d.
prospector
e.
related strategy
127. Patagonia is an outdoor-clothing and equipment company founded in the 1960s. In 1993, it
introduced the first fleece jackets made partly from discarded plastic soda bottles. In 2005, it helped to
invent a process to reuse polyester repeatedly and began an apparel recycling program. In 2007, it
developed a wetsuit constructed of a number of different environmentally friendly materials. Patagonia
engages in:
a.
synergy
b.
environmental captaincy
c.
intrapreneurship
d.
green alliance
e.
environmental reaction
128. Which of the following is NOT one of the five key dimensions that characterize an entrepreneurial
orientation?
a.
autonomy
b.
innovativeness
c.
reactiveness
d.
risk taking
e.
competitive aggressiveness
Polaris Industries
Polaris Industries manufactures all-terrain vehicles (ATVs). Since 1998, the company has turned out
innovative products that have pushed it to the Number 2 spot in the industry against such tough
competitors as No. 1 Honda Motor and Yamaha Motor. What caused the growth of the company was
its new CEO Tom Tiller, who left a promising career at GE to take the reins at Polaris. Despite a
growing national movement to highlight the environmental and safety problems posed by ATVs, the
company is thriving. Under Tiller’s leadership, the company’s net profits have grown from $31
million in 1997 to an estimated $135 million in 2005. Supporting this program has been a series of
innovations including the Ranger utility, which is a cross between a Jeep and a golf cart, and the
Predator, an ATV aimed at both the sports and the recreation markets.
129. Refer to Polaris Industries. Its ability to develop new products that its customers want with greater
success than its competition is an example of its:
a.
customer sustainability
b.
organizational advantage
c.
relative competence
d.
distinctive competence
e.
superlative advantage
130. Refer to Polaris Industries. Polaris would have used a(n) _____ to determine how environmental and
safety concerns were affecting the company’s sales.
a.
situational analysis
b.
environmental assessment
c.
competitive audit
d.
strategic analysis
e.
firm-level audit
131. Refer to Polaris Industries. What role do Honda and Yamaha play in Polaris’s strategic group?
a.
reference points
b.
shadowing firms
c.
core firms
d.
tertiary firms
e.
transactional firms
132. Refer to Polaris Industries. What type of grand strategy is Polaris using?
a.
diversification
b.
growth
c.
prospector
d.
portfolio
e.
stability
133. Refer to Polaris Industries. The direct competition between Polaris, Honda, and Yamaha means the
three companies have:
a.
a problem with competitive inertia
b.
a low degree of resource similarity
c.
a high degree of cultural similarity
d.
a high degree of market commonality
e.
the same strategic reference points
134. Refer to Polaris Industries. What basic strategic move should Yamaha use to prevent Polaris from
eroding its sales any further?
a.
flanking
b.
countermove
c.
attack
d.
assault
e.
response
The Rolling Stones
The Rolling Stones are the most successful act in the music industry largely because they run the band
as a business—the Rolling Stones, Inc. Since 1989 (the beginning of the modern age of the Rolling
Stones), the band has generated more than $1.5 billion in gross revenues. That total includes sales of
records, song rights, merchandising, sponsorship money, and touring. Unlike some other groups, the
Stones carry no antibusiness baggage. The Rolling Stones, Inc. operates on a combustible mix of
talent and intense labor—the product of four decades of trial and error. The company licenses over 50
products from underwear to formalwear. Its record earnings from one tour came in 1994 with the
Voodoo Lounge tour, which grossed $121.2 million. Over the past decade, the group’s song writing
has made about $56 million. The next time you see Mick Jagger think of him as the highly successful
CEO of a mid-sized corporation. The goal of the corporation is to continue providing products that
differ from its competitors’ offerings so that fans will continue to pay a premium price for what it sells.
135. Refer to The Rolling Stones. Because other music groups cannot duplicate the value the Rolling
Stones are providing to customers, the band can be said to have:
a.
a contingency management style
b.
a sustainable competitive advantage
c.
resource diversity
d.
resource munificence
e.
a market aggregation strategy
136. Refer to The Rolling Stones. Prior to 1989, the Stones and all other touring bands would hire a tour
director who would cut individual deals with local promoters in each city to set up the shows. In
1989, the Stones were the first group to book their tours themselves dealing with the venues directly
and eliminating the local promoters. The band’s income increased from about $400,000 per show to
$1 million per show. Obviously the Stones were not guilty of:
a.
competitive autonomy
b.
resource substitution
c.
resource lethargy
d.
strategic lethargy
e.
competitive inertia
137. Refer to The Rolling Stones. When compared to other musicians, the Rolling Stones have
demonstrated they have a __________ when it comes to operating as a business.
a.
distinctive competence
b.
marginal advantage
c.
contingency style
d.
synergistic hierarchy
e.
resource munificence
138. Refer to The Rolling Stones. What kind of diversification have the Rolling Stones used to grow their
business?
a.
unrelated
b.
investment-specific
c.
autonomous
d.
relative
e.
acquisitive
139. Refer to The Rolling Stones. A 2002 article in Fortune magazine described Rolling Stones, Inc. as a
cash cow. What was the article’s author trying to say about the corporation?
a.
It has a large share of a fast-growing market.
b.
It has a small share of a fast-growing market.
c.
It has a large share of a slow-growing market.
d.
It has reached its growth potential.
e.
It should engage in unrelated diversification to survive.
140. Refer to The Rolling Stones. What kind of a grand strategy does Rolling Stones, Inc. use?
a.
retrenchment
b.
accommodative
c.
participative
d.
reactive
e.
stability
141. Refer to The Rolling Stones. What kind of positioning strategy does Rolling Stones, Inc. use?
a.
accommodative
b.
consultative
c.
differentiation
d.
prospector
e.
growth
Wikipedia
Jimmy Wales founded Wikipedia, a user-generated online encyclopedia that has 42 times as many
articles as Encyclopedia Britannica and is viewed 7 billion times every month. (A 2005 study of
Wikipedia found that the typical Wikipedia article contained only slightly more errors than a similar
article from the Britannica.) It is a nonprofit operation. Wales decided at Wikipedia’s inception that
user devotion to the web-site could be harnessed later to make Wikipedia-like products for profit.
Three years ago, Wales co-founded a freely-hosted, ad-supported community hosting service called
Wikia. Wales used Wikipedia’s most dependable volunteer contributors to build the site, which does
have advertising and promotion. The site had to draw only a small fraction of Wikipedia’s more than
160 million monthly unique visitors to make a substantial profit. Within two years of its creation,
Wikia was attracting more traffic daily than the web-site for the Los Angeles Times.
142. Refer to Wikipedia. The $12 million Wales raised to fund Wikia, plus the expertise of Wikipedia’s
contributors, are examples of _____ used to create and sustain its competitive advantage.
a.
grand strategies
b.
distinctive competencies
c.
competitive advantages
d.
resources
e.
strategic stances
ANS: D
143. Refer to Wikipedia. According to the SWOT analysis, the willingness of contributors and editors to
ensure that the information provided in Wikipedia and Wikia is accurate and thorough is a _____ for
the company.
a.
competence
b.
strength
c.
threat
d.
strategy
e.
weakness
144. Refer to Wikipedia. What kind of strategy is Wales using with the development of Wikia?
a.
risk-seeking strategy
b.
pioneering strategy
c.
first-mover strategy
d.
risk-avoiding strategy
e.
frontal attack strategy
145. Refer to Wikipedia. The _____ as defined by CEO Jimmy Wales is to provide readily available and
useful information to everyone with computer-access by relying on the knowledge of contributors who
are experts in their fields.
a.
firm-level strategy
b.
corporate-level strategy
c.
industry-level strategy
d.
portfolio strategy
e.
acquisition strategy
146. Refer to Wikipedia. What kind of portfolio strategy did Wales use when he decided to create Wikia,
the freely hosted, ad-supported community hosting service?
a.
related differentiation
b.
unrelated diversification
c.
an integrated acquisition
d.
competency acquisition
e.
related diversification
147. Refer to Wikipedia. According to Michael Porter, which industry force is described by the following
statement? “Wikipedia boasts 5.3 million articles, while Britannica, even including its online versions,
has only 120,000 articles.”
a.
existence of benchmarking
b.
existing complementary products
c.
bargaining power of suppliers
d.
threat of substitute products
e.
bargaining power of buyers
148. Refer to Wikipedia. The only public acknowledgements that Encyclopedia Britannica has made of
Wikipedia have been responses to criticisms, such as the study examining the accuracy of information
and Britannica’s creation of a much smaller online encyclopedia. Which of the following best
describes Britannica’s adaptive strategy?
a.
reactor
b.
diversifier
c.
stabilizer
d.
analyzer
e.
defender
149. Refer to Wikipedia. Wales’s decision to branch out of Wikipedia into the for-profit Wikia is an
example of____.
a.
an unrelated acquisition
b.
a defender of strategy
c.
intrapreneurship
d.
oligopolistic competition
e.
monopolistic competition
StubHub
StubHub, the internet ticket exchange website, was created in 2000 by Jeff Fluhr and Eric Baker
out of their Stanford dorm rooms as an alternative to ticket scalping at venue sites. The founders’
original premise—that a full stadium or arena is better than one that is sold out but poorly
attended—helped StubHub quickly sign contracts with the four major U.S. professional sports
organizations. By offering a venue location (albeit electronic) where season-ticket holders could safely
sell their tickets, StubHub quickly attracted customers.
StubHub then moved into direct consumer marketing by facilitating ticket sales between any two
willing parties including guaranteed delivery through FedEx. StubHub quickly became the second
largest ticket resale auction site, with 2.1 million unique visitors per month and over $100 million in
annual revenue. StubHub’s success naturally attracted competition, and their unique position within
the market began to erode. At the same time, industry powerhouse Ticketmaster began lobbying to
have states outlaw the reselling of tickets for more than their face value.
With rising competition, a business model that was growing obsolete, and the probability of
weakening revenues, StubHub needed a new strategy for growth and profit. Several options present
themselves. First, StubHub could offer advertising space on its site for sporting and theatrical events.
Internet advertising has been the number one revenue generating system for profitable internet
ventures. Google, for example, projects advertising revenues in excess of $26 billion by 2009, and
worldwide ad revenue is expected to increase by over 20% per year in the foreseeable future. StubHub
has avoided this avenue in the past, but with more companies looking to market to its clientele, it has
gradually expanded in this direction.
While StubHub could contract with event sites to sell tickets for them, attempting to undercut
Ticketmaster would be difficult. Most venues would not be eager to pay the same percentage
commission those individuals selling tickets would, and StubHub has no resource-based advantages
over Ticketmaster. This strategy is not a part of StubHub’s current model and would be difficult to
implement. Attacking an entrenched provider is usually a recipe for high expense and low returns.
StubHub’s unique buy/sell/guaranteed delivery method makes expansion of the auction a distinct
possibility. Apparently eBay thought so too, because they bought StubHub in January 2007 for $310
million to replace its own failing ticket resale site (marketplace). Being acquired by eBay gave
StubHub a large cash infusion that boosts many of StubHub’s weaker areas, like access to talent and
experience, established platform, and well, cash.
The infusion of capital from the eBay deal presents a fourth option: StubHub could begin buying
tickets in bulk and then auctioning them off itself. The new system would function similar to the stock
exchange, which might substantially increase site traffic. The necessary information would be readily
accessible, and though StubHub does not currently have the expertise to manage the risks and returns,
that could be acquired. This market is currently unfilled, making it a plausible avenue for expansion.
150. Refer to StubHub. With so many companies able to duplicate the services that it produces, StubHub
clearly_____.
a.
does not have a sustainable competitive advantage
b.
uses strategic reference points to chart its growth
c.
has imperfectly imitable resources
d.
uses benchmarking as its primary competitive advantage
e.
must have a particularly strong distinctive competence
151. Refer to StubHub. If StubHub decided to market concert and sports memorabilia at its Web site, this
would be an example of which portfolio strategy?
a.
harvesting
b.
related diversification
c.
acquisition
d.
revival
e.
differentiation
152. Refer to StubHub. Which of the grand strategies seems most appropriate for StubHub to implement?
a.
retrenchment
b.
service differentiation
c.
growth
d.
unrelated diversification
e.
positioning
153. Refer to StubHub. When creating industry-level strategies, StubHub should concentrate on which of
the following industry forces as defined by Michael Porter?
a.
threat of complementary products
b.
character of organizational structure
c.
character of benchmarks
d.
threat of substitute services
e.
bargaining power of suppliers
154. Refer to StubHub. Since StubHub cannot compete on the basis of cost nor can it limit its target
audience to a particular type of sporting event or concert performance, it must implement a _____
strategy.
a.
differentiation
b.
retrenchment
c.
diversification
d.
service-focus
e.
stability
SHORT ANSWER
1. In 2004, Battlestar Galactica was the highest-rated science fiction television series. Many people at
the time believed it was the best drama show being produced. SciFi (the network, which produced the
show) provided greater perceived value for its viewers than its competitors. Did this give the television
network a competitive advantage or a sustainable competitive advantage? In your answer explain the
meanings of both of these terms.
2. Briefly identify the four conditions that must be met if a firm’s resources are to be used to achieve a
sustainable competitive advantage.
3. Differentiate between competitive inertia and strategic dissonance.
4. How do companies use situational analyses? What are the basic components of a situational analysis?
5. Explain how the concept of strategic group (and its three subtypes) is used in a situational analysis as
part of an environmental scanning activity to identify specific opportunities and threats that can either
improve or harm the company’s ability to sustain its competitive advantage.
6. Briefly describe the BCG matrix and how it is used. Include in your description the types of
recommendations that result from the use of the BCG matrix.
7. Explain what is meant by a grand strategy. List and define the three types of grand strategies.
8. List the five industry forces that determine overall levels of competition in an industry. Identify what
happens to competition as these forces increase in strength.
9. Identify and differentiate between the positioning strategies and the adaptive strategies that may be
used at the industry level.
10. List the four different adaptive strategies. Explain the reason that one tends to have poorer
performance than the others.
11. Briefly explain the concepts of entrepreneurship and intrapreneurship as a firm-level strategy. What
are the five dimensions that characterize this orientation?
ESSAY
1. When videocassette recorders first became popular in the mid-1980s, a new form of “mom and pop”
small business sprang up across the country: the video rental store. At the time, new videotapes of
popular movies cost anywhere from $80 to $200. As the popularity of videocassette recorders grew,
these small, independent video rental stores grew rapidly to meet the demand of consumers for
inexpensive rentals of movies. There was considerable competition between them to be the first to
have expensive, new movies available for rental. However, some stores disappointed customers by not
having enough copies of new films when they were most in demand, upon their initial release on
video. Within about 5 to 8 years of competition, most of these mom and pop video rental stores were
ultimately put out of business by the large regional, and then national chains, such as Blockbuster.
Using the concept of sustainable competitive advantage along with the four conditions required to
produce it, explain how such a transition from hundreds of independent mom and pop video stores to a
few national chains could have taken place so quickly.
ANS:
2. Explain how the concepts of competitive inertia and strategic dissonance are related to the
strategy-making process.
3. Identify the basic steps in the strategy-making process. Then explain the extent to which this process
may be valuable to small firms as well as large firms.
4. Explain the basics of portfolio strategy. Identify the best approach to diversification using this
strategy. Be sure to explain your rationale for arguing that the specified approach to diversification is
the best.
5. Identify Porter’s five industry forces and their role in industry-level strategy. Identify which one
among these five forces could be considered the central one, with its value impacted by the relative
values of the four other forces.
6. Explain what is meant by direct competition. Identify the factors that determine it, and specify the
basic strategic moves involved in such competition. If you were heading an Internet service provider
like Earthlink engaged in direct competition with AOL and other Internet providers, explain the
circumstances under which you would prefer to compete in order to develop a sustained competitive
advantage.