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 earns above-average returns.
d. total profits that can be divided among the competitors within an industry.
The primary role of the board of directors is to monitor and control top-level executives
to protect owners’ interests.
a. True
b. False
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
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.
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
A cooperative strategy is a means by which firms work together to achieve a shared
objective.
a. True
b. False
The Microsoft/Nokia alliance that had hundreds of pages to specify each partner’s
responsibilities would be closest ________
approach to managing cooperative ventures. In contrast, the Renault/Nissan alliance
(Chapter 9 Opening Case) 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. cost maximization; opportunity minimization
d. bureaucratic; organic
Cross-functional work teams are best supported by vertical organizational structures.
a. True
b. False
________ capital increases cooperation among individuals inside and outside the firm.
a. Human
b. Social
c. Visionary
d. Cultural
A company can earn above-average returns only when the value it creates is less than
the costs incurred to create that value.
a. True
b. False
CaseScenario3:ThePetFoodIndustry.
The pet food industry is composed primarily of six market segments: dry dog food, dry
cat food, moist dog food, moist cat food, canned dog food, and canned cat food. Five
large firms dominate the market and each has some market share in all segments, and
the leading share in at least one segment. The largest firm participates solely in the pet
food industry, while the next four firms are actually subsidiaries of some of the world’s
largest food and consumer products companies. Top management of these larger firms
have made public statements that suggest they each see themselves as future leaders of
the pet food industry. All five have acquired comparable skills in terms of
manufacturing and marketing. Two small firms also participate in the industry, but these
players are relatively weak and compete in just two of the six segments; the pet food
industry is the only industry in which they operate. Inputs to the industry are basic
commodities and there is no real threat of substitute products except across segments
and price points. The industry is growing slowly, barely keeping up with the rate of
inflation. Barriers to entry are enormous when pet food companies can gain scale
economies in production coupled with aggressive marketing, though even then these
coordinated actions may only yield average industry profitability. Any firm can increase
its market share only to the extent that another firm’s share is decreased.
Members of the pet food industry are likely to experience
A. no competition.
B. little competition.
C. moderate competition.
D. extensive competition.
A risk of a focus strategy is that the needs of the customer within a narrow competitive
segment may become more similar to those needs of customers in the whole market.
a. True
b. False
Arnold Schwartz, CEO and founder of Schwartz Engineering, has repeatedly rebuffed
efforts by other firms to draw Schwartz Engineering into strategic alliances. Schwartz
Engineering has built its highly successful business around proprietary processes
invented by Mr. Schwartz in the 1980s. Mr. Schwartz is concerned that his firm will be
required to share the sources of its competitive advantage with alliance partners. This is
a reasonable fear.
a. True
b. False
GE’s brand name is a tangible source of competitive advantage for the company.
a. True
b. False
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
Tacit collusion tends to be least used as a business-level, competition-reducing strategy
in highly concentrated industries such as airlines and breakfast cereals even though it
results in higher prices for consumers.
a. True
b. False
Google increasing use of a vertical integration strategy is in line with the extensive use
of that strategy by many manufacturing firms.
a. True
b. False
A financial management firm has existed for more than 70 years. Some of its original
clients’ grandchildren 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.
______ 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/
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.