Strategic Management – Chapter 1 Essay

question

According to the Chapter 1 Opening Case, Barnes & Noble and Amazon were more competitive than Borders and adjusted more effectively to changes in the retail book market.
answer

True
question

The Chapter 1 Opening Case shows that Borders was unsuccessful in competing in Internet book sales, but not against brick-and-mortar stores.
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False
question

The Chapter 1 Opening Case illustrates that while Borders was able to achieve strategic competitiveness, it did not achieve above-average returns because of conditions beyond the control of of its top management.
answer

False
question

According to the Chapter 1 Opening Case, Barnes & Noble and Amazon were more effective than Borders in using the strategic management process as the foundation for the commitments, decisions, and actions they took to pursue strategic competitiveness and above-average returns.
answer

True
question

Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy.
answer

True
question

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.
answer

False
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The goal of strategic management is to develop a competitive advantage that is permanent.
answer

False
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Risk in terms of financial returns reflects an investor’s uncertainty about economic gains or losses that will result from a particular investment.
answer

True
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Average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk.
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False
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Returns can only be measured in accounting terms such as return on assets, return on equity, or return on sales.
answer

False
question

According to the Chapter 1 Strategic Focus, Huawei was successful in the US market primarily because of its ability to build Guanxi with the US government.
answer

False
question

The Chapter 1 Strategic Focus shows that while Guanxi is an important element of doing business in China, it is unimportant in doing business in the United States as Huawei discovered when it entered US markets.
answer

False
question

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.
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False
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The two primary drivers of hypercompetition are the emergence of the global economy and technology.
answer

True
question

The rate of technology diffusion has been steadily increasing over the last two decades.
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True
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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.
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True
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Examples of incremental innovations include iPods, PDAs, WiFi, and web browser software.
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False
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The rapid rate of technological diffusion has increased the competitive benefits of patents.
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False
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Apple (Chapter 1 Strategic Focus) is a source of hypercompetition through its development and introduction of disruptive technologies such as the iPod.
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True
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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.
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False
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The rate of growth of Internet-based applications could be affected by the possibility of Internet service providers charging users for downloading those applications.
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True
question

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.
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True
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One capability characteristic of a firm with strategic flexibility is the capacity to learn.
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True
question

The I/O (industrial organization) model assumes that the uniqueness of a firm’s resources and capabilities are its main source of above-average returns.
answer

False
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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 organizational (I/O) model.
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False
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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
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False
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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.
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True
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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.
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False
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Research shows that a greater percentage of a firm’s profitability is explained by the I/O rather than the resource-based model.
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False
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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.
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False
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Resources are considered rare when they have no structural equivalent.
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False
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The assumptions of the industrial organizational 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.
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False
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An effective vision statement will specify the market to be served.
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False
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An effective vision stretches and challenges people and can result in increased innovation as illustrated by Apple’s CEO Steve Jobs who is known to think bigger and differently than most people (“putting a dent in the universe”).
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True
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Organizational mission statements typically do not include statements about profitability and earning above-average returns.
answer

True
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A firm’s mission tends to be enduring while its vision can change in light of changing environmental conditions.
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False
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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.
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False
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The degree to which the firm is dependent on a stakeholder group gives that stakeholder less influence.
answer

False
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The needs and desires of organizational stakeholders are inherently contradictory.
answer

True
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Relative power is the most critical criteria for prioritizing the demands of stakeholders.
answer

True
question

Hourly workers on the production line of a chicken-processing plant are considered organizational stakeholders.
answer

True
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Customers, suppliers, unions, and local governments are examples of capital market stakeholders.
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False
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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.
answer

False
question

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.
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True
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Organizational culture refers to the core values shared by the firm’s top-level managers but not necessarily accepted by lower-level employees who are often transitory and not committed to the organization.
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False
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Although organizational cultures vary considerably, one cannot make an objective judgment that some organizational cultures are more or less functional than others.
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False
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Strategic leaders must have a strong strategic orientation while embracing change in the dynamic competitive landscape.
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True
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Profit pools allow strategic leaders to predict the outcomes of their decisions before taking efforts to implement them.
answer

True
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Corporate-level strategy in a diversified organization requires a common business strategy for each component business.
answer

False
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An organization’s willingness to tolerate or encourage unethical behavior is a reflection of its core values.
answer

True
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According to the Chapter 1 Opening Case, Borders did not a. earn above-average returns. b. achieve strategic competitiveness. c. use the strategic management process. d. all of these answers are correct.
answer

D
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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
answer

A
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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.
answer

C
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Above-average returns are a. higher profits than the firm earned last 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.
answer

D
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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.
answer

D
question

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 decreasing tariffs. d. increased availability of capital and increased competition.
answer

B
question

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.
answer

C
question

Essentially, the _________ has become one of the world’s largest markets with 700 million potential consumers. a. European Union b. The United States c. China d. Japan
answer

A
question

The Chapter 1 Strategic Focus about Huawei illustrates a. the challenge of the global economy where emerging market companies are moving aggressively into international markets. b. Huawei’s ease of entry into the US market. c. Huawei’s success at building good relations with the US government. d. Huawei’s successful acquisition of several US companies.
answer

A
question

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.
answer

D
question

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.
answer

D
question

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 risks 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.
answer

C
question

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.
answer

A
question

The rate of technological diffusion is increasing. Which of the following was fastest in penetrating 25 percent of homes in the United States market? a. Telephone b. Television c. Personal computer d. Internet
answer

D
question

New markets created by iPods, PDAs, and WiFi are a result of a. disruptive technologies. b. global competition. c. knowledge intensity. d. hypercompetition.
answer

A
question

Apple’s development of products such as the iPod and iPad (Chapter 1 Strategic Focus) is an example of a. the march of globalization. b. rapid technological diffusion. c. disruptive technologies. d. products that were not imitated by competitors.
answer

C
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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.
answer

B
question

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
answer

B
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Knowledge is composed of all the following EXCEPT a. insight. b. expertise. c. information. d. intelligence.
answer

A
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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 choices are correct.
answer

D
question

In order to cope with hypercompetition, firms need to develop ____ through continuous learning. a. competitive resilience b. strategic flexibility c. strategic power d. competitive dominance
answer

B
question

All of the following are assumptions of the industrial organization (I/O) model EXCEPT a. organizational decision makers are rational and committed to acting in the firm’s best interests. b. resources to implement strategies are firm-specific and attached to firms over the long-term. c. the external environment is assumed to impose pressures and constraints that determine the strategies that result in above-average returns. d. firms in given industries, or given industry segments, are assumed to control similar strategically relevant resources.
answer

B
question

The industrial organization (I/O) model argues that a. the key factor in success is choosing the correct industry in which to compete. b. the firm’s internal resources and capabilities represent the foundation for development of a value creating strategy. c. the key to earning above-average returns is strategic flexibility. d. the internal structure of the organization must match the industry in which it competes in order to earn above-average returns on investment.
answer

A
question

Which of the following statements is most consistent under the I/O view? Performance of the firm is most directly attributable to a. the power of the financial market stakeholders. b. the resources the firm possesses. c. the profitability of the industry the firm competes in. d. hypercompetition within the industry.
answer

C
question

Firms use the five forces model to identify the ___________ of the industry as measured by its ____________. a. size, number of competitors b. globalization, exports c. hypercompetition, technology diffusion d. attractiveness, profitability
answer

D
question

Although McDonald’s is competing in an unattractive industry, it has improved its performance by focusing on product innovations and by enhancing existing facilities. This improved performance is best explained by a. globalization. b. the resource-based model. c. the I/O model. d. hypercompetition.
answer

B
question

An investor is considering in which of two start-up companies she should invest. The investor has faith in the industrial organizational model of above-average returns, and she is using its concepts to make her decision. Both start-up companies propose to manufacture health-focused foods with such characteristics as low salt, low sugar, high fiber, and no artificial additives. RexRich Foods has a business strategy of producing a differentiated product for which consumers will pay more. Green Pastures Foods is in the health-foods industry because of its internal culture and commitment to healthful lifestyles. Which firm will the investor feel is most consistent with the model of industrial organization? a. Green Pastures Foods b. RexRich Foods c. Both firms are consistent with the I/O approach. d. At the entrepreneurial stage, the model which companies follow is not important.
answer

B
question

Research shows that approximately_____ percent of a firm’s profitability is explained by the industry in which it competes, whereas ______ percent is explained by the firm’s characteristics and actions. a. 90, 10 b. 60, 40 c. 36, 20 d. 20, 36
answer

D
question

All of the following are resources of an organization EXCEPT a. an hourly production employee’s ability to catch subtle quality defects in products. b. oil drilling rights in a promising region. c. weak competitors in the industry. d. a charity’s endowment of $400 million.
answer

C
question

All of the following are assumptions of the resource-based model EXCEPT a. Each firm is a unique collection of resources and capabilities. b. The industry’s structural characteristics have little impact on a firm’s performance over time. c. Capabilities are highly mobile across firms. d. Differences in resources and capabilities are the basis of competitive advantage.
answer

C
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____ is a capacity for a set of resources to perform a task or an activity in an integrative manner. a. A capability b. A core competence c. Sustainable competitive advantage d. Organizational intelligence
answer

A
question

When resources and capabilities serve as a source of competitive advantage for a firm, the firm has created a(n) a. strategic mission. b. inspiring vision. c. core competence. d. sustainable market niche.
answer

C
question

In the resource-based model, which of the following factors would be considered a key to organizational success? a. unique market niche b. weak competition c. economies of scale d. skilled employees
answer

D
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To have the potential to become sources of competitive advantage, resources and capabilities must be non-substitutable, valuable, ____, and ____. a. unique, easy to imitate. b. easy to imitate, difficult to implement. c. rare, costly to imitate. d. easy to implement, unique.
answer

C
question

The resource-based model of the firm argues that a. all resources have the potential to be the basis of sustainable competitive advantage. b. resources alone can be a source of sustainable competitive advantage. c. the key to competitive success is the structure of the industry in which the firm competes. d. resources that are valuable, rare, costly to imitate, and non-substitutable form the basis of a firm’s core competencies.
answer

D
question

The resource-based view of the firm a. emphasizes that it is difficult to develop and sustain a competitive advantage based on resources alone. b. argues that the industry environment has a stronger influence on firms’ ability to implement strategies successfully than does the competitor environment. c. calls for firms to focus on their homogeneous capabilities to compete against their rivals. d. suggests that vision and mission are closely linked to sustainable competitive advantage.
answer

A
question

The goal of the organization’s ____ is to capture the hearts and minds of employees, challenge them, and give shape to its intended future. a. vision b. mission c. culture d. strategy
answer

A
question

The Annandale Academy of Fine Arts states in its brochure that “The Academy intends to become the dominant institution in the nation teaching traditional aesthetic values in traditional artistic media targeting both traditional and non-traditional students.” This pronouncement is most precisely a statement of organizational a. values. b. mission. c. vision. d. culture.
answer

B
question

A firm’s mission a. is a statement of a firm’s business in which it intends to compete and the customers it intends to serve. b. is an internally-focused affirmation of the organization’s financial, social, and ethical goals. c. is mainly intended to emotionally inspire employees and other stakeholders. d. is developed by a firm before the firm develops its vision.
answer

A
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The final responsibility for forming the organization’s mission lies with the a. CEO. b. top-management team. c. employees. d. organization’s stakeholders.
answer

A
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The development of a firm’s mission typically involves which of the following? a. Only the CEO. b. Only top managers. c. The CEO and top managers. d. None of the these.
answer

C
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Organizational stakeholders include a. unions. b. host communities. c. employees. d. suppliers of capital.
answer

C
question

The interests of an organization’s stakeholders often conflict, and the organization must prioritize its stakeholders if it cannot satisfy them all. The ____ is the most critical criterion in prioritizing stakeholders. a. power of each stakeholder b. urgency of satisfying each stakeholder c. vulnerability of organizational stakeholders d. social value of each stakeholder
answer

A
question

Capital market stakeholders include a. industry competitors. b. shareholders. c. employees. d. government regulators.
answer

B
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Dissatisfied capital market stakeholders may: a. Sell their stock. b. Tighten loan covenants. c. Seek to increase their power. d. All of the these.
answer

D
question

Greenleaf Property Management has been earning below-average returns for the last three years. Which of the following statements are true? a. Greenleaf will be able to satisfy its multiple stakeholders easily as long as the stakeholders are committed to the strategic mission of the firm. b. Greenleaf will be able to at least minimally satisfy the demands of each stakeholder. c. Greenleaf will need to prioritize the demands of its stakeholders based on the political influence each wields. d. Greenleaf will not be able to minimally satisfy all stakeholders.
answer

D
question

Product market stakeholders include the firm’s customers, and the principal concern of this stakeholder group is: a. maximizing the firm’s return on investment. b. receiving the highest quality products and services in the industry. c. obtaining reliable products at the lowest possible price. d. increasing the profitability of the firm.
answer

C
question

Generally speaking, product market stakeholders are satisfied when a. a firm’s profit margin yields the lowest return to capital market stakeholders that is acceptable to them. b. a firm’s profit margin yields an above-average return to its capital market stakeholders. c. the interests of the firm’s organizational stakeholders have been maximized. d. the interests of all stakeholders have been at least minimally satisfied.
answer

A
question

Before liquidating, Circuit City took several actions to try to satisfy its __________ stakeholders. a. capital market b. product market c. organizational d. governmental
answer

A
question

The organization’s role as a taxpayer is most important to ____ as stakeholders. a. major suppliers of capital b. shareholders c. host communities d. unions
answer

C
question

Although it closed stores, changed the top management team, and sought potential buyers, none of these actions resulted in outcomes that allowed Circuit City to meet the expectations of its ____________ stakeholders. a. product market b. capital market c. organizational d. governmental
answer

B
question

Organizational stakeholders are usually satisfied when a. their return on investment has been maximized. b. customers pay the highest sustainable price for the goods and services they receive. c. companies provide a dynamic, stimulating, and rewarding work environment. d. companies are paying the highest prices to suppliers.
answer

C
question

Product market stakeholders include a. suppliers. b. shareholders. c. employees. d. the firm’s chief executive officer.
answer

A
question

Refuge Nursing Homes, Inc., (RNH) has been highly profitable in the past 10 years, providing its investors returns in excess of direct competitors. RNH has a reputation for providing high-paying managerial and hourly-employee jobs. However, recent investigations have revealed that the nursing home residents have been provided substandard care, including non-nutritious and unappetizing meals, non-functional medical equipment, and inadequate patient-care staffing. Which statement best describes the situation? a. RNH has been earning below-average returns, so it has had to prioritize the demands of its various stakeholders. b. RNH has prioritized the demands of capital market stakeholders over the demands of product market stakeholders. c. RNH has earned above-average returns and so has satisfied the needs of all relevant stakeholders. d. RNH has been attempting to minimally satisfy the demands of all of its stakeholders.
answer

B
question

A prominent national accounting firm runs television advertisements showing an accountant working alone late in the office on a client’s project, while clenching a long-stemmed rose in his teeth and grinning ecstatically. The message of the ad is that this firm’s accountants love their work. This ad seeks to convey a sense of the organization’s ____ to the viewers. a. culture b. mission c. vision d. personality
answer

A
question

The global economy, globalization, rapid technological change, and the increasing importance of knowledge are creating the need to a. delegate strategic responsibilities to employees “closer to the action.” b. split responsibilities between the CEO and the board of directors as a result of corporate scandals triggered by unethical CEOs. c. re-centralize the responsibility for strategy to the CEO. d. expand the strategic responsibilities to all organizational stakeholders.
answer

A
question

The strategic leader’s work is characterized by a. ambiguous decision situations which make effective decisions difficult to determine. b. a willingness to unify stakeholders through skillful manipulation. c. an ability to identify the correct solutions to long-range problems. d. concentration on the practical day-to-day aspects of the organization’s operations.
answer

A
question

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 up among the competitors within an industry.
answer

B
question

The steps for identifying the profit pools in an industry include of all of the following except: a. Defining the boundaries of the pool. b. Estimating the overall size of the pool. c. Defining the competitors in the pool. d. Estimating the size of the value-chain activity in the pool.
answer

C
question

Analysis of the industry’s profit pool enables strategic managers to a. predict future revenue streams for the organization. b. predict growth in sales over the medium to long range. c. determine whether an industry will be viable in the long term. d. locate the most promising areas of an industry’s value chain.
answer

D
question

If McDonald’s were to map the profit pool in the quick-service restaurant industry, it would do all of the following EXCEPT a. Define the industry’s boundaries and size. b. Estimate the profit potential in each part of the value chain. c. Focus on unattractive industries ignored by competitors. d. Select the strategy to use where the largest profit pools are located.
answer

D
question

A major assumption about the strategic management process is that it is a. inspired. b. team-based. c. rational. d. inclusive.
answer

C
question

A business-level strategy describes a. the businesses in which the company intends to compete. b. all policies and procedures used in functional departments. c. the firm’s actions to exploit its competitive advantage over rivals. d. a firm’s resources, intent, and mission.
answer

C
question

In a diversified firm, corporate-level strategy is concerned with a. operating each individual business under the corporate umbrella. b. determining how each functional department of the firm will operate. c. determining in which businesses to compete and how resources will be allocated between businesses. d. coordinating the vision and mission of each subsidiary firm.
answer

C
question

PGG Mining is making a strategic decision whether to shut down a coal mine in Pennsylvania. It is important to consider that the decision a. should be based solely on the results of profit pool mapping. b. has ethical implications for organizational stakeholders. c. need not be socially responsible if the firm is making below-average returns from the mine. d. all of these choices are important to consider.
answer

B
question

It is well-known that the elected school board of a large city engages in unethical and illegal activities involving the awarding of major contracts. This behavior has existed for decades, even as the membership in the school board has changed over time. This behavior reflects a. the core values of the school board as an organization. b. a functional, although unethical, culture of the school board. c. the lack of an organizational mission for the school board. d. a school board lacking in core competencies.
answer

A

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