True / False
1. Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating
strategy.
a. True
b. False
2. Alligator Enterprises has earned above-average returns since its founding five years ago. Since no other firm has
challenged Alligator in its particular market niche, the firm’s owners can feel secure that Alligator has established a
competitive advantage.
a. True
b. False
3. The goal of strategic management is to develop a competitive advantage that is permanent.
a. True
b. False
4. Risk in terms of financial returns reflects an investor‘s uncertainty about economic gains or losses that will result
from a particular investment.
a. True
b. False
5. Average returns are returns in excess of what an investor expects to earn from other investments with a similar
amount of risk.
a. True
b. False
6. Returns can only be measured in accounting terms such as return on assets, return on equity, or return on sales.
a. True
b. False
7. Economies of scale and huge advertising budgets are just as effective in the new competitive landscape as they
were in the past, but they must be reinforced by strategic flexibility.
a. True
b. False
8. The two primary drivers of hypercompetition are the emergence of the global economy and technology.
a. True
b. False
9. The rate of technology diffusion has been steadily increasing over the last two decades.
a. True
b. False
10. While patents may be an effective way of protecting proprietary technology in some industries such as
pharmaceuticals, many firms competing in the electronics industry do not apply for patents.
a. True
b. False
11. Examples of incremental innovations include iPods, PDAs, Wi–Fi, and web browser software.
a. True
b. False
12. The rapid rate of technological diffusion has increased the competitive benefits of patents.
a. True
b. False
13. Developed countries still have major advantages in access to information technology over emerging economies
because of the significant cost of the infrastructure needed for computing power.
a. True
b. False
14. The rate of growth of Internet-based applications could be affected by the possibility of Internet service providers
charging users for downloading those applications.
a. True
b. False
15. The new CEO of Opacity Enterprises is determined to make the long–established firm strategically flexible. The
CEO feels that the employees of the company have the ability, training, and resources to engage in continuous
learning. The main obstacle the CEO must face is inertia.
a. True
b. False
16. The I/O (industrial organization) model assumes that the uniqueness of a firm’s resources and capabilities is its main
source of above-average returns.
a. True
b. False
17. The CEO of Twin Spires, Inc., is emotionally and intellectually committed to using the resources of the firm to
serve the needs of the natural gardening community by providing rare and native plants to individuals and nurseries
around the United States. This commitment has carried the CEO through long periods of below–average returns on
investment. The perspective of the CEO of Twin Spires is consistent with the assumptions of the industrial
organization (I/O) model.
a. True
b. False
18. Although the fast food (or quick-service) industry is unattractive, McDonald’s has earned above-average returns
through product innovations, enhancing existing facilities, and buying properties outside the United States.
a. True
b. False
19. The five forces model suggests that firms should target the industry with the highest potential for above-average
returns and then implement either a cost-leadership strategy or a differentiation strategy.
a. True
b. False
20. The uniqueness of a firm‘s resources and capabilities is the basis for a firm‘s strategy and determines its ability to
earn above-average returns under the I/O view.
a. True
b. False
21. Research shows that a greater percentage of a firm’s profitability is explained by the I/O rather than the resource-
based model.
a. True
b. False
22. The resource-based model assumes that if firms have resources that are rare or costly to imitate, this is sufficient to
form a basis for competitive advantage.
a. True
b. False
23. Resources are considered rare when they have no structural equivalent.
a. True
b. False
24. The assumptions of the industrial organization model and the resource-based model are contradictory. Therefore,
organizational strategists must choose one or the other model as the basis for developing a strategic plan.
a. True
b. False
25. An effective vision statement will specify the market to be served.
a. True
b. False
26. An effective vision stretches and challenges people and can result in increased innovation as illustrated by Apple’s
CEO Steve Jobs, who was known to think bigger and differently than most people (“putting a dent in the universe”).
a. True
b. False
27. Organizational mission statements typically do not include statements about profitability and earning above-average
returns.
a. True
b. False
28. A firm‘s mission tends to be enduring while its vision can change in light of changing environmental conditions.
a. True
b. False
29. Organizational stakeholders are the firm’s internal resources, capabilities, and core competencies that are used to
accomplish what may at first appear to be unattainable goals in the competitive environment.
a. True
b. False
30. The degree to which the firm is dependent on a stakeholder group gives that stakeholder less influence.
a. True
b. False
31. Relative power is the most critical criterion for prioritizing the demands of stakeholders.
a. True
b. False
32. Hourly workers on the production line of a chicken-processing plant are considered organizational stakeholders.
a. True
b. False
33. Customers, suppliers, unions, and local governments are examples of capital market stakeholders.
a. True
b. False
34. When the firm earns lower-than-average returns, the highest priority is given to satisfying the needs of capital
market stakeholders over the needs of product market and organizational shareholders.
a. True
b. False
35. Six years ago, Colette Smith founded a successful catering company that specializes in providing a wide assortment
of miniature cheesecakes for corporate and social events. Although Ms. Smith is no longer active in the actual
production of the cheesecakes, she continues as president of the catering company. Ms. Smith could be considered
a strategic leader of this firm.
a. True
b. False
36. Although organizational cultures vary considerably, one cannot make an objective judgment that some organizational
cultures are more or less functional than others.
a. True
b. False
37. Strategic leaders must have a strong strategic orientation while embracing change in the dynamic competitive
landscape.
a. True
b. False
38. Profit pools allow strategic leaders to predict the outcomes of their decisions before taking efforts to implement
them.
a. True
b. False
39. Corporate-level strategy in a diversified organization requires a common business strategy for each component
business.
a. True
b. False
40. An organization’s willingness to tolerate or encourage unethical behavior is a reflection of its core values.
a. True
b. False
41. McDonald’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.
42. A firm has achieved when it successfully formulates and implements a value-creating strategy.
a. strategic competitiveness
b. a permanently sustainable competitive advantage
c. substantial returns
d. legal and ethical core values
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.
44. Above-average returns are
a. higher profits than the firm earned the previous year.
b. higher profits than the industry averaged over the last 10 years.
c. profits in excess of what an investor expects to earn from a historical pattern of performance of the firm.
d. returns in excess of what an investor expects to earn from other investments with a similar level of risk.
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 with input from other stakeholders that seeks to achieve above-
average returns for investors through effective use of the organization’s resources.
d. the full set of commitments, decisions, and actions required for the firm to achieve above-average returns
and strategic competitiveness.
46. The primary drivers of hypercompetition are
a. rising global socio-economic instability 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.
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.
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
49. has become the second-largest economy in the world.
a. The United States
b. The European Union
c. Japan
d. China
50. The economic interdependence among countries as reflected in the flow of goods, services, financial capital, and
knowledge across country borders is defined as
a. hypercompetition.
b. boundaryless retailing.
c. strategic intensity.
d. globalization.
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.
52. 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 a disadvantage when competing in
the U.S. market.
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. acquire a local competitor in each significant foreign market.
d. develop good negotiating skills in order to take advantage of local suppliers in the international market.
54. The rate of technological diffusion is increasing. Which of the following was fastest in penetrating 25 percent of
homes in the U.S. market?
a. telephone
b. television
c. personal computer
d. Internet
55. New markets created by iPods, PDAs, and Wi-Fi are a result of
a. disruptive technologies.
b. global competition.
c. knowledge intensity.
d. hypercompetition.
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.
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.
58. The CEO of Ridgeway, 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 intelligence gathering
59. Knowledge is composed of all the following EXCEPT
a. insight.
b. expertise.
c. information.
d. intelligence.
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 a proportion of shareholder value is increasing.
d. All of these options are correct.