Strategic Management and Competitive Advantage, 4e (Barney)
Chapter 1 What Is Strategy and the Strategic Management Process?
1) One of the central questions that all strategic managers must address, regardless of the
industry they work in, is “What is our competition going to do next?”
2) There is complete consensus among strategic managers and academic researchers about what
a “strategy” is.
3) For the purposes of this book, a firm’s strategy is defined as its theory about how to gain
competitive advantages.
4) A “good strategy” does not necessarily have to create a competitive advantage.
5) The greater the extent to which a firm’s assumptions and hypotheses accurately describe how
the competition in the industry is likely to evolve, and how that evolution can be exploited to
earn a profit, the more likely it is that a firm will gain a competitive advantage from
implementing its strategies.
6) It is usually possible to know for sure that a firm is choosing the right strategy.
7) The strategic management process is a sequential set of analyses and choices that can increase
the likelihood that a firm will choose a good strategy that generates competitive advantages.
8) The second step in the strategic management process is the definition of a firm’s mission.
9) A firm’s mission defines both what it wants to be in the long run and what it wants to avoid in
the meantime.
10) Mission statements often contain so many common elements that even if a firm’s mission
statement does not influence behavior throughout an organization, it is likely to have a
significant impact on a firm’s actions.
11) Firms whose mission statement is central to all they do are known as missionary firms.
12) Visionary firms earn substantially higher returns than average firms because they
acknowledge that profit maximizing is their primary reason for existence.
13) Mission statements that are very inwardly focused and are defined only with reference to the
personal values and priorities of its founders and top managers can hurt a firm’s performance.
14) Objectives are the specific measurable targets a firm can use to evaluate the extent to which
it is realizing its mission.
15) High quality objectives are tightly connected to the elements of a firm’s mission but tend to
be relatively difficulty to measure and track over time.
16) By conducting an external analysis, a firm identifies the critical threats and opportunities in
the industry’s competitive environment.
17) Corporate level strategies are actions firms take to gain competitive advantages in a single
market or industry.
18) Business level strategies are actions firms take to gain competitive advantages by operating
in multiple markets or industries simultaneously.
19) Strategy implementation occurs when a firm adopts organizational policies and practices that
are consistent with its strategy.
20) In general, a firm has a competitive advantage when it is able to create more economic value
than rival firms.
21) The size of a firm’s competitive advantage is the sum of the economic value a firm is able to
create and the economic value rivals are able to create.
22) A sustained competitive advantage is virtually permanent.
23) Firms that create the same economic value as their rivals experience competitive parity.
24) A firm’s accounting performance is a measure of its competitive advantage calculated using
information from a firm’s published profit and loss and balance sheet statements.
25) Applying accounting measures of competitive advantage for firms that are headquartered in
different countries is not complicated by issues such as differences in accounting practices and
exchange rates.
26) Activity ratios are ratios with some measure of profit in the numerator and some measure of
firm size or assets in the denominator.
27) Liquidity ratios are ratios that focus on the firm’s ability to meet its short-term financial
obligations.
28) When a firm earns above average accounting performance, it is said to enjoy competitive
parity.
29) A firm that earns below average accounting performance, performance that is less than the
industry average, generally experiences a competitive disadvantage.
30) The greatest disadvantage of accounting measures of competitive performance is that they
are relatively difficult to compute.
31) Economic measures of competitive advantage compare a firm’s level of return to its costs of
capital instead of to the average level of return to the industry.
32) The cost of equity is equal to the interest a firm must pay its debt holders in order to induce
those debt holders to lend money to the firm.
33) The residual claimants’ view of equity holders argues that the interests of equity holders and
a firm’s other stakeholders often collide.
34) The correlation between economic and accounting measures of competitive advantage is
generally low.
35) Emergent strategies are theories of how to gain competitive advantage in an industry that
emerge over time or that have been radically reshaped once they are initially implemented.
36) Johnson & Johnson’s introduction of “Johnson’s Toilet and Baby Powder” as a result of
customers asking to purchase the talcum powder is an example of a planned strategy.
37) Emergent strategies are only important when a firm fails to implement the strategic
management process effectively.
38) Firms with strategies that are unlikely to be a source of competitive advantage will rarely
provide the same career opportunities as firms with strategies that do generate such advantages.
39) Strategic choices are generally limited to very experienced senior managers in large
corporations; in smaller and entrepreneurial firms, many employees end up being involved in the
strategic management process.
40) All firms have almost entirely emergent strategies.
41) A firm’s ________ is defined as its theory about how to gain competitive advantages.
A) objectives
B) mission
C) vision
D) strategy
42) The sequential set of analyses and choices that can increase the likelihood that a firm will
choose a strategy that generates competitive advantages is the
A) organizational change process.
B) strategic management process.
C) mission statement process.
D) goal setting process.
43) A firm’s ________ is its long-term purpose that defines both what it aspires to be in the long
run and what it wants to avoid in the meantime.
A) mission
B) vision
C) objective
D) goal
44) Missions are often written in the form of
A) vision statements.
B) mission statements.
C) corporate objectives.
D) organizational goals.
45) Firms whose mission is central to all they do are known as ________ firms.
A) missionary
B) legendary
C) parity
D) visionary
46) From 1926 to 1995, visionary firms earned ________ returns compared to firms that were
not visionary firms.
A) substantially lower
B) substantially higher
C) marginally lower
D) substantially equivalent
47) The mission statements of visionary firms
A) suggest that profit maximizing, while an important corporate objective, is not their primary
reason for existence.
B) suggest that profit maximizing is neither an important corporate objective nor their primary
reason for existence.
C) suggest that profit maximizing is their primary reason for existence.
D) suggest that profit maximizing is an important corporate objective and is their primary reason
of existence.
48) Which of the following statements regarding firm mission is accurate?
A) While some firms have used their missions to develop strategies that create significant
competitive advantages, firm missions can hurt a firm’s performance as well.
B) Virtually all firms have used missions to develop strategies that create significant competitive
advantages, while very few firms have used missions that can hurt their performance.
C) It is very rare for firms to be able to use their missions to develop strategies that create
significant competitive advantages, and most firm missions actually hurt their performance.
D) Missions tend to have very little impact on a firm’s ability to create significant competitive
advantages.
49) ________ are specific measurable targets a firm can use to evaluate the extent to which it is
realizing its mission.
A) Visions
B) Missions
C) Competitive advantages
D) Objectives
50) High quality objectives are those that are
A) tightly connected to elements of a firm’s mission.
B) difficult to measure.
C) difficult to track over time.
D) not quantitative.
51) By conducting a(n) ________, a firm identifies the critical threats and opportunities in its
competitive environment.
A) internal analysis
B) competitive analysis
C) external analysis
D) economic analysis
52) ________ helps a firm understand which of its resources and capabilities are likely to be
sources of competitive advantage.
A) Competitive analysis
B) Internal analysis
C) Comparative analysis
D) External analysis
53) Actions firms take to gain competitive advantages in a single market or industry are known
as
A) business level strategies.
B) corporate level strategies.
C) functional level strategies.
D) sustainable strategies.
54) Actions firms take to gain competitive advantages by operating in multiple markets or
industries simultaneously are known as
A) corporate level strategies.
B) functional strategies.
C) business level strategies.
D) macro level strategies.
55) ________ occurs when a firm adopts organizational policies and practices that are consistent
with its strategy.
A) Strategy formulation
B) Organizational change
C) Strategy implementation
D) Strategic control
56) When a firm is able to create more economic value than rival firms it is said to have a(n)
A) comparative advantage.
B) competitive advantage.
C) strategic choice.
D) economic advantage.
57) The difference between the perceived benefits gained by a customer who purchases a firm’s
products or services and the full economic costs of these products or services is known as
A) accounting value.
B) comparative value.
C) economic value.
D) sustainable value.
58) If TechnoGeek and VarsityBlue compete in the same market for the same customer and
TechnoGeek generates $900 of economic value each time it sells a product or service while
VarsityBlue generates $400 of economic value each time it sells a product or service,
TechnoGeek has a competitive advantage of
A) $1,300.
B) $3,600.
C) $360,000.
D) $500.
59) A competitive advantage that lasts a very short period of time is known as a ________
competitive advantage.
A) temporary
B) sustained
C) transient
D) perpetual
60) Firms that create the same economic value as their rivals experience competitive
A) disadvantage.
B) parity.
C) superiority.
D) advantage.
61) Firms that generate less economic value than their rivals experience a competitive
A) advantage.
B) parity.
C) disadvantage.
D) preference.
62) In many ways, the difference between traditional economics research and strategic
management research is that the former attempts to explain why ________, while the latter
attempts to explain ________
A) competitive advantages should not persist; when they can.
B) competitive advantages should persist; when they can.
C) competitive advantages should persist; why they should not.
D) competitive parity should not persist; why they should.
63) The two types of measures of competitive advantage include
A) accounting measures and strategic measures.
B) strategic measures and economic measures.
C) accounting measures and economic measures.
D) qualitative measures and quantitative measures.
64) A firm’s ________ is a measure of its competitive advantage calculated using information
from a firm’s published profit and loss and balance sheet statements.
A) economic performance
B) accounting performance
C) strategic performance
D) sustainable performance