposal for:
(A) increased diversification of Sierra Infusion.
(B) the addition of outside directors to the Board.
(C) increased shareholder participation in decision making.
(D) greater concentration on Sierra's core industry.
Answer : (A)

83. In contrast to managers' desires, shareholders usually prefer that free cash
flows be:
(A) used to diversify the firm.
(B) returned to them as dividends.
(C) used to reduce corporate debt.
(D) re-invested in additional corporate assets.
Answer : (B)

84. A major conflict of interest between top executives and owners, is that top
executives wish to diversify the firm in order to ____, whereas owners wish to
diversify the firm to ____.
(A) generate free cash flows; reduce the risk of total firm failure
(B) increase the price of the firm's stock; increase the dividends paid out from
free cash flows
(C) reduce the risk of total firm failure; reduce their total portfolio risk
(D) reduce their employment risk; increase the company's value
Answer : (D)

85. Compared to managers, shareholders prefer:

(A) safer strategies with greater diversification for the firm.
(B) riskier strategies with more focused diversification for the firm.
(C) safer strategies with more focused diversification for the firm.
(D) riskier strategies with greater diversification for the firm.
Answer : (B)

86. Agency costs reflect all of the following EXCEPT ____ costs.
(A) monitoring
(B) enforcement
(C) opportunity
(D) incentive
Answer : (C)

87. All of the following are consequences of the Sarbanes-Oxley Act EXCEPT:
(A) a decrease in foreign firms listing on U.S. stock exchanges.
(B) internal auditing scrutiny has improved and there is greater trust in financial
reporting.
(C) an increased number of IPOs (initial public offerings) are expected.
(D) Section 404 creates excessive costs for firms.
Answer : (C)

88. All of the following are areas covered by the Dodd-Frank Wall Street Reform
and Consumer Protection Act EXCEPT:
(A) consumer protection.
(B) CEO compensation.
(C) regulation of derivatives.
(D) retirement accounts.
Answer : (D)

89. Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act
seeks to:
(A) align financial institutions' actions with society's interests.
(B) increase the number of foreign firms listing on U.S. stock exchanges.
(C) require CEOs to attest to the accuracy of their companies' financial reports.
(D) increase consumer protection in pharmaceutical products.
Answer : (A)

90. Usually, large-block shareholders are considered to be those shareholders

with at least ____ percent of the firm's stock.
(A) 5
(B) 25
(C) 50
(D) 75
Answer : (A)

91. Ownership concentration is determined by both:

(A) the number of stockholders and the parties they represent.
(B) the number of stockholders and total percentage of shares they own.
(C) the number of outside directors and the parties they represent.
(D) the number of outside directors and total percentage of shares they own.
Answer : (B)

92. As ownership
p of the corporation is diffused, shareholders' ability to monitor managerial
decisions:
(A) increases.
(B) decreases.
(C) remains constant.
(D) is eliminated.
Answer : (B)

93. Institutional owners are:

(A) shareholders in the large institutional firms listed on the New York Stock
Exchange.
(B) banks and other lending institutions that have provided major financing to
the firm.
(C) financial institutions such as mutual funds and pension funds that control
large-block shareholder positions.
(D) prevented by the Sarbanes-Oxley Act from owning more than 50 percent of
the stock of any one firm.
Answer : (C)

94. The ownership of major blocks of stock by institutional investors have

resulted in all of the following EXCEPT:
(A) making CEOs more accountable for their performance.
(B) challenges to the decisions of Boards.
(C) focusing attention on ineffective Boards of Directors.
(D) a direct effect on firm performance.
Answer : (D)

95. Research suggests that the activism of institutional investors such as TIAA-
CREF and CalPERS:
(A) increases shareholder value significantly.
(B) may not have a direct effect on firm performance.
(C) is so aggressive that Boards of Directors have become overly cautious.
(D) has weakened the effect of other governance mechanisms.
Answer : (B)

96. Monitoring by shareholders is usually accomplished through:

(A) management consultants.
(B) government auditors.
(C) the firm's top managers.
(D) the Board of Directors.
Answer : (D)

97. Which of the following is a FALSE statement about corporate governance?

(A) Governance is used to establish order between parties whose interests may
be in conflict.
(B) Corporate governance mechanisms sometimes fail to monitor and control
top managers' decisions.
(C) Corporate governance mechanisms can be in conflict with one another.
(D) Corporate governance is best achieved with a Board of Directors with strong
ties to management.
Answer : (D)

98. Generally, a Board member who is a source of information about a firm's day-
to-day activities is classified as a(n) ____ director.
(A) lead independent
(B) inside
(C) related
(D) encumbered
Answer : (B)

99. The New York Stock Exchange requires that the audit committee be:
(A) available to comment to external analysts.
(B) headed by outside directors.
(C) liable for any illegal actions by the top management team.
(D) made up of CPAs with auditing experience.
Answer : (B)

100. A virtually exclusive reliance on financial controls may occur when

outsider-dominated Boards exist. This may lead to all of the following EXCEPT:
(A) high executive turnover.
(B) increased diversification of the firm.
(C) excessive management compensation.
(D) reduction in R&D expenditure.
Answer : (A)

101. Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long
been the major power at L-EVA. A majority of the directors are concerned that
while Mr. Leagreet has been responsible for the firm's earning above-average
returns, he has been displaying a tendency toward personal extravagance at the
firm's expense. In order to limit Mr. Leagreet's power, the Board of Directors
plans to:
(A) elect an insider as the lead director.
(B) appoint another individual as chairperson of the Board of Directors.
(C) require Mr. Leagreet to personally certify the firm's financial reports.
(D) reduce the size of the stock option package provided to Mr. Leagreet.
Answer : (B)
102. Several members of the Board of Directors of American Textile Products
(ATP) have proposed creating the position of lead director. What circumstances
would most likely have initiated this proposal?
(A) ATP has been the initiator of several hostile takeovers in the last 2 years.
(B) The Board has been successful in reducing the percentage of CEO pay that is
composed of stock options.
(C) The CEO/chairperson of the Board has been suspected of opportunistic
behavior.
(D) The firm is traded on the New York Stock Exchange and must change its
corporate governance to comply with the NYSE's new rules.
Answer : (C)

103. Given the demands for greater accountability and improved performance,
which of the following is NOT a voluntary change many Boards of Directors have
initiated?
(A) Moving toward having directors from different backgrounds
(B) Strengthening the internal management and accounting control systems
(C) Compensating directors with stock options rather than with fixed
remuneration
(D) Establishing and using formal processes to evaluate the Board's performance
Answer : (C)

104. Boards of Directors are now becoming more involved in:

(A) the strategic decision-making process.
(B) selecting new CEOs.
(C) the firm's tax issues.
(D) governmental relations.
Answer : (A)

105. Research suggests that Boards of Directors perform better if:

(A) the CEO is also the chairperson of the Board of Directors.
(B) the Bard includes employees as voting members.
(C) the Board is homogenous in composition.
(D) outside directors own significant equity in the organization.
Answer : (D)
106. One means that is considered to improve the effectiveness of outside
directors is:
(A) mandating that all outside directors be drawn from government or academia
rather than industry.
(B) requiring that outside directors be former executives of the firm.
(C) requiring outside directors to own significant equity stakes in the firm.
(D) requiring that outside directors act objectively and have no ownership
interest in the firm.
Answer : (C)

107. The CEO and Chairman of the Board of Directors Alta Corp. is dismayed by a
lack of effort and insights his directors provide during Board meetings. The
directors are all outsiders, experienced, and run their own successful firms. The
CEO/chair genuinely seeks their greater involvement. What would you
recommend?
(A) Requiring that the directors own stock in the company.
(B) Establishing a formal process to evaluate the Board's performance.
(C) Electing a lead director.
(D) All of these options are correct.
Answer : (D)

108. Executive compensation is a governance mechanism that seeks to align

managers' and owners' interests through all of the following EXCEPT:
(A) bonuses.
(B) long-term incentives such as stock options.
(C) salary.
(D) penalties for inadequate firm performance.
Answer : (D)

109. The interests of multinational corporations' shareholders may be best

served when there is:
(A) a uniform compensation plan for all corporate executives, United States and
foreign alike.
(B) executive compensation that is primarily based on long-term performance.
(C) elevation of foreign executive compensation to U.S. levels.
(D) a variety of compensation plans for executives of foreign subsidiaries.
Answer : (D)

110. Managers in the United States receive ____ compensation than managers in
the rest of the world.
(A) equivalent
(B) higher
(C) lower
(D) more variable
Answer : (B)

111. The longer the focus of managerial incentive compensation, the greater the
____ top-level managers.
(A) earnings potential for
(B) risks borne by
(C) incentives for
(D) potential tax burden for
Answer : (B)

112. Which of the following reasons would NOT explain the difficulty of
determining appropriate executive compensation?
(A) The decisions made by top-level managers are typically complex and non-
routine.
(B) An executive's decisions often affect firm performance only over the long
run.
(C) A number of factors intervene between top-level management decisions and
firm performance (e.g., unpredictable economic, social, or legal changes).
(D) The compensation committee may not have comprehensive firm
performance data.
Answer : (D)

113. The Board of Directors of CamCell, Inc., wishes to design a CEO

compensation plan that will align the personal interests of the CEO with the
interests of the shareholders in long-term firm performance. The Board wishes
the CEO to take more short-term risks in order to achieve potentially higher
long-term returns. Consequently, the Board has decided on an incentive plan that
involves payout based on the firm's performance five years in the future.
CamCell is presently searching for a new CEO. Which of the following statements
is true?
(A) This plan will be very attractive in luring candidates for the CEO position.
(B) CamCell may have to over-compensate its CEO in order to offset the personal
risk a CEO would undertake under this plan.
(C) Institutional investors disapprove of long-term executive incentive plans and
they may sell their blocks of stock in CamCell.
(D) This type of plan is likely to cause the CEO to underinvest in R&D in order to
boost CamCell's long-term profitability.
Answer : (B)

114. The Board of Directors of CyberScope, Inc., is designing a stock option plan
for its CEO that will motivate the CEO to increase the market value of the firm.
Consequently, the Board is:
(A) setting the option strike price substantially higher than the current stock
price.
(B) insuring that the strike price value of the options can be lowered if the
organizational environment becomes more risky.
(C) having the stock option plan designed by insiders on the Board of Directors
who are familiar with day-to-day operations of the firm.
(D) consulting accounting advisors to make sure that the plan transfers wealth to
the CEO without immediately appearing on the balance sheet of CyberScope.
Answer : (A)

115. The market for corporate control serves as a means of governance when:
(A) the firm is overpriced in the market.
(B) internal controls have failed.
(C) the corporation has greatly exceeded performance expectations.
(D) the top management team's interests and the owners' interests are aligned.
Answer : (B)

116. Agricultural Chemicals, Inc., was the target of a hostile takeover 6 months
ago. The CEO and the top executives successfully fended off the takeover and are
concentrating on strategies to improve the performance of the firm. Which of the
following is most likely to be TRUE?
(A) Hostile takeover attempts are so common that they do not reflect negatively
on the firm's performance. They are more a function of general market
conditions.
(B) The fact that a hostile takeover has occurred is proof that the firm was
under-performing.
(C) Research shows that once a hostile takeover has been defeated, the firm is
safe from other hostile takeover attempts for many years.
(D) The CEO and top executives should not consider their jobs secure.
Answer : (D)

117. The market for corporate control may not be as efficient as previously
thought as recent findings suggest that those firms targeted for takeover by
active corporate raiders are:
(A) usually on the verge of bankruptcy.
(B) typically under-performing their industry.
(C) often performing above their industry averages.
(D) always outperforming their industry.
Answer : (C)

118. If the market for corporate control were efficient as a governance device,
then only ____ would be targets for takeovers.
(A) firms with unethical top executives
(B) firms earning above-average returns
(C) poorly performing firms
(D) over-valued firms
Answer : (C)

119. All of the following statements are TRUE about the use of defense tactics by
the target firm during a hostile takeover EXCEPT:
(A) defense tactics are usually beneficial for the executives of the target firm.
(B) defense tactics are opposed by institutional investors.
(C) defense tactics vary in their effectiveness as a defense to takeovers.
(D) defense tactics make the costs of a takeover lower.
Answer : (D)

120. Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum
amounting to 3 years' salary because DictionAry has been bought in a hostile
takeover by its main competitor. Ambrose received:
(A) a golden parachute.
(B) a poison pill.
(C) greenmail.
(D) a silver handshake.
Answer : (A)

121. The repurchase at a premium of the target firm's shares that were acquired
by the aggressor firm in a hostile takeover in exchange for an agreement that the
aggressor will no longer target the company for takeover is called:
(A) greenmail.
(B) a standstill agreement.
(C) crossing the palm with silver.
(D) a poison pill.
Answer : (A)
122. A hostile takeover defense wherein the target firm makes its stock less
attractive to a potential acquirer is called:
(A) greenmail.
(B) a standstill agreement.
(C) crossing the palm with silver.
(D) a poison pill.
Answer : (D)

123. Historically, ____ have been at the center of German corporate governance
structure.
(A) banks
(B) institutional shareholders
(C) public pension funds
(D) government agencies
Answer : (A)

124. James Abercrombie has a thriving consulting firm specializing in training

Boards of Directors in decision-making skills. Mr. Abercrombie has had striking
success in reducing conflict and hostility among directors and allowing Boards to
develop more cohesiveness. Mr. Abercrombie is considering expanding his
consulting practice overseas. Which of the following statements is most likely to
be TRUE?

(A) Mr. Abercrombie will have a large market in Japan because the culture highly
values consensus decision making.
(B) Japanese firms will have little interest in Mr. Abercrombie's specialty because
these skills are already practiced at a high level.
(C) German firms will not be interested in Mr. Abercrombie's services because
the German system of decision making is based on authority and few conflicts
emerge.
(D) Mr. Abercrombie should find significant need for his services in companies in
transitional economies.

Answer : (B)

125. German executives are not dedicated to the maximization of shareholder

value to the degree that is the case for executives in the UK and United States
largely because:
(A) the roles of CEO and chairperson of the Board of Directors are usually
combined.
(B) large institutional investors control large blocks of stock.
(C) private shareholders and large institutional investors rarely have large
ownership positions in firms.
(D) of the focus on stewardship-management in German firms rather than the
financial performance focus of U.S. firms.
Answer : (C)
126. Which of the following statements is about corporate governance in
Germany is FALSE?
(A) The Vorstand (management Board) of a German corporation makes
decisions about strategy and management.
(B) The Vorstand is elected by the firm's employees.
(C) Employees, union members, and shareholders appoint members to the
Aufsichsrat (the supervisory tier of the Board).
(D) Large institutional investors such as pension funds, and insurance companies
are relatively insignificant owners of corporate stock.
Answer : (B)

127. Japanese keiretsu are:

(A) management structures related to total quality management systems.
(B) company unions, which are a type of governance system.
(C) the banks owing the largest shares of stock in the firm.
(D) a system of cross-shareholding among firms.
Answer : (D)

128. In Japan, the principal source of the active monitoring of large companies
comes from:
(A) Boards of Directors.
(B) stock brokerage companies.
(C) the government.
(D) banks.
Answer : (D)

129. ____ is an important influence in Japanese corporate governance structures.

(A) Innovation
(B) Consensus
(C) Competition
(D) Individualism
Answer : (B)

130. Which of the following is TRUE of trends in Japan's corporate governance

structure?
(A) Compensation of CEOs in both private and public companies is being tied
more closely to observable performance goals.
(B) Increased regulation in the financial sector has increased the cost of
mounting hostile takeovers.
(C) Banks' influence over corporations is increasing. (D) The gap in
compensation between CEOs in public and private companies is increasing.
Answer : (A)

131. Which of the following is FALSE about corporate governance in China?

(A) The Chinese governance system may be tilting toward the Western model.
(B) With increasing frequency, the compensation of top executives of Chinese
companies is closely related to prior and current financial performance of the
firm.
(C) The state still uses direct and/or indirect controls to influence the strategies
employed by most firms.
(D) Firms with higher state ownership tend to have lower market value and
more volatility in those values over time.
Answer : (C)

132. The CEO of Skyco, a publicly-traded company that has been earning below-
average returns, has been publicly criticized by shareholders for persuading the
Board of Directors to give her interest-free loans, for having the company
purchase and furnish a lavish apartment in Paris for her personal use on her
twice-yearly trips there, and for excessive stock options. The CEO's behavior may
be indication of:
(A) reasonably compensating a CEO.
(B) a weak Board of Directors.
(C) the laxity of institutional investors.
(D) the difference in risk propensity between owners and managers.
Answer : (B)

133. The governance mechanism most closely connected with deterring

unethical behaviors by holding top management accountable for the corporate
culture is:
(A) ownership concentration.
(B) the market for corporate control.
(C) executive compensation systems.
(D) the Board of Directors.
Answer : (D)

134. International Food Services (IFS) has a contract with the Marines to supply
meals for its troops in Afghanistan and other foreign assignments. As a means of
increasing profits, IFS has used substandard ingredients in these meals and has
consistently lied about this practice during quality investigations by the Marines.
Who is ultimately responsible for the corporate climate that resulted in this
wrongdoing?
(A) The director of food service for IFS
(B) The Board of Directors of IFS
(C) The employees directly involved in the wrongdoing
(D) The head of contract services for the Marines
Answer : (B)

CHAPTER 11:
50. Which of the following is TRUE?
(A) Organizations tend to change structure too frequently, which erodes their
competitive
advantage.
(B) Large organizations can retain a simple structure as long as they have a focus
strategy.
(C) Flexibility in structure is more important than stability.
(D) Strategy has a more important influence on structure than structure has on
strategy.
Answer : (D)

51. Organizational structure:

(A) specifies the firm's formal reporting relationships, procedures, controls, and
authority and
decision-making processes.
(B) specifies the firm's informal reporting relationships, procedures, controls,
and authority and
decision-making processes.
(C) specifies the firm's formal value proposition, the markets it will serve, and
how the firm will
provide value in those markets.
(D) specifies the firm's control mechanisms, grievance procedures, reporting
relationships,
procedures, and authority over decision-making processes.
Answer : (A)

52. The Amos Ball Printing Company was established in 1866. Currently, Amos
Ball V is the CEO
and chairman of the board. The company has traditionally used a functional
structure. Five years
ago, the company branched into online publishing and small-batch printing in
addition to its regular
large-batch operations. Both new businesses are significantly different in
technology and marketing
from each other and from Ball's traditional business. Despite the hiring of
experienced professionals
in these new endeavors, performance continues to be poor and is affecting Ball's
overall
performance. Which of the following statements is TRUE?

(A) Amos should consider adopting the multidivisional structure.

(B) Mr. Ball has insufficient power to change the structure of the organization.
(C) Restructuring must only be done from a position of strength, so it is
necessary to wait until the
company's overall performance improves before making radical changes.
(D) These businesses are too disparate to coordinate within one corporate
structure.
Answer : (A)

53. A firm's ______ specifies the work to be done and how to do it given the firm's
strategy or
strategies.
(A) structure
(B) controls
(C) culture
(D) strategy
Answer : (A)

54. Structural stability affects the organization's ability to:

(A) resist organizational inertia.
(B) cope with uncertainty about cause-and-effect relationships in the global
economy.
(C) develop new competitive advantages.
(D) consistently and predictably manage its daily work routines.
Answer : (D)

55. Selecting the organizational structure and controls that effectively implement
the chosen
strategy is a challenge for managers because:
(A) firms must be flexible while retaining a degree of stability.
(B) managers are never able to obtain all the information necessary to make the
best selection.
(C) the structure of a firm should not duplicate the structures of its competitors.
(D) the environment changes too rapidly for corporations to maintain a
consistent corporate
structure.
Answer : (A)

56. One reason why a long-tenured top-level manager may hesitate to conclude
the firm's structure
is a problem is that doing so:
(A) indicates to competitors that the firm is vulnerable to a hostile takeover.
(B) will only lead to inefficiencies.
(C) requires that the firm undertake a multi-year restructuring period that will
delay retirement.
(D) suggests that the firm's previous choices were not the best ones.
Answer : (D)

57. Strategic controls allow corporate-level managers to:

(A) evaluate business-level performance on objective criteria.
(B) concentrate on day-to-day corporate operations.
(C) assess performance of employees and managers in each business unit.
(D) examine the fit between what the firm might do and what it can do.
Answer : (D)

58. Financial controls are most important in the ______ strategy.

(A) single business
(B) related constrained
(C) unrelated diversified
(D) vertical complementary
Answer : (C)
59. ______ controls are objective criteria that allow corporate managers to
evaluate the returns
earned by individual business units.
(A) Strategic
(B) Managerial
(C) Financial
(D) Environmental
Answer : (C)

60. Alfred Chandler found that firms grow in a predictable pattern and that the
firm's growth
patterns determine its structural form. Which form corresponds to the FINAL
stage in Chandler's
theory?
(A) Functional
(B) Simple
(C) Vertically integrated
(D) Multidivisional
Answer : (D)

61. Andermeyer Jewelers, which specializes in high-end jewelry, has been in

existence since the
1870s and has served generations of wealthy families. Owned and managed by
the Andermeyer
family since its founding, it has never had more than 20 designers and jewelers
in its shop.
Andermeyer Jewelers should use the ______ structure.
(A) simple
(B) functional
(C) matrix
(D) network
Answer : (A)

62. Typically, an organization using a simple structure would be:

(A) large.
(B) small.
(C) of any size if the firm is privately held.
(D) a family-owned-and-managed firm of any size.
Answer : (B)

63. In most cases, the focus strategy is best managed using a ______ structure.
(A) simple
(B) functional
(C) multidivisional
(D) vertical
Answer : (A)

64. The benefits of a simple structure include all of the following EXCEPT:
(A) ease of coordination within the organization.
(B) the lack of a need for sophisticated information systems.
(C) active involvement by the owner-manager.
(D) the ability of specialists to develop deep expertise.
Answer : (D)

65. Functional structures work best for firms for all of the following strategies
EXCEPT:
(A) cost leadership strategy.
(B) differentiation strategy.
(C) related constrained diversification strategy.
(D) single or dominant business corporate strategy.
Answer : (C)

66. Leslie is a newly graduated certified public accountant with a specialty in

corporate tax. She
wishes to join an organization (not an accounting firm) that will allow her to
concentrate on
corporate tax and become deeply proficient in this area. Leslie should look for a
position in a firm
with a ______ structure.
(A) simple
(B) functional
(C) multidivisional
(D) network
Answer : (B)

67. One disadvantage of the functional structure is that:

(A) career paths and professional development are limited.
(B) dual reporting relationships blur lines of authority.
(C) the CEO cannot coordinate and control the efforts of functional-level
employees.
(D) communication and coordination are difficult among organizational
functions.
Answer : (D)

68. Which of the following does NOT cause a firm to move from a functional
structure to a
multidivisional structure?
(A) Increasing diversification
(B) Coordination and control issues
(C) Need for knowledge-sharing among specialists
(D) Greater amounts of data and information to process
Answer : (C)

69. The multidivisional structure was initially designed to produce three major
benefits over the
functional form. Which of the following is NOT one of the three benefits?
(A) Aligning the corporate structure with the demands of global expansion
(B) More accurate monitoring of the performance of each business
(C) Dacilitating comparison between divisions
(D) Stimulating managers of poorly performing divisions to look for ways of
improving performance
Answer : (A)

70. Jumbo Industrial Supply has grown from a one-location firm with a restricted
product line to a
multi-state organization with numerous product lines and a large sales staff.
Sales have doubled
every year for the last three years. It currently has a simple structure with Jared
Smith, the ownermanager, making all major decisions. Jumbo is probably now
experiencing or will soon experience:
(A) coordination and control problems.
(B) bureaucratic inefficiencies.
(C) excessive competition among division managers.
(D) limited communication among functional specialists.
Answer : (A)

71. The noted business historian Alfred Chandler viewed the multidivisional
structure as an
innovative response to:
(A) an emerging professional management philosophy.
(B) the increasing demand by consumers for both high quality and low prices.
(C) coordination and control problems.
(D) a shift toward the global economy.
Answer : (C)

72. Some experts consider the ______ structure to be one of the 20th century's
most significant
organizational innovations because of its value to diversified firms.
(A) network
(B) cooperative
(C) multidivisional
(D) functional
Answer : (C)

73. The three structural characteristics that differ among organizational

structures include all of the
following EXCEPT:
(A) centralization.
(B) formalization.
(C) specialization.
(D) intermediation.
Answer : (D)

74. Which of the following is NOT associated with an organizational structure

that supports a cost
leadership strategy?
(A) Centralization
(B) Specialization
(C) Formalization
(D) Integration
Answer : (D)

75. ______ is the degree to which rules and procedures govern work.
(A) Formalization
(B) Centralization
(C) Specialization
(D) Unification
Answer : (A)

76. ____ is the degree to which decision-making authority is retained at higher

managerial levels.
(A) Formalization
(B) Centralization
(C) Specialization
(D) Unification
Answer : (B)

77. Successfully implementing a cost leadership strategy requires:

(A) freedom from constraining rules.
(B) centralization of authority.
(C) communication between functional silos.
(D) sharing of competencies among divisions.
Answer : (B)

78. Agatha Adams founded Insurance Specialists to process medical claims for
physicians' practices.
She plans to compete on the basis of cost, offering the lowest processing cost per
claim in her
market area. Ms. Adams' company should:
(A) be the strategic center firm in a network structure.
(B) have a specialized multidivisional structure.
(C) develop alliances with firms with complementary competencies.
(D) have a highly centralized, functional structure.
Answer : (D)

79. Walmart's effective strategy/structure configuration is:

(A) cost leadership/functional.
(B) differentiation/functional.
(C) related constrained/multidivisional.
(D) related linked/multidivisional.
Answer : (A)

80. Firms seeking to compete on the basis of cost leadership particularly need
support from the
______ and ______ functions.
(A) finance; accounting
(B) manufacturing; process R&D
(C) product R&D; marketing
(D) management information; finance
Answer : (B)

81. Firms seeking to differentiate particularly need support from the ______ and
______ functions.
(A) finance; accounting
(B) engineering; operations
(C) product R&D; marketing
(D) management information; finance
Answer : (C)

82. Typically, a successful firm pursuing a differentiation strategy will:

(A) have a very hierarchical structure.
(B) require a structure that is very formal.
(C) use cross-functional development teams.
(D) develop free-standing business units.
Answer : (C)

83. Which of the following is a TRUE statement about organizational structures

for implementing
business-level strategies?
(A) A cost leadership strategy requires a simple structure emphasizing high
specialization,
centralization, and structured job roles.
(B) A differentiation strategy requires a functional structure with limited
formalization, broad job
descriptions, and an emphasis on the product R&D and marketing functions.
(C) An integrated cost leadership/differentiation strategy requires a
multidivisional structure using
high formalization, decentralized decision making, and vertical coordination.
(D) A focused strategy requires a functional structure featuring high levels of
both specialization and
formalization.
Answer : (B)
84. Successful implementation of the differentiation strategy requires a structure
that:
(A) has specialized jobs.
(B) decentralizes decision making.
(C) focuses on the finance function.
(D) is dominated by the operations function.
Answer : (B)

85. The integrated cost leadership/differentiation strategy is difficult to

implement mostly because:
(A) different primary and support activities are emphasized when using cost
leadership and
differentiation strategies.
(B) this strategic approach demands more flexibility than most firms can
manage.
(C) the dual reporting relationships required for this strategy slow
organizational decision making.
(D) the cost leadership strategy requires less structured job roles than does the
differentiation
strategy.
Answer : (A)

86. The ______ structure is the most appropriate structure for implementing the
integrated cost
leadership/differentiation strategy.
(A) simple
(B) functional
(C) multidivisional
(D) strategic business unit
Answer : (B)

87. The ______ structure is best for implementing the related-constrained

diversification strategy.
(A) functional
(B) competitive form of the multidivisional
(C) SBU form of the multidivisional
(D) cooperative form of the multidivisional
Answer : (D)

88. Which of the following is NOT a variation of the multidivisional structure?

(A) Competitive form
(B) Regional form
(C) Cooperative form
(D) Strategic business unit form
Answer : (B)

89. The BEST multidivisional structure to use:

(A) is the competitive form.
(B) is the SBU form.
(C) is the cooperative form.
(D) depends on the degree of diversification.
Answer : (D)

90. Ortiz is a manager of BRS Corp. Ortiz's division did not meet financial targets
this year. Ramirez,
manager of another division, has indicated that Ortiz's division incurred
significant costs which
resulted in Ramirez's division setting record profits for the year. As a result,
performance for BRS as
a whole exceeded projections. Which pairing of organizational structures for BRS
and bonus for
Ortiz is most plausible?
(A) Cooperative structure; no bonus due to failure to meet divisional target
(B) Competitive structure; no bonus due to failure to meet divisional target
(C) Cooperative structure; a bonus for increasing organizational performance
(D) Competitive structure; a bonus for increasing organizational performance
Answer : (C)

91. The cooperative multidivisional firm:

(A) establishes profit centers based on products or markets.
(B) has a flat organizational structure which broadens jobs and empowers
workers.
(C) has a structure organized around both functional specialization and business
projects.
(D) has a structure requiring heavy use of horizontal integrative devices.
Answer : (D)

92. Which organizational structure will emphasize financial controls for

headquarters' evaluation of
operating units while the operating units will emphasize strategic controls
within their units'
performance?
(A) Functional
(B) Cooperative M-Form
(C) SBU form
(D) Competitive M-Form
Answer : (C)

93. Which of the following is a TRUE statement about implementing corporate-

level strategies and
effective organizational structures?
(A) Firms pursuing a related linked strategy should implement a competitive
structure with a
competitive culture and centralized strategic-planning activities.
(B) Firms pursuing an unrelated diversification strategy should use an SBU
structure with a small
corporate staff, emphasize the R&D function, and integrate divisions to achieve
synergies.
(C) Firms pursuing a related linked strategy should use an SBU structure,
emphasize
interdependence among divisions, and manage the strategic planning function
from the central
office.
(D) Firms pursuing a related constrained strategy should implement a
cooperative structure, use
integrative devices to link divisions, centralize the R&D function, and emphasize
sharing.
Answer : (D)

94. The ______ structure is an organizational structure that combines both

functional specialization
and business product or project specialization.
(A) functional
(B) worldwide geographic area
(C) network
(D) matrix
Answer : (D)

95. The heavy use of integrative mechanisms in the ______ multidivisional

organizational structure is
intended to achieve _______.
(A) cooperative; economies of scope
(B) competitive; cost efficiencies
(C) functional; sensitivity to cultural diversity
(D) SBU; quick response to local customer needs
Answer : (A)

96. When a corporation pursues a related constrained diversification strategy,

financial controls
may not add value to strategy implementation efforts because it is difficult to:
(A) use them without reducing cooperation among divisional managers.
(B) transfer capital between units.
(C) maintain an arms-length relationship between headquarters and the
divisions.
(D) identify which objective criteria to monitor.
Answer : (A)

97. A firm pursuing a related constrained diversification strategy would typically

need all of the
following EXCEPT:
(A) centralization of some organizational functions for the sake of coordination.
(B) frequent, direct contact between division managers.
(C) division managers' rewards based on division financial performance.
(D) temporary teams or task forces formed around specific projects.
Answer : (C)

98. Icarus Aviation, Athena Instrumentation, and Hercules Miniaturization are

strategic business
units of Olympia Industries. One can expect that Icarus, Athena, and Hercules:
(A) use integrative mechanisms to share core competencies.
(B) compete with one another in Olympia's internal capital markets.
(C) are not necessarily related to one another in terms of products or markets.
(D) are network member firms while Olympia is the strategic center firm.
Answer : (C)

99. A private university is made up of various "schools," such as the School of

Journalism, the School
of Business, the School of Law, the School of Arts and Sciences, and so forth. The
university is
experiencing some financial problems, so the administration has decided to have
each school of the
university become a profit center. This scheme is somewhat parallel to the ______
organizational
structure.
(A) network
(B) strategic business unit multidivisional
(C) functional
(D) matrix
Answer : (B)

100. In an SBU structure, ______ is/are evaluated using strategic controls, whereas
______ is/are
evaluated using financial controls.
(A) each SBU; divisions within the SBUs
(B) divisions within the SBUs; each SBU
(C) managers of the SBUs; headquarters staff
(D) headquarters staff; managers of the SBUs
Answer : (B)

101. The most centralized and most costly form of the multidivisional structure
is the:
(A) integrated.
(B) competitive.
(C) SBU.
(D) cooperative.
Answer : (D)

102. Which of the following multidivisional structures is CORRECTLY paired

with the appropriate
corporate-level strategy?
(A) Competitive form with related-constrained strategy
(B) Cooperative form with unrelated strategy
(C) SBU form with related-linked strategy
(D) Competitive form with related-linked strategy
Answer : (C)

103. A firm pursuing an unrelated diversification strategy will utilize a ______

structure.
(A) network
(B) cooperative form multidivisional
(C) competitive form multidivisional
(D) functional
Answer : (C)

104. In the ______ multidivisional structure there is complete independence

among the firm's
divisions.
(A) cooperative
(B) matrix
(C) competitive
(D) SBU
Answer : (C)

105. The fewest integrative devices are used in the ______ structure.
(A) simple
(B) competitive multidivisional
(C) SBU
(D) network
Answer : (B)

106. In the ______ structure hierarchy, the headquarters relies on strategic

controls to set rate-o-
-return targets and financial controls to monitor divisional performance relative
to those targets.
(A) functional
(B) cooperative
(C) competitive
(D) SBU
Answer : (C)

107. Firms such as Textron Inc. that frequently acquire and divest other firms
are most likely to use
the ______ structure.
(A) matrix
(B) competitive multidivisional
(C) hybrid combination
(D) horizontal complementary strategic alliance
Answer : (B)

108. The CEO of Transector, Inc., set a 6.5 percent rate-of-return target for all
divisions for the past
year. Now, at the end of the year, three of Transector's seven divisions have not
met this rate-o-
-return goal. The division managers of these three under-performing divisions
have all secretly
contacted executive-placement firms to investigate openings at other firms,
because they know their
future at Transector is in jeopardy as financial performance is all-important at
Transector.
Transector probably uses the ______ structure.
(A) competitive form of the multidivisional
(B) SBU form of the multidivisional
(C) worldwide geographic area
(D) distributed strategic network
Answer : (A)
109. Megaline, Inc., with five divisions, follows the competitive form of the
multidivisional structure.
One division has not met the rate-of-return goals for the past year. Another
division has exceeded
the rate-of-return goals. The other three divisions met the rate-of-return goals.
The headquarters
office must decide where to allocate capital in the next year. Which scenario is
the MOST likely?
(A) The poorest-performing division will get the highest capital allocation so that
it can fix its
problems and achieve the rate-of-return goal next year.
(B) The highest-performing division will get the highest capital allocation
because it has the best
prospects for creating more wealth for the shareholders next year.
(C) The average-performing divisions which met the rate-of-return goals will
receive the highest
allocation because their performance exactly matched corporate requirements.
(D) All divisions will receive the same capital allocation for the next year because
this organizational
structure rewards divisional managers based on achievement of strategic goals.
Answer : (B)

110. In the competitive form of the multidivisional structure, the focus of

headquarters is on all of
the following EXCEPT:
(A) integration.
(B) performance appraisal.
(C) resource allocation.
(D) long-range planning.
Answer : (A)

111. TheLG Company has units operating in significantly different industries and
uses financial
controls to manage its portfolio. LG is most likely using the ______ structure.
(A) combination-matrix
(B) cooperative form of the multidivisional
(C) competitive form of the multidivisional
(D) strategic business unit multidivisional
Answer : (C)

112. Implementing the multi-domestic strategy requires decentralization to:

(A) facilitate the tailoring of products to the demand in local markets.
(B) develop economies of scale.
(C) achieve economies of scope.
(D) reduce bureaucracy and speed up decision making.
Answer : (A)

113. A worldwide geographic area structure is an organizational form in which:

(A) multiple alliances across the globe link complementary businesses.
(B) standardized products are offered across country markets.
(C) national interests dominate and management adapts to local or cultural
differences.
(D) responsiveness to local demand is combined with economies of scale.
Answer : (C)

114. A multidomestic strategy would be associated with:

(A) high levels of coordination.
(B) informal coordination among units.
(C) many integrative mechanisms.
(D) interdependent divisions.
Answer : (B)

115. Galatea Foods was founded in Greece by Galatea Chronos in 1978, and the
company spread
rapidly through Western Europe. Ms. Chronos retains the office of CEO. The
Spanish division is
headed by her oldest son. The North European division is headed by her only
daughter, and the
French-Italian division is headed by Ms. Chronos' brother. This company
probably uses the ______
strategy.
(A) network
(B) multi-domestic
(C) global
(D) transnational
Answer : (B)

116. The primary disadvantage of the multi-domestic strategy and worldwide

geographic area
structure relates to limited:
(A) centralization.
(B) coordination across divisions.
(C) ability to meet local market needs.
(D) potential for global efficiency.
Answer : (D)

117. One of the primary disadvantages of the global strategy and worldwide
product divisional
structure is that:
(A) it is difficult to achieve economies of scale.
(B) the firm must develop centers to offer after-sales service to customers.
(C) it is difficult to respond effectively to local market needs and preferences.
(D) achieving economies of scale with this strategy/structure combination is
nearly impossible.
Answer : (C)

118. Ichabod Industries has a Latin American Division, a European Division, an

Industrial
Lubricants Division, and a Food Service Division. Ichabod Industries probably
uses the ______ organizational structure.
(A) horizontal complementary strategic alliance
(B) competitive multidivisional
(C) strategic business unit multidivisional
(D) hybrid combination
Answer : (D)

119. The need for the organization to combine local responsiveness and
efficiency is most critical in
a ______ strategy.
(A) multi-domestic
(B) transnational
(C) global
(D) focus
Answer : (B)

120. IKEA is a global furniture retailer with more than 300 outlets in 39
countries and regions. IKEA
focuses on lowering its costs as well as understanding customer needs, especially
younger ones.
IKEA's international strategy is best described as ______, and the appropriate
organizational
structure to implement this strategy is the ______ structure.
(A) transnational; combination
(B) global; worldwide product divisional
(C) multi-domestic; worldwide geographic area
(D) competitive; strategic business unit multidivisional
Answer : (A)

121. Which of the following is NOT a preliminary task of the strategic center firm
in a strategic
network?
(A) Strategic outsourcing
(B) Encouraging friendly rivalry among network members
(C) Allocating internal capital
(D) Supporting development of new core competencies
Answer : (C)

122. It is easiest to identify the company that functions as the strategic center
firm in:
(A) horizontal complementary strategic alliances.
(B) vertical complementary strategic alliances.
(C) corporate-level cooperative partnerships.
(D) international cooperative partnerships.
Answer : (B)

123. Toyota and its suppliers have a relationship in which Toyota encourages
suppliers to modernize
their facilities and provides them with technical and financial assistance to do so.
It also promotes
longer-term contracts with suppliers and enables engineers in the supplier
companies to have better
communication with Toyota. This is an example of a(n):
(A) worldwide product divisional structure.
(B) functional structure.
(C) SBU multidivisional structure.
(D) strategic network.
Answer : (D)

124. McDonald's operates through a franchising system wherein the head office
uses strategic and
financial controls to ensure that the franchises are creating the greatest possible
value. This is an
example of a(n):
(A) worldwide product divisional structure.
(B) strategic network.
(C) SBU multidivisional structure.
(D) simple structure.
Answer : (B)

125. Airlines have forged a number of complementary strategic alliances, in part

because many
airlines are not profitable. Some airlines participate in several alliances
simultaneously. This tends
to:
(A) make the partners' true loyalties and intentions unclear.
(B) make the role of the strategic center firms more critical to alliance success.
(C) distribute the alliances along several segments of the airline industry value
chain.
(D) be most effective when the alliances are with airlines headquartered in
different nations.
Answer : (A)

126. Toyota heavily uses a strategic network of vertical relationships. Toyota

enables engineers in
supplier firms to communicate easily with companies with which Toyota has
contracts for services.
This results in the suppliers and Toyota (the strategic center firm) being more:
(A) interdependent.
(B) competitive with one another.
(C) creative.
(D) complementary.
Answer : (A)

127. After years of negotiating short-term contracts with its suppliers, Icon
Images has decided to
agree to longer-term contracts. In doing this, Icon Images is hoping to:
(A) reduce transaction costs.
(B) increase negotiating leverage with suppliers.
(C) become less dependent on its suppliers.
(D) move toward horizontal alliances with its suppliers.
Answer : (A)

128. In Japan, the center firm in a strategic network of vertical relationships

might be expected to
undertake all of the following EXCEPT:
(A) reducing its transaction costs by promoting longer-term contracts with
subcontractors.
(B) enabling engineers in upstream companies to have better communication
with those companies
with which it has contracts for services.
(C) encouraging subcontractors to modernize their facilities and providing them
with technical and
financial assistance to do so.
(D) decreasing communications between network members to reduce
communication costs.
Answer : (D)

CHAPTER 12:
49. An example of the external labor market is the situation where:
(A) an assessment center operated by an external consulting firm evaluates
company managers for
promotion potential.
(B) a new vice president of marketing is hired from a competitor.
(C) the senior vice president of finance is promoted to CEO.
(D) a vice president of human resources is sent to a university executive MBA
program for
professional development.

Answer : (B)

50. In the balanced scorecard framework, ____ controls are used to assess the
organization's success
in creating a climate that supports change and innovation.
(A) learning and growth
(B) financial
(C) operational
(D) innovational
Answer : (A)
51. Two key strategic leadership actions include:
(A) monitoring the hiring of key employees and focusing on growth but not
learning initiatives.
(B) designing and then implementing the balanced scorecard.
(C) setting appropriate financial targets and establishing an effective business
level synergy.
(D) determining strategic direction and establishing balanced organizational
controls.
Answer : (D)

52. The Enron employee who reported the financial manipulations at the
company to her superiors
can be considered to have engaged in:
(A) managerial opportunism.
(B) white-collar crime.
(C) vindictive disloyalty.
(D) an act of courage.
Answer : (D)

53. Shaping and reinforcing a new organizational culture requires all of the
following EXCEPT:
(A) effective communication.
(B) effective performance appraisals.
(C) adherence to the firm's traditional core values.
(D) an appropriate reward system.
Answer : (C)

54. Which of the following will increase the probability that a lower-level
manager will become a
successful strategic leader?
(A) Appointing many outside Board members.
(B) Increasing the firm's sales.
(C) Increasing the homogeneity of the top management team.
(D) Training and development programs.
Answer : (D)

55. Billy Kroghmen is the son of a very prominent Fortune 500 CEO. Billy has had
troubles. He
failed out of multiple colleges, universities, and correspondence schools. He
finally received his
undergraduate degree from a university with only a post office box for an
address. He then enrolled
in the school's combined graduate accounting and law school programs,
graduating with honor with
degrees in both areas. After graduation, he twice failed both the CPA and bar
exams, managing to
set record low scores on the ethics portions of both. Despite these academic
setbacks, Billy's career
now seems to be thriving. He has been appointed to a number of "blue ribbon"
government
committees, is on the Board of Directors of two corporations and one prestigious
not-for-profit
organization. In at least one instance, a donor credited Billy with the idea for
making a large
contribution to the not-for-profit. Widespread speculation is that his career
advancement is based
largely on social relationships through friends and family. We would classify
Billy as ____ on ____
capital, and ____ on ____ capital.
(A) high; social; low; human
(B) high; human; high; social
(C) high; human; low; social
(D) None of these options are correct.
Answer : (A)

56. The most effective leadership style is ____ leadership.

(A) pragmatic
(B) charismatic
(C) inspirational
(D) transformational
Answer : (D)

57. A heterogeneous top management team is composed of individuals with:

(A) different functional backgrounds, experience, and education.
(B) similar commitments to the organization's core ideology and culture.
(C) a high level of education and industry expertise.
(D) long tenure in the organization who have held various functional positions.
Answer : (A)

58. Clarita Cosmetics is confronting a decline in sales due largely to a general

economic downturn.
The top management team is debating whether to lay off employees. In the
debate, the following
statements are made. Which of the statements is FALSE?
(A) If Clarita Cosmetics lays off a large number of employees, there will be a
significant loss of
human capital that will cause further downturns in the firm's performance.
(B) A moderate-sized layoff at Clarita Cosmetics will probably improve firm
performance.
(C) If Clarita Cosmetics restructures, it ought to increase investments in training
and development.
(D) A layoff will increase the slack at Clarita Cosmetics and allow the firm to
absorb the increased
number of errors employees may make until they learn their new tasks.
Answer : (D)
59. The effective development and management of the firm's ____ may be its only
sustainable
competitive advantage.
(A) capital base
(B) human capital
(C) technology
(D) organizational culture
Answer : (B)

60. The premise of the balanced scorecard is that firms jeopardize future
performance possibilities
when they:
(A) overemphasize financial controls and neglect strategic controls.
(B) overemphasize strategic control and neglect financial controls.
(C) overemphasize strategic and financial controls and neglect ethical controls.
(D) neglect short-term controls of all kinds in favor of long-term strategic
controls.
Answer : (A)

61. The Board of Directors for TundraPro, Inc., is searching for a new CEO. The
firm is in need of
new direction after suffering several years of declining performance and
increasingly demoralized
management and employees. The Board has decided it needs a CEO who can be a
transformational
leader. To this specific end, the Board needs to identify applicants who have
(A) high levels of honesty, trustworthiness, and integrity.
(B) high emotional intelligence.
(C) Both A and B are correct.
(D) low tolerance for ambiguity.
Answer : (C)

62. Which of the following is NOT associated with heterogeneous top

management teams?
(A) Higher firm performance
(B) Innovation and strategic change
(C) Diminished debate among top managers
(D) Better strategic decisions
Answer : (C)

63. Organizational controls provide:

(A) the parameters within which strategies are to be implemented.
(B) goals and objectives that must be achieved.
(C) information on action steps to be taken to implement the corporate strategy.
(D) managers with guidelines on how to treat employees.
Answer : (A)

64. Which of the statements about CEO duality is FALSE?

(A) CEO duality is associated with high CEO power.
(B) CEO duality has been blamed for slow response to change by the
organization.
(C) CEO duality is relatively rare in the U.S. except in large Fortune 500 firms.
(D) If the CEO acts a steward, CEO duality facilitates effective decisions and
actions.
Answer : (C)

65. Which key strategic leadership action plays a key role in influencing how the
firm conducts its
business and regulates and controls employees' behavior?
(A) Effectively Managing the Firm's Resource Portfolio.
(B) Determining Strategic Direction.
(C) Regulating and Controlling Employees.
(D) Sustaining an Effective Organizational Culture.
Answer : (D)

66. Determining the strategic direction of a firm involves:

(A) implementation of a balanced scorecard.
(B) developing an entrepreneurial mind set.
(C) specifying the vision and the strategy to achieve that vision over time.
(D) exploiting and maintaining core competencies.
Answer : (C)

67. Which of the following factors most encourages stability in a firm's strategy?
(A) A new CEO hired from outside the firm but within the industry
(B) Internal CEO succession and a homogeneous top management team
(C) External CEO succession and a heterogeneous top management team
(D) A new CEO hired from outside the industry
Answer : (B)

68. The more heterogeneous the top management team, the:

(A) more difficult it will be for the team to implement strategies.
(B) more likely it is that the team will be cohesive.
(C) less innovative the team's decisions will tend to be.
(D) less diverse the team membership will be.
Answer : (A)

69. Competitive aggressiveness describes a firm's:

(A) tendency to engage in new ideas and creative processes.
(B) willingness to allow employees to take actions free of organizational
constraints.
(C) ability to be a leader in the marketplace.
(D) propensity to take actions that allow it to outperform rivals consistently and
substantially.
Answer : (D)

70. Which of the following is NOT related to a CEO having long tenure in his or
her position?
(A) More effective strategic control
(B) Greater influence on board decisions
(C) More limited perspective
(D) A broader knowledge base
Answer : (D)

71. Firms needing to change their strategies should:

(A) create more heterogeneous top management teams.
(B) focus on their core customer base.
(C) implement transformational leadership.
(D) emphasize the training and development of internal managerial talent.
Answer : (A)

72. Normally, the more involved a Board of Directors is in shaping the firm's
strategic direction, the:
(A) more balanced the organization is.
(B) higher the corporation's performance is.
(C) more rapidly executive decisions can be made.
(D) more difficult it becomes to make effective executive decisions.
Answer : (B)

73. The top management team is composed of the:

(A) heterogeneous group of advisors selected by the CEO.
(B) CEO and chairperson of the Board.
(C) key individuals who are responsible for selecting and implementing a firm's
strategy.
(D) officers listed in a firm's annual report and the Board of Directors.
Answer : (C)

74. A characteristic of the manager that may affect managerial discretion is

his/her:
(A) amount of industry experience.
(B) level of education.
(C) tolerance for ambiguity.
(D) length of tenure.
Answer : (C)

75. Which of the following statements is TRUE regarding effective organizational

cultures?
(A) Once a corporate culture is developed, strategic leaders can focus on other
activities.
(B) A strategy that is historically new for a firm should be implemented by
incremental changes in
the organization's culture.
(C) A central task of strategic leaders is to revise the corporate culture on an
annual basis after
analyzing the changes occurring in the competitive environment.
(D) Organizational culture can be a source of competitive advantage because it
influences employee behavior and how the firm's conducts its business.
Answer : (D)
76. The ____ is a framework firms can use to verify that they have established
both strategic and
financial controls to assess their performance.
(A) managerial model
(B) holistic control system
(C) balanced scorecard
(D) internal auditing system
Answer : (C)

77. The top management team at Ingenuity, Inc., has assigned a team of scientists
to a multi-year
project to investigate the viability of growing large amounts of fur from cloned
cells of minks and
foxes to produce no-kill fur products for coats and other clothing items. This idea
would satisfy all
the dimensions of the entrepreneurial orientation EXCEPT:
(A) innovativeness.
(B) risk taking.
(C) proactiveness.
(D) competitive autonomy.
Answer : (D)

78. Human capital refers to:

(A) the net present value of the future competencies of the workforce.
(B) the amount of money purchasers of the firm would pay for the continuing
employment of the
present workforce.
(C) the value-added that the firm's workforce contributes to each product
produced or service
rendered.
(D) knowledge and skills of the firm's work force.
Answer : (D)

79. Strategic control focuses on the ________ of strategic actions, whereas financial
controls focus on
the _____ of strategic actions.
(A) revenues; costs
(B) long-term financial outcomes; short-term financial performance
(C) content; outcomes
(D) outcomes; content
Answer : (C)
80. Four perspectives are integrated to form the balanced scorecard framework.
The financial
perspective focuses on the view of the firm by the:
(A) customer.
(B) employee.
(C) shareholder.
(D) general society.
Answer : (C)

81. When the top management team is homogeneous and a new CEO is selected
from inside the
firm, it is:
(A) unlikely that the current strategy will change.
(B) likely that product innovation will continue.
(C) likely there will be a change in strategy.
(D) unlikely the new CEO will have a long tenure.
Answer : (A)

82. Actions that effective strategic leaders can take to develop an ethical
organizational culture
include all of the following EXCEPT:
(A) relying on the fundamental goodness of individuals.
(B) using reward systems that recognize acts of courage.
(C) communicating goals that describe the firm's ethical standards.
(D) creating a work environment where individuals are treated with dignity.
Answer : (A)

83. Monahegan Plasma Company is facing a performance downturn and realizes

that a major
rethinking of its strategy is in order. Under these circumstances, Monahegan
Plasma would benefit
from a(n):
(A) internal CEO with short tenure.
(B) external CEO with a heterogeneous top management team.
(C) dual CEO/chairperson with a homogenous top management team.
(D) CEO with long tenure who has a strong sense of hubris.
Answer : (B)

84. Executive headhunters have approached Charles about taking the position of
senior vice
president of marketing for a well-known company. Although this company has
been highly successful since 1995, Charles has heard persistent rumors of overly
aggressive marketing tactics, questionable reporting of sales data, and an
atmosphere of intolerance of criticism. The CEO is a
powerful and charismatic individual, who built the company from a small
regional firm to an international powerhouse in only a decade. The other top
managers have been hand-picked by the CEO, as have a number of the members
of the Board of Directors. The salary for this position is very high and includes
generous stock options. It would be a major step up in Charles's career and
would position him to move to CEO of another company in the future. Charles
has prided himself on his high moral values and is viewed as an exceptionally
ethical person by his peers. What should Charles do?
(A) Charles should take the job because he can effect real change in the culture of
the organization, and take advantage of the personal financial and career
opportunities.
(B) Charles should realize that personal moral values and the realities of the
corporate world differ in both quality and degree. Consequently, he can take a
job in an ethically borderline company without tainting his personal moral
standing.
(C) Charles should not rely on rumors to dissuade him from making an
advantageous career decision.
(D) Charles should not take the job because the culture of the organization is set
by the CEO and other top managers. He would have little influence on the
organizational culture as one of many top managers.
Answer : (D)

85. The primary responsibility for effective strategic leadership of the

organization rests with the:
(A) Board of Directors.
(B) top management team.
(C) CEO.
(D) stakeholders.
Answer : (C)

86. The ability to attract and manage ____ may be the most important skill a
strategic leader must have.
(A) human capital
(B) financial resources
(C) responses to competitors' actions
(D) investment strategies
Answer : (A)

87. ____ capital increases cooperation among individuals inside and outside the
firm.
(A) Human
(B) Social
(C) Visionary
(D) Cultural
Answer : (B)

88. Which of the following is NOT a factor that determines the amount of a
manager's decision
discretion?
(A) Characteristics of the manager
(B) Characteristics of the organization
(C) Cohesiveness of the Board of Directors
(D) The external environmental
Answer : (C)
89. Christina is evaluating Maximum Brands as an investment opportunity. She is
very concerned
about future financial performance by Maximum Brands. Christina does not
believe that the CEO
can act as a steward. Christina will probably be most concerned if:
(A) there is CEO duality.
(B) many of the members of the Board of Directors are outsiders.
(C) the positions of chairman of the Board and CEO are held by different persons.
(D) there is an independent Board leadership structure.
Answer : (A)

90. Faced with declining enrollment and increased competition from not-for-
profit organizations
offering inexpensive art courses for new hobbyists, the for-profit Delta Academy
of Art has
steadfastly stayed true to its mission of offering high-quality classical art
instruction for both
beginners and advanced artists at high tuition. Delta has been noted for the
excellence of its artistic
training for decades. This is an example of:
(A) adhesion to the status quo.
(B) lack of an envisioned future.
(C) competence becoming a liability.
(D) failure to have a clear core ideology.
Answer : (A)

91. Criteria for reevaluating internal business processes using the balanced
scorecard include all of
the following EXCEPT:
(A) asset utilization improvements.
(B) improvements in employee morale.
(C) increases in employee skills.
(D) changes in turnover rates.
Answer : (C)

92. A CEO's breadth of knowledge base is constrained by:

(A) his or her relationship with the Board of Directors.
(B) whether he or she is also the chairperson of the Board of Directors.
(C) his or her long tenure with the firm.
(D) the level of social capital in the firm.
Answer : (C)

93. The CEO/chairman of PharmaPacifica was recently killed in an airplane

crash. This tragedy has
thrown PharmaPacifica into turmoil as there is no one in the organization
qualified to step into the
former CEO's shoes. This is an example of:
(A) a failure of succession management.
(B) managerial hubris.
(C) the risk inherent in CEO duality.
(D) excessive reliance on the internal managerial labor market.
Answer : (A)

94. The goal of investing in human capital is to:

(A) increase the number of employees in the firm.
(B) reduce organizational slack.
(C) maximize current productivity per employee.
(D) develop a workforce capable of continuous learning.
Answer : (D)

95. Research shows that ____________ is the most effective means of ensuring that
employees comply
with the firm's ethical requirements.
(A) a written code of ethics
(B) a statement in the firm's mission statement
(C) a speech on ethics by the CEO of the company
(D) a value-based culture
Answer : (D)

96. Which of the following is NOT one of the five dimensions thought to
characterize an employee's
entrepreneurial mind-set?
(A) Autonomy
(B) Reactivity
(C) Risk taking
(D) Innovativeness
Answer : (B)

97. The CEO of CLEO, Inc., in all her communications to employees consistently
refers to her dream
of CLEO becoming the company of choice for employee assistance programs. She
keeps this theme
uppermost and it is reflected in the firm's motto, the title of its Web newsletter,
and even on the
company t-shirts and mugs. This is an example of the firm's:
(A) core ideology.
(B) organizational culture.
(C) strategy.
(D) envisioned future.
Answer : (D)

98. An organization's ____ is composed of the key individuals who are responsible
for selecting and
implementing the firm's strategies.
(A) top management team
(B) Board of Directors
(C) keiretsu
(D) governance circle
Answer : (A)

99. All of the following are external environmental sources that affect managerial
discretion
EXCEPT:
(A) industry structure.
(B) corporate culture.
(C) market growth rate.
(D) potential for product differentiation.
Answer : (B)

100. Which of the following is NOT a benefit to the firm using the internal labor
market to select a
new CEO?
(A) Internal hiring results in an increased level of innovation.
(B) Insiders are familiar with the firm's products, markets, technologies, and
operating procedures.
(C) Use of the internal labor market reduces turnover among existing employees.
(D) Insiders are more familiar with a firm's operating procedures.
Answer : (A)

101. Omicron Artificial Intelligence is able to respond quickly to competitors'

actions and to
opportunities in the marketplace. This is an example of:
(A) agility.
(B) a core competency.
(C) flexibility.
(D) responsiveness.
Answer : (B)

102. A CEO gains power from all of the following circumstances EXCEPT:
(A) when many of the outside directors are appointed by the CEO.
(B) when the CEO is also the chairman of the Board.
(C) when tenure of the top management team is shorter than the tenure of the
Board.
(D) the fact that inside Board members report to the CEO.
Answer : (C)

103. Which of the following is NOT one of the four perspectives in the balanced
scorecard
framework?
(A) entrepreneurial
(B) financial
(C) customer
(D) learning and growth
Answer : (A)

104. ____ provide information about the results of past actions, but do not
communicate the drivers
of the firm's future performance.
(A) Financial controls
(B) Accounting information systems
(C) Policies and procedures
(D) Strategic feedback systems
Answer : (A)
105. Sony previously selected Sir Howard Stringer as CEO. Sir Howard was not
Japanese and he
was not a Sony employee before his selection. Which of the following statements
is FALSE?
(A) Sony's top management team will be more heterogeneous with the addition
of Sir Howard.
(B) Sir Howard will have a broader perspective of the firm and its competitive
environment than would a Sony insider.
(C) If Sony's top management team is homogeneous, Sir Howard's future impact
on Sony's strategy is ambiguous.
(D) The decision-making process on Sony's top management team will be
smoother and faster with the addition of Sir Howard.
Answer : (D)

106. To successfully implement a firm's strategy, the workforce must be viewed

as a:
(A) variable cost.
(B) depreciating asset.
(C) resource to be maximized.
(D) renewable asset.
Answer : (C)

107. The firm of Bergeron has existed for hundreds of years, having made
exquisite clocks and
watches. In its advertising it refers to clocks the firm made for such past royalty
as Marie Antoinette
and the Czars of Russia. Employees are constantly reminded of the firm's rich
history and its long
tradition of excellence of design and execution. Bergeron is motivating its
employees through its:
(A) core ideology.
(B) envisioned future.
(C) organizational culture.
(D) business strategy.
Answer : (A)

108. Exploiting and maintaining core competencies is part of the key strategic
leadership action
"Effectively Managing the Firm's Resource Portfolio." Which of the following is
most important for
developing and using core competencies?
(A) Extensive financial assets
(B) Transformational leadership
(C) High-quality human capital
(D) An ethical organizational culture
Answer : (C)
109. The CEO of Icon Image Associates wishes to radically change the corporate
culture of the firm.
She knows that she must convince others at Icon Image of the necessity for the
culture change and
gain their active support. The CEO knows that the key players in energizing the
culture change and
fostering alignment with the new strategic vision are:
(A) the members of the Board of Directors.
(B) top management team members.
(C) the CEO, top managers, and middle managers.
(D) rank-and-file employees.
Answer : (C)

110. CEO duality refers to:

(A) firms where there is both a president and a CEO.
(B) CEOs who sit on the Board of Directors of other firms.
(C) CEOs who hold office in more than one company.
(D) the situation where the CEO is also chairperson of the Doard of Directors.
Answer : (D)

111. Managerial actions that support development of an ethical organizational

culture include all of
the following EXCEPT:
(A) establishing a code of conduct.
(B) disseminating the code of conduct to all stakeholders to inform them of the
firm's ethical
standards and practices.
(C) creating a work environment in which people are treated with dignity.
(D) disciplining whistle-blowers.
Answer : (D)

CHAPTER 13:

45.Firms develop innovations in all the following ways EXCEPT

a. through autonomous or induced strategic behavior.
b.by acquiring other companies.
c. through cooperative strategies.
d. via divestiture low-performing units.
ANSWER: d

46.Pet Care Companion Connection(PCCC) is an organization that trains persons

with mild-to moderate mental disabilities to care for pets in a pet boarding
facility. This organization has been successful in providing a quality service for
pet owners and a supportive training environment for their trainees. The tuition
charged to trainees is only some what higher than the fee, which day care
providers would charge for these individuals. Graduates of the program are
qualified for employment by commercial kennels. PCCC is an example of
a. taking advantage of a need in the market place.
b. creative destruction of existing services for pet boarding.
c. institutionalized entrepreneurship.
d. internal corporate venturing.
ANSWER: a

47.Isidore Security Services is a national provider of guard and security services

for businesses. It has been in business for over 90 years, having been founded by
one of Teddy Roosevelt's Rough Riders (Isidore O'Malley). Lately it has been
losing clients to more aggressive and innovative firms offering remote security
monitoring systems instead of a guard based approach. The board of directors of
Isidore Security Services is concerned that this down ward trend may threaten
the existence of this venerable firm and the jobs of its employees.
a. This is an example of an established firm neglecting the opportunity seeking
aspect of strategic entrepreneurship.
b. This example shows the dysfunctional aspects of unrestricted
entrepreneurialism.
c. This is an example of the lack of human capital hampering internal innovation.
d. Isidore Security Services is suffering from the "novelty effect" where in new
firms are more attractive to clients / customers merely because they are new
and not because they add value.
ANSWER: a

48.The use or application of entrepreneurship within an established firm is

called
a. corporate emergence.
b. transformational leadership.
c. exceptional R&D.
d. corporate entrepreneurship.
ANSWER: d

49.Entrepreneurship is the process by which individuals or groups identify and

pursue without being
immediately constrained by the they currently control.
a. opportunities; resources
b. opportunities; core competencies
c. threats; resources
d. threats; core competencies
ANSWER: a

50. exist(s) when there is a need in the market that can be satisfied by new goods
or services.
a. Potentiality
b. Market readiness
c. Entrepreneurial opportunities
d. Critical core competencies
ANSWER: c
51.Since it replaces existing products and methods of production,
entrepreneurship is a process of
a. harnessing the human potential.
b. creative destruction.
c. creation of opportunity.
d. exploitation of innovation.
ANSWER: b

52.GreenBox, a company that recycles paper products to make cardboard

cartons, has introduced a new
product that resists damage by moisture. Green Box can expect that
a. this innovation will resist competitors' attempts to imitate it.
b. its investors will react positively to the introduction of the new product
because of the potential for
higher returns.
c. its investors will react negatively because of the risk and cost entailed in
introducing a new product.
d. this will be recognized in the industry as a radical innovation.
ANSWER: b

53.Innovation creates a(n)

a . opportunity for a new product or process.
b. new product or process.
c. commercial product.
d. idea for potential exploitation.
ANSWER: c

54. According to Peter Drucker, the primary goal of innovationis to

a. promote social wellbeing.
b. increase the number of jobs.
c. create wealth.
d. support national economies.
ANSWER: c

55. The three types of innovative activity include all of the following EXCEPT
a. invention.
b. imitation.
c. implementation.
d. innovation.
ANSWER: c

56. Products developed through ........ are often offered at lower prices without as
many features than products developed through ............ .
a. innovation ; imitation.
b. imitation ; invention.
c. imitation ; innovation.
d. innovation ; invention.
ANSWER: c
57. The number of patents held by an organization is a rough guide to the
a. effective use of organizational politics.
b. future success of an initial public offering.
c. amount of venture capital a firm will be able to attract.
d. level of innovation in a firm.
ANSWER: d

58. 3M's Cubitron II, described as "an industrial abrasive that cuts faster, lasts
longer, sharpens itself, and requires less elbow grease than any other abrasive
on the market " is an example of
a. imitation of a competitor's product.
b. a radical innovation.
c. an incremental innovation.
d. a(n )innovation created through a cooperatives trategy.
ANSWER: c

59. ____ are individuals, acting independently or as part of an organization, who

see an opportunity and then take risks to develop an innovation to exploit it.
a. Leaders
b. Innovators
c. Entrepreneurs
d. Transformative leaders
ANSWER: c

60. Entrepreneurs tend to have all the following characteristics EXCEPT

a. willing to take responsibility for projects.
b. passion.
c. preference for certainly about projects.
d. optimism.
ANSWER: c

61. Roland has developed and patented an inexpensive and organic way to
enhance the fertility of clay soils without the addition of chemical fertilizers. But
established agricultural chemical companies have rejected his proposals. After 6
months of promoting his invention during his time off from his regular
job, Roland has decided to set his dream aside. Roland lacks a key characteristic
of successful entrepreneurs, which is
a. the ability to identify opportunities.
b. a corporate sponsor.
c. financial slack.
d. passion for his invention.
ANSWER: d

62. If the firm's current employees are well trained in their jobs, but also have
other knowledge, skills, and abilities, these employees have
a. social capital.
b. entrepreneurial capabilities.
c. high absorptive capacity to learn.
d. intellectual slack.
ANSWER: c
63. Knowledge must be transferred to others in the firm to enhance the
entrepreneurial competence of the firm. This requires that
a. the receiving party have adequate absorptive capacity to learn.
b.the communication process be highly intensive.
c. the knowledge be broken into the smallest comprehensible units.
d. training consultants be involved in every step of transference.
ANSWER: a

64. The risks of international entrepreneurship include all the following EXCEPT
a. unstable foreign currencies.
b. problems with market efficiencies.
c. limitations on market size.
d. strong "buy - domestic " programs.
ANSWER: d

63. Knowledge must be transferred to others in the firm to enhance the

entrepreneurial competence of the firm. This requires that
a. the receiving party have adequate absorptive capacity to learn.
b. the communication process be highly intensive.
c. the knowledge be broken into the smallest comprehensible units.
d. training consultants be involved in every step of transference.
ANSWER:a

64. The risks of international entrepreneurship include all the following EXCEPT
a. unstable foreign currencies.
b. problems with market efficiencies.
c. limitations on market size.
d. strong "buy-domestic" programs.
ANSWER:d

65. Research shows that internationally diversified firms tend to be ______ than
domestic-only firms.
a. less profitable
b. more innovative
c. less technologically advanced
d. more likely to have an individualistic culture
ANSWER:b

66. The level of entrepreneurial activity in a nation is ___________ the nation's level
of economic development.
a.negatively related to
b. independent of
c. positively related to
d. weakly related to
ANSWER:c

67. _____ is one of the reasons for the differences in rates of entrepreneurship
among different
countries.
a. Climate
b. Competitiveness
c. Culture
d. Constitution
ANSWER:c

68.Research suggests that is needed to encourage entrepreneurial behavior.

a.individualism rather than collectivism
b. a balance between individualism and cooperative behavior
c. collectivism rather than individualism
d. limited autonomy and incentives
ANSWER:b

69. Agro Pharmis searching for a top- level executive. Agro Pharm has market
edits products only to U.S. farmers and agribusinesses in the past. Now, the
company plans to expand operations to Mexico and Central America in the next 2
years. To maximize the chances of success it is critical that the new executive
a. be of Hispanic descent.
b. have international experience.
c. possess an advanced degree in animal science.
d. have a background in managing agribusiness firms.
ANSWER:b

70. Which of the following is true? For firms to be entrepreneurial, they require a
culture with
a. an emphasis on individualism in Western nations and an emphasis on
collectivism in Eastern nations.
b. an exceptionally high level of collectivism.
c. a balance of individualism and collectivism.
d. an exceptionally high level of individualism.
ANSWER:c

71. Successfully creating innovations through internal means requires

a. a highly individualistic culture.
b. significant spending on R&D.
c. acquisitions of innovative firms.
d. venture capital.
ANSWER:b

72.Panera Bread has innovated to improve the quality of its distribution system,
to improve the quality of its bread dough, and to introduce new menu items.
These are examples of
a. incremental innovation.
b. invention.
c. imitation.
d. the use of social capital
ANSWER: a
73.Panera Bread develops and produces its own dough based products, but it
works with manufacturing
partners to create new soups. Panera Bread is therefore
a.increasing its costs and reducing its potential to succeed.
b.engaged in internal corporate venturing.
c.pursuing innovation through both internal and cooperative strategies.
d.not an innovative company.
ANSWER: c

74.Quadro Vax is investing heavily in research and development on new

methods of vaccine
development that would speed up the creation of vaccines for newly emerging
viruses and to get these
vaccines to the market rapidly. Quadro Vax's shareholders can expect
a.immediate wealth creation.
b.along wait for an uncertain payoff.
c.along wait for a high probability payoff.
d.a large payoff in the short term with rapidly decreasing wealth generation in
the longer run.
ANSWER: b

75.A successful innovation will be less risky but less profitable than a successful
innovation.
a.incremental; radical
b.radical; incremental
c.alliance-generated; acquisition generated
d.acquisition-generated; alliance generated
ANSWER: a

76.The development of the original personal computer (PC) was a(n) ……….
Innovation at the time,
whereas adding a different kind of whitening agent to a soap detergent in an
example of a(n)
a.incremental; radical
b.radical; incremental
c.concentric; radical
d.radical; concentric innovation.
ANSWER: b

77.Innovations that involve significant technological breakthroughs and create

new knowledge
a.build incrementally on the firm's existing technologies and knowledge.
b.are the most common type of innovation.
c.involve substantial uncertainty and risk.
d.typically have clear market opportunities.
ANSWER: c

78. --------- involves internally developed incremental and radical innovations

that result from deliberate efforts.
a.Internalcorp orateventuring
b.Autonomous strategic behaviors
c. Bottom-up strategic behaviors
d.Product championing
ANSWER: a

79.Internal corporate venturing does NOT involve

a.autonomous strategic behavior.
b.induced strategic behavior.
c.strategic alliances.
d.product champions.
ANSWER: c

80.Way Ward Products has a deliberate strategy to encourage internal

innovations. It has established
processes to support autonomous strategic behavior as well as induced strategic
behavior. Way Ward
Products is involved in
a.entrepreneurial incubation.
b.creative destruction.
c.internal corporate venturing.
d.cooperative innovation strategies.
ANSWER:c

81.One of the distinguishing differences between the two sources of internal

corporate venturing (autonomous strategic behavior and induced strategic
behavior) is whether the innovation process
a.is encouraged through ha bottom-up or top-down process.
b.is encouraged by a product champion or an entrepreneur external to the
organization.
c.relies on internal structure or existing strategy to encourage innovation.
d.is in a large or small organization.
ANSWER:a

82.Autonomous strategic behavior is a(n) process in which product champions

pursue new ideas.
a.topdown
b.horizontal
c. integrated
d.bottom-up
ANSWER:d

83.The İdea that it is "vital to sell the ideas to others in the organization so that
innovations will be
commercialized" is the rationale behind the use of
a.product champions.
b. joint ventures.
c.strategic leadership.
d.cross-functional teams.
ANSWER: a

84.A negative effect of acquiring other firms for the purpose of innovation is
a.innovat ions cannot be transferred between organizations
b.the effect it can have on the firm' s own ability to produce innovations.
c.innovations may not actually be present in the firm after the purchase is
completed.
d.the acquired firm's employees usually leave.
ANSWER: b

85.Charles is a customer service representative for a home improvement store.

He has creative ideas
about how to increase customer satisfaction. Charles's talents will be most likely
to be used In a firm
that
a.uses the induced strategic behavior form of internal corporate venturing.
b.uses the autonomous strategic behavior form of internal corporate venturing.
c.makes significant investment in research and development.
d.focuses on an acquisition strategy for gaining innovative ideas.
ANSWER: b

86.The new abrasive, CubitronII, was developed through cooperative

relationships among 3M business units. As such,CubitronII is an example of
a.the use of autonomous strategic behavior.
b.the use of induced strategic behavior.
c.development of radical innovations.
d.innovation through acquisitions.
ANSWER: b

87.To be successful, an autonomous process for developing new products relies

on
a.the diffusion of tacit knowledge.
b.the acquisition of innovative firms.
c.strategic alliances with other firms.
d.internal corporate venturing.
ANSWER: a

88.Induced strategic behavior is a process that fosters product innovations that

a.are likely to change a firm's strategic intentand mission.
b.will lead to greater financial returns.
c.are aligned closely with current strategy and structure.
d.will come to market in a short period of time.
ANSWER: c

89.Induced strategic behavior as a form of internal innovation is a(n)

process.
a.bottom-up
b.top-down
c.freeflowing
d.external
ANSWER: b

90. Through the work of cross-functional teams, product development stages are
grouped into --
----- processes.
a.short-term and long-term
b.parallel or over lapping
c.serially ordered
d.complementary
ANSWER: b

91.In the implementation of internal innovations, formal and informal processes

are best
supported through organizational --- structures.
a.vertical
b.horizontal
c.functionally oriented
d.multidivisional
ANSWER: b
92.A major barrier to the use of cross functional teams is
a. excessive individualism of creative people.
b. lack of communication skills of technical people.
c. independent frames of reference of team members.
d.lack of social capital by team members.
ANSWER: c

93.A cross functional product development team has been examining a proposed
new product intensively for 6 months. The team has decided that although the
product is unique and technologically advanced, the cost of production will
exceed the price that the consumer would be willing to pay. At this point, the
product development team should
a.engage in creative destruction.
b.recommend that the product be sold at a loss in order to create a new market.
c.turn over the product evaluation to a new product development team which
may have more
passion for the product.
d.recommend that the project be set aside.
ANSWER: d

94. When used effectively, cross functional teams will often bring about
a. faster product development processes.
b.an increased need for additional information.
c.conflicting information about the business environment.
d.future cooperative alliances.
ANSWER: a

95. Which of the following is one of the barriers to effectiveness when using
cross functional
teams to integrate organizational functions?
a. dissension within the top management team
b.informal organizational processes within the firm
c.the firm's strategic orientation
d. organizational politics
ANSWER: d

96.Cross functional teams are useful in developing and commercializing new

products because
each team member brings his or her special competencies to the project. Each
team member
brings his/her point of view from his/his experience and background. On the
other hand, these
team members ---- may cause barriers to effective communication among
A . independent frames of reference
b.entrepreneurial mind-sets
c.professional rivalries
d.politicized points of view
ANSWER: a
97.A cross functional work team is having difficulties in operating smoothly and
friction has developed among some of the members. Many of the strongest
complaints are from there presentatives of management who complain that
there search scientists are disorganized, haphazard, and undisciplined. Managers
complain the scientists do not adhere to any fixed rules or procedures. On the
other hand, there search scientists complain that the managerial representatives
are excessively rule oriented bureaucrats, and have no flexibility or spontaneity.
The main problem with this team seems to be centered around differences in
a. interpersonal orientation.
b. time orientation.
c. goal orientation.
d. formality of structure.
ANSWER: d

98.The dimensions on which functional departments can vary include all the
following EXCEPT
--- orientation.
a.time
b.customer
c.technological
d.interpersonal
ANSWER: c

99.The competition for resources among those representing different

organizational functions within a
firm often leads to
a.erosion of social capital.
b.heightened communication.
c.organizational politics.
d.empowerment of organizational members.
ANSWER: C

100.The firm's culture promotes unity of purpose for crossfunctional work

teams through
a.a collectivist structure.
b.an entrepreneurial mindset.
c.shared values.
d.resource allocation.
ANSWER: C

101.Independent frames of reference and organizational politics are the two

primary barriers to
crossfunctional team integration. Two methods to facilitate cross-functional
integration are ...............
and ..................
a.autonomous strategic behavior; induced strategic behavior.
b.incremental innovations; radical innovations.
c.bottom-up integration; top-down integration.
d.shared values; effective leadership.
ANSWER: D

102.Value creation through internal innovation originates with

a.an entrepreneurial mind-set.
b.cross-product development teams.
c.shared values and entrepreneurial leadership.
d.innovation.
ANSWER: A

103.Practical Solutions is a small firm providing employee assistance programs

for companies with
troubled employees. Practical Solutions frequently partners with other
consulting firms to provide
creative solutions for companies with personnel problems. This history of
partnering exemplifies
a.intellectual capital.
b.institutional capital.
c.alignment of complementary assets.
d.technological capital.
ANSWER: C

104.Blixin Concrete Products, an established firm, is seeking a technologically

advanced partner for a
strategic alliance. If the potential partner is a new entrepreneurial venture, the
main benefit the Blixin
Concrete can offer is probably
a.investment capital.
b.management expertise.
c.research and development competencies.
d.social networks.
ANSWER: A

105.Regarding partnering in cooperative alliances, entrepreneurial new

companies may seek ..............
while more established companies may need ...................
a.distribution channels; tacit knowledge.
b.deep technological expertise; distribution channels.
c.social capital; technical capital.
d.investment capital; new technological knowledge.
ANSWER: D

106.The main risk in a strategic alliance is that

a.the alliance will not result in a successful innovation.
b.critical employees will be hired away by the strategic partner.
c.one partner will use the other partner's knowledge and use it to enhance its
own competitive abilities.
d.the partners will lose control over their internal processes.
ANSWER: C

107.Why have large pharmaceutical companies been forming alliances with

biotechnology companies?
a.to evade legislative restrictions on drug research in the United States
b.to develop new products and bring them to market
c.because both firms had declining profitability and needed cash in fusions from
other firms
d.in order to gain absorptive capacity
ANSWER: B

108.New entrepreneurial firms are better than larger established firms at

a.implementing innovations.
b.gaining competitive advantage.
c.making alliances.
d.identifying entrepreneurial opportunities.
ANSWER: D

109. ................. is(are) critical in order for a firm to gain access to resources from
partners in ac
ooperative alliance.
a.Complementary strategic goals
b.Shared values
c.An entrepreneurial mind-set
d.Compatible organizational cultures
ANSWER: A