MGMT 464 Test 2 – Flashcards
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In the context of SWOT analysis, which of the following best exemplifies a firm's internal weakness?
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Decline in the firm's market share
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Which of the following statements accurately brings out the difference between economies of scale and learning effects?
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While there are no diseconomies to learning, there are diseconomies to scale.
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Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario?
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Differentiation
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When evaluating the sustainability of a firm's competitive advantage, which of the following statements is NOT true?
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If managed effectively, existing core competencies can help sustain the competitive advantage indefinitely.
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To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to:
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contribute to the firm's strategic position as either low-cost leader or differentiator
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Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its:
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economic value creation exceeds that of its competitors.
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Amazon.com's ability to provide the largest selection of items online, combined with superior IT systems and customer service, can be referred to as its _____.
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core competency
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Both BioThink Inc. and GD Pharma Inc. have discovered similar vaccines to prevent cancer. While GD Pharma's vaccine sells at $100 per unit, BioThink sells its vaccine at $90 per unit. This price differentiation has mainly been attributed to the companies' capital decisions. While BioThink used its retained earnings to develop the vaccine, GD Pharma borrowed funds from banks to develop the vaccine. Thus, GD Pharma pays a higher interest on its capital, which makes it necessary to price its vaccine higher. Thus, the key driver for BioThink's competitive advantage is:
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low-cost input factors.
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_____ precisely indicates how much of a firm's sales is converted into profits.
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Return on revenue
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A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the _____.
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economic value created
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Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?
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In economic value perspective, analysts not only consider historical costs, but also opportunity costs.
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Photohome is a file hosting service that allows users to store up to 5GB of data with no restrictions or charges. However, users have to pay a fee for advanced features on the cloud storage system and additional storage space. Which of the following business models does this best illustrate?
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Freemium
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Although True Ion Inc. and One Electro Inc. operate in the same consumer electronic industry, True Ion Inc. has better sales and brand equity. This is attributed to True Ion Inc.'s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area where One Electro Inc. lacks. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated?
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Resource heterogeneity
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During the process of formulating an effective business model, a firm's managers should first:
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transform their strategy of how to compete into a blueprint of actions and initiatives.
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According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?
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Innovation that allows competitors to emerge with more economical replacements
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As a result of _____, a critical assumption in the resource-based model of a firm, the resource differences that exist between firms are difficult to replicate.
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resource immobility
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A firm's learning curve is steeper than that of its competitor. What does this imply?
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The firm is at an advantage when compared to its competitor.
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KitchenThings Inc. is a company that manufactures plastic kitchenware. It operates at an output level that allows it to keep its unit cost per output to the lowest in the industry. This in turn allows KitchenThings to be the price leader. Other competing companies cannot operate at the same level due to a lack of consumer demand for their products. This puts them at a competitive disadvantage. In this scenario, the cost driver behind KitchenThings's strategic position is _____.
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Economies of scale
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While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, manufactures a pair of shoes at $22. Both the companies are able to sell their shoes for a maximum of $30 per pair. Which of the following statements is NOT true in this scenario?
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Shoes Cult has a competitive advantage over Aros.
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True Sync Inc. is a software company, which has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of True Sync Inc. will best enable it to gain and sustain a competitive advantage?
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The expertise acquired by the employees in the company
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_____ are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy.
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isolating mechanisms
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Evia Cycles Inc. incurs $400 to manufacture a bicycle, and the maximum price customers are willing to pay is $550 per unit. Archer Cycles Inc., its competitor, incurs $450 to manufacture a similar bicycle, and customers are willing to pay a maximum price of $620 for it. What does this indicate?
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Archer Cycles has created a greater economic value than Evia Cycles.
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In the fiscal year 2012, BlackBerry's Cost of goods sold (COGS)/Revenue ratio was higher than that of its competitor, Apple. This implies that BlackBerry needs to work toward:
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driving down its costs.
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Due to resource immobility, a critical assumption in the resource-based model of a firm, the:
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resource differences between firms last for a long time.
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Which of the following statements is true of accounting data?
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Accounting data are historical data and thus backward-looking.
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A cost-leader is protected from the threat of new entrants primarily due to its:
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Economies of scale
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Which of the following is NOT a limitation of the economic value creation framework?
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The framework fails to provide the foundation that will help firms decide between cost-leadership or differentiation strategies.
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In the context of the resource-based model of competitive advantage, if a successful firm exhibits resource immobility it means that the:
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firm will have a sustained competitive advantage because of its unique resources.
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The top management at BioTrue Pharma Inc. through rigorous testing ensures that the company develops and sells drugs that are free of harmful side-effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Bio True Pharma are applying the _____ approach to measure firm performance.
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triple bottom line
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In the _____ business model, the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods.
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razor-razor-blade
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Even though many valuable, rare, and inimitable resources were generated at Xerox's Palo Alto Research Center (PARC), the management at Xerox's headquarters failed to gain a competitive advantage by exploiting the breakthroughs in computing software and hardware. What is the most likely implication of this example?
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A firm must be effectively organized to capture value.
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A firm experiences diseconomies of scale when it:
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produces at an output level beyond the minimum efficient scale.
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True Vibgyor Inc. sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is True Vibgyor implementing?
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Razor-razor-blade
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The perfectly competitive industry structure differs from the resource-based model in its view that:
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all firms have access to the same resources.
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In the context of SWOT analysis, a firm can develop an offensive strategic option primarily by:
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using its internal strengths to exploit external opportunities.
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Due to path dependence:
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strategic decisions have long-term consequences.
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_____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.
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Receivables turnover
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Which of the following is a drawback of the SWOT analysis?
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A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat
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Both Myoco Electronics Inc. and Electra Series Inc. have achieved cost parity in the television market. To gain and sustain a competitive advantage against Electra Series, Myoco Electronics should:
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create greater perceived economic value than Electra Series.
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Which of the following resources is a firm's resource stock?
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Reputation for quality
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Which of the following statements is NOT true of competitive advantage?
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Competitive advantage is an absolute measure.
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Which of the following statements accurately describes a firm's resource stock?
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Resource stocks are a firm's current level of intangible resources.
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Which of the following is NOT an accurate expression of the economic value created per unit of a product sold?
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The difference between the price charged and the firm's cost
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Which of the following statements is true of the balanced scorecard?
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It attempts to provide a holistic perspective on firm performance.
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Return on risk capital primarily includes:
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stock price appreciation plus dividends received over a specific period.
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When a firm combines experience based learning and process innovation, the firm:
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jumps to a steeper learning curve.
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_____ describes a process in which the options one faces in a current situation are limited by decisions made in the past.
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Path dependence
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As the cumulative output in a firm increases, managers learn how to optimize the production process and improve workers' performance through repetition. This drives down the per-unit cost. Which of the following phenomena is best described here?
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Learning effects
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A firm's resources and capabilities are costly to imitate. This is because rival companies do not clearly understand the relationship between the resources and capabilities controlled by the firm. In this case, the firm's competitive advantage is protected against imitation by _____.
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causal ambiguity
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With regard to the VRIO framework, Crocs Shoes was unable to sustain its competitive advantage primarily because its products were:
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easy to imitate.
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After trying on a dress, a consumer assesses it to be worth a maximum of $100 and is willing to pay that amount for the dress. However, the dress was priced at $80. What is the amount, $100, referred to as?
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The value (V) the consumer attaches to the dress
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Oviyo Inc. has been successful at differentiating itself from competitors by claiming a premium price for its digital cameras based on superior image quality and advanced technology. In this scenario, which of the following is the key value driver?
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Product features
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Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, a firm will only be successful today if its:
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internal strengths change with its external environment in a dynamic fashion.
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Which of the following statements is true of learning curves?
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Learning curves can be observed in manufacturing processes and professional services.
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Which of the following management tools will help determine whether a firm's resources, capabilities, and competencies are strengths or weaknesses?
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VRIO framework
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Using the _____ approach, managers audit their company's fulfillment of its social and ecological obligations to stakeholders such as employees, customers, suppliers, and communities as conscientiously as they track its financial performance.
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triple-bottom-line
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True Moto Corp. (TMC) is a leading automobile company. The company has been able to sustain its competitive advantage primarily due to its high quality and efficient electric motors. Most of its competitors have failed to develop similar electric motors at a reasonable price. Which of the following resource attributes listed in the VRIO framework has helped TMC sustain its competitive advantage?
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High costs involved in imitation
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Which of the following is a firm effect that has an impact on the competitive advantage of a firm?
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The value and the cost position of the firm relative to its competitors
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Master's Health Club, a chain of gyms and spas, requires its customers to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?
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Subscription-based
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_____ describes a situation in which the cause and effect of a phenomenon are not readily apparent
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Causal ambiguity
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In the context of the SWOT matrix, which of the following best exemplifies a firm's internal strength?
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Increase in a firm's customer loyalty
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BodyBlush Inc. is a brand reputed for its wide variants of body wash that introduced its range of shampoos and skin moisturizers a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is BodyBlush applying?
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Economies of scope
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Combining economies of learning with the existing production technology allows a firm to:
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move down a given learning curve.
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When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in _____.
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strategic trade-offs
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_____ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).
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Fixed asset turnover
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If a resource is rare or unique to a particular firm, then:
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the firm will be able to maintain a competitive advantage for a long period.
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Wear Crush Inc. is an apparel company known for its affordable clothes that follows a cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic position with:
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an apparel company popular among price-conscious customers.
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A firm is said to have a competitive advantage over its rivals when it:
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reaches the productivity frontier
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A firm's business strategy will lead to a competitive advantage if it allows the firm to:
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perform different activities than its rivals.
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Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through _____.
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backward integration
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Which of the following is more of a value driver than a cost driver?
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Superior customer service
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Which of the following ratios best expresses inventory turnover
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Cost of goods sold/Inventory
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A defining characteristic of the pay-as-you-go business model is that the:
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users pay for only the services they consume.
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Competitors have found it extremely difficult to imitate Gene Electronics Inc.'s valuable resources, capabilities, or competencies. This is primarily because the source for the company's success has been unclear. The competitors are uncertain if Gene Electronics Inc.'s success is due to its strong leadership, the skills of its research and development team, or the timing of the company' s product introductions. Gene Electronics Inc. has been protected from losing its competitive advantage as a result of _____.
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causal ambiguity
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How does causal ambiguity act as an isolating mechanism for organizations?
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It makes it difficult for the competitors to understand why a company has been so successful.
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Bass Watches Inc. initially spent eight man-hours to assemble a wrist watch. But as the production doubled, the number of hours spent on assembling a watch reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as?
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Learning-curve effect
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A _____ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
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business-level strategy
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Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?
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The balanced scorecard model
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Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health check-ups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is:
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availability of complements.
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_____ describes a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its resources over time in its quest for competitive advantage.
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Dynamic capability
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Which of the following is an advantage of the balanced scorecard?
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It allows managers to translate a firm's vision into measureable operational goals.
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From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the _____.
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return on risk capital
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GlamorRace is a cosmetic brand that pursues a cost-leader strategy. Which of the following statements is true of the cosmetic brand?
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It appeals to the price-conscious buyers.
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Which of the following is NOT a condition that can help a firm sustain its competitive advantage?
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When past decisions act as constraints for the current dynamic capabilities
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When Jean Cult Inc. was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $20. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $22. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?
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Diseconomies of scale
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In order to achieve a competitive advantage, a firm should be able to:
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increase the difference between the value created and the cost to produce it.
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The productivity frontier provides a theoretical reflection of the possible best practices at any given time. Why is this an important tool for managers?
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Strategic positions are not fixed, and firms have to refine their positions over time.
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_____ is best described as the process of manufacturing a large variety of tailor-made products or services at a relatively low unit cost.
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Mass customization
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It is difficult even for Apple's managers to pinpoint the underlying cause of the company's phenomenal success. The term that best applies to this difficulty is known as _____.
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causal ambiguity
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In the freemium business model, the:
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users are not charged for the basic features of a product or service, but the user must pay for premium advanced features or add-ons.
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A watch-making company has priced one of its wrist watches at $210. Most of its competitors sell similar watches at $180. Selling anything less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wrist watch?
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$170
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The cost of capital to create a product is a fixed cost because it is:
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unaffected by consumer demand
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Rosa Apparels Inc. outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is available in plenty for very low wages. This has helped the apparel brand become a price leader in the industry. Which of the following is the key driver behind Rosa Apparel's strategic position?
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Low-cost input factors
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Janet is a 23-year-old employee at DR Products Inc. As a millennial, she will tend to:
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expect her company to be socially responsible.
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Talk Age Inc., a telecommunication company, had been drastically losing its market share due to tough competition in the industry. The management hired a reputed consulting firm to advise the company. The experts from the consulting firm pointed out that the company primarily lost out on its competitive advantage due to its tedious internal policies and procedures. These ineffective policies and procedures made the company operations, marketing, and after sales service inefficient. Talk Age Inc. can best solve its problem by working on its _____.
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support activities
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How did McDonald's leverage internal strengths in brand name and consistency to minimize the external threat of easy-to-prepare grocery items?
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By launching a McDonald's line of frozen foods in grocery stores
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Value drivers contribute to a firm's competitive advantage only if:
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the increase in value creation exceeds the increase in costs.
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Which of the following statements accurately describes a firm's resource flow?
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It is the firm's level of investments to maintain or build a resource.
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When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?
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11,000 units
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An integration strategy differs from a low-cost strategy in that:
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the intent of an integration strategy is not to be the absolute lowest-cost provider because an integrator must also increase perceived value.
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Which of the following is an external performance metric?
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Total return to shareholders
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Which of the following drivers simultaneously increases value while lowering cost?
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Innovation
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The concept of a(n) _____ attempts to capture both learning effects and process improvements at firms.
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experience curve
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In a successful _____, the trade-offs between differentiation and low cost are reconciled.
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integration strategy
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Which of the following expressions accurately describes market cap?
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It is the product of the number of outstanding shares and the share price.
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The difference between the price charged for a product and the cost to manufacture it is referred to as the _____.
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Producer Surplus
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How are the critical assumptions of the resource-based model of a firm fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure?
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In perfect competition, all firms have access to the same capabilities, whereas in the resource-based model, resource differences exist between firms in the same industry.
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The fixed asset turnover of a company is 8.3. What do you infer from this?
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Every dollar spent on the company's fixed assets generates $8.30 of revenue.
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Innovate Electronics Inc. allows its customers to personalize their refrigerators in terms of the dimensions, the panels inside, and the color and design of the outer body. Also, customers can include additional features like in-built radios, extra lights, and cold water dispensers based on their individual requirements. The company successfully manufactures these tailor-made goods at a relatively low unit cost and provides it to the customers at a price almost equal to that of the standard refrigerators sold by other companies. What does this scenario best illustrate?
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Mass Customization
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The payable turnover for Apple and BlackBerry (as of fiscal year 2012) was 7.4 and 24.8 respectively. From this data we can conclude that:
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Apple has been more efficient than Blackberry in paying creditors and generating interest-free loans from suppliers.
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Onyx Tech Inc.'s competency in designing and manufacturing efficient microprocessors has made its laptops the most advanced computers in the market. This competency, along with the just-in-time manufacturing system, has enabled Onyx Tech Inc. to increase its profitability by lowering its production costs. Thus, Onyx's competency in designing and manufacturing microprocessors will be considered a(n) _____ resource in the VRIO framework.
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valuable
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Diseconomies of scale refer to:
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increases in cost as output increases
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A company that uses a differentiation strategy can achieve a competitive advantage as long as its:
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economic value created is greater than that of its competitors.
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A defining characteristic of the subscription-based business model is that the:
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user pays for access to a product or service whether he or she uses it during the payment term or not.
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A firm will fail to create a sustained competitive advantage when the:
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fit between its internal strengths and the external environment is static.
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Brown Foods Inc., a leading chocolate producer, anticipated that the prices of cocoa beans would double in less than three years. This would disrupt the availability of cocoa in the industry. Thus, Brown Foods Inc. decided to purchase cocoa plantations in Ghana. As predicted, the prices of cocoa increased twofold. Because of the company-owned cocoa plantations, Brown Foods Inc. was able to sustain its competitive advantage in turbulent times. Which of the following isolating mechanisms does this scenario best illustrate?
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Better expectations of future resource value
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Economies of scale do NOT allow firms to:
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spread their variable costs over a larger output.
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Which of the following is an example of a firm's intangible resources?
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The firm's organizational culture
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FindFor Inc. is an e-commerce retail firm that sells a variety of merchandise online. Through services like cash on delivery, easy return, and online tracking, the company has created more customer value than its competitors (brick-and-mortar businesses) at the same price. Also, the company's costs are substantially low due to minimal investment in operation and administration. In this scenario, FindFor Inc. has most likely been able to provide superior value and cost control through _____.
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strategic positioning
