Strategic Management Chapter 12 & 13

Financial controls provide feedback about the outcomes of the firm’s past actions and predictions about the results of the firm’s future actions.
Effectively managing the firm’s resource portfolio (financial, human, social, and organizational capital) may be the most important strategic leadership task.
Selection of an insider as a new CEO indicates a firm’s desire to encourage innovation and strategic change.
The more homogeneous a top management team, the more likely those managers will be innovative and willing to pursue strategic change.
Rewarding those who use proper channels and procedures to report observed wrongdoings is an example of an action that should be taken by a strategic leader to develop an ethical organizational culture.
Strategic leaders are most likely to integrate ethical values into their decisions when the company has explicit ethics codes that are integrated into the business through extensive ethics training.
The firm’s envisioned future encourages employees to stretch beyond their expectations of accomplishment and requires significant change and progress to be realized.
Internal labor markets consist of the career opportunities for managers within the firm for which they currently work.
When the new CEO is from inside the firm and a heterogeneous top management team is in place, the strategy may not change, but innovation is likely to continue.
Employees usually have a strong preference for firms to use the internal managerial labor market when selecting top management team members and the CEO.
The Chapter 12 Strategic Focus reports on recent successes of NBC News, Nokia, and Standard Charter because of the top managers’ decisions.
Firm size, firm age, the executive’s tolerance for ambiguity, and his or her commitment to strategic outcomes are all factors that may affect managerial discretion.
Criteria such as asset utilization improvements and changes in employee turnover rates are part of the internal business processes perspective of the balanced scorecard.
The experience that results from long tenure in a firm is known to extend the breadth of an executive’s knowledge base.
Strategic control focuses on the content of strategic actions rather than their outcomes.
The more heterogeneous and the larger the top management team, the easier it is to implement strategy effectively.
In the past, companies had a preference for insiders to fill top-level management positions because of the desire for continuity and a continuing commitment to the firm’s current vision, mission, and chosen strategies.
As the dynamics of competition accelerate, people are perhaps the only truly sustainable source of competitive advantage.
Transformational leadership is the most effective strategic leadership style.
The balanced scorecard’s perspective on learning and growth is intended to improve the firm’s ability to innovate.
The decision-making discretion of top-level managers is determined partly by external environmental factors such as the industry structure, the industry’s rate of growth, and the degree to which products can be differentiated.
The CEO is the individual with primary responsibility for effective strategic leadership within an organization.
Competitive aggressiveness, proactiveness, risk aversion, innovativeness, and autonomy are the five dimensions characterizing the entrepreneurial mind-set.
When a new CEO is selected from outside the firm, a change of strategy is likely, especially if the top management team is homogenous and highly cohesive.
Because of the current changing competitive landscape and varying levels of performance, an increasing number of Boards of Directors are turning to insiders to succeed CEOs.
The advantages of long tenure (firm-specific human and social capital, knowledge, and power) seem to outweigh the disadvantages of rigidity and maintaining the status quo.
To influence employees’ judgment and behavior, ethical practices must shape the firm’s decision-making process, but should be a peripheral part of organizational culture.
The strategic direction of a firm usually focuses on the coming 3 to 5 years.
Including talent from both the internal and external labor markets increases the likelihood that the firm will be able to form an effective top management team.
An emphasis on strategic controls encourages managers to be risk averse.
Members with substantive expertise in the firm’s core functions and businesses aid the effectiveness of the top management team.
The firm’s core ideology motivates the firm’s employees through the company’s heritage.
Compared to homogeneous top management teams, heterogeneous top management teams with an internally promoted CEO are more likely to change their firm’s strategies when necessary and to support innovation.
The most critical ability of a strategic leader is the ability to attract and then manage human capital.
The training of future strategic leaders yields a competitive advantage for a firm, in part because knowledge and skills are necessary for successful execution of strategy.
GM’s previous CEO, Dan Akerson, was building new capabilities in technology development and marketing, especially in customer service. This is an example of a CEO developing capabilities into core competencies.
Organizational culture is a complex set of ideologies, symbols, and core values that are shared throughout the firm, but its development is so subtle and poorly understood that top managers cannot influence its content.
Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary.
Typically, a vice president would NOT be considered to hold a high enough position to be included in the top management team of an organization.
The CEO of YorkMark, Inc., has an exceptional amount of power in the organization. It is likely the Board of Directors is composed of sympathetic outside members and insiders who report to the CEO.
External social capital is increasingly critical to firm success as few if any companies have all the resources to successfully compete against their rivals.
For 15 years, Edward was a compensation specialist at a mid-sized firm. He was laid off when the firm experienced financial setbacks. Edward has decided to open his own business as a compensation consultant to small firms. He can expect that his main source of human capital will be a bank line of credit.
Incremental changes to a firm’s culture can be used to implement strategies effectively.
A CEO may gain power by holding the titles of both CEO and Chairman of the Board.
The underlying premise of the balanced scorecard is that firms jeopardize their future performance possibilities when strategic controls are emphasized at the expense of financial controls.
The balanced scorecard focuses on both financial and non-financial controls.
Top management team members and CEOs who have long tenure on the team and in the organization have greater influence in Board decisions.
In addition to determining new strategic initiatives, top-level managers also develop the appropriate organizational structure and reward systems of a firm.
An example of the external labor market is the situation where:
a. an assessment center operated by an external consulting firm evaluates company managers for promotion potential.
b. a new vice president of marketing is hired from a competitor.
c. the senior vice president of finance is promoted to CEO.
d. a vice president of human resources is sent to a university executive MBA program for professional development.
In the balanced scorecard framework, ____ controls are used to assess the organization’s success in creating a climate that supports change and innovation.
a. learning and growth
b. financial
c. operational
d. innovational
Two key strategic leadership actions include:
a. monitoring the hiring of key employees and focusing on growth but not learning initiatives.
b. designing and then implementing the balanced scorecard.
c. setting appropriate financial targets and establishing an effective business level synergy.
d. determining strategic direction and establishing balanced organizational controls.
The Enron employee who reported the financial manipulations at the company to her superiors can be considered to have engaged in:
a. managerial opportunism.
b. white-collar crime.
c. vindictive disloyalty.
d. an act of courage.
Shaping and reinforcing a new organizational culture requires all of the following EXCEPT:
a. effective communication.
b. effective performance appraisals.
c. adherence to the firm’s traditional core values.
d. an appropriate reward system.
Which of the following will increase the probability that a lower-level manager will become a successful strategic leader?
a. Appointing many outside Board members.
b. Increasing the firm’s sales.
c. Increasing the homogeneity of the top management team.
d. Training and development programs.
Billy Kroghmen is the son of a very prominent Fortune 500 CEO. Billy has had troubles. He failed out of multiple colleges, universities, and correspondence schools. He finally received his undergraduate degree from a university with only a post office box for an address. He then enrolled in the school’s combined graduate accounting and law school programs, graduating with honor with degrees in both areas. After graduation, he twice failed both the CPA and bar exams, managing to set record low scores on the ethics portions of both. Despite these academic setbacks, Billy’s career now seems to be thriving. He has been appointed to a number of “blue ribbon” government committees, is on the Board of Directors of two corporations and one prestigious not-for-profit organization. In at least one instance, a donor credited Billy with the idea for making a large contribution to the not-for-profit. Widespread speculation is that his career advancement is based largely on social relationships through friends and family. We would classify Billy as ____ on ____ capital, and ____ on ____ capital.
a. high; social; low; human
b. high; human; high; social
c. high; human; low; social
d. None of these options are correct.
The most effective leadership style is ____ leadership.
a. pragmatic
b. charismatic
c. inspirational
d. transformational
A heterogeneous top management team is composed of individuals with:
a. different functional backgrounds, experience, and education.
b. similar commitments to the organization’s core ideology and culture.
c. a high level of education and industry expertise.
d. long tenure in the organization who have held various functional positions.
Clarita Cosmetics is confronting a decline in sales due largely to a general economic downturn. The top management team is debating whether to lay off employees. In the debate, the following statements are made. Which of the statements is FALSE?
a. If Clarita Cosmetics lays off a large number of employees, there will be a significant loss of human capital that will cause further downturns in the firm’s performance.
b. A moderate-sized layoff at Clarita Cosmetics will probably improve firm performance.
c. If Clarita Cosmetics restructures, it ought to increase investments in training and development.
d. A layoff will increase the slack at Clarita Cosmetics and allow the firm to absorb the increased number of errors employees may make until they learn their new tasks.
he effective development and management of the firm’s ____ may be its only sustainable competitive advantage.
a. capital base
b. human capital
c. technology
d. organizational culture
The premise of the balanced scorecard is that firms jeopardize future performance possibilities when they:
a. overemphasize financial controls and neglect strategic controls.
b. overemphasize strategic control and neglect financial controls.
c. overemphasize strategic and financial controls and neglect ethical controls.
d. neglect short-term controls of all kinds in favor of long-term strategic controls.
The Board of Directors for TundraPro, Inc., is searching for a new CEO. The firm is in need of new direction after suffering several years of declining performance and increasingly demoralized management and employees. The Board has decided it needs a CEO who can be a transformational leader. To this specific end, the Board needs to identify applicants who have
a. high levels of honesty, trustworthiness, and integrity.
b. high emotional intelligence.
c. Both A and B are correct.
d. low tolerance for ambiguity.
Which of the following is NOT associated with heterogeneous top management teams?
a. Higher firm performance
b. Innovation and strategic change
c. Diminished debate among top managers
d. Better strategic decisions
Organizational controls provide:
a. the parameters within which strategies are to be implemented.
b. goals and objectives that must be achieved.
c. information on action steps to be taken to implement the corporate strategy.
d. managers with guidelines on how to treat employees.
Which of the statements about CEO duality is FALSE?
a. CEO duality is associated with high CEO power.
b. CEO duality has been blamed for slow response to change by the organization.
c. CEO duality is relatively rare in the U.S. except in large Fortune 500 firms.
d. If the CEO acts a steward, CEO duality facilitates effective decisions and actions.
Which key strategic leadership action plays a key role in influencing how the firm conducts its business and regulates and controls employees’ behavior?
a. Effectively Managing the Firm’s Resource Portfolio.
b. Determining Strategic Direction.
c. Regulating and Controlling Employees.
d. Sustaining an Effective Organizational Culture.
Determining the strategic direction of a firm involves:
a. implementation of a balanced scorecard.
b. developing an entrepreneurial mind set.
c. specifying the vision and the strategy to achieve that vision over time.
d. exploiting and maintaining core competencies.
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
The more heterogeneous the top management team, the:
a. more difficult it will be for the team to implement strategies.
b. more likely it is that the team will be cohesive.
c. less innovative the team’s decisions will tend to be.
d. less diverse the team membership will be.
Competitive aggressiveness describes a firm’s:
a. tendency to engage in new ideas and creative processes.
b. willingness to allow employees to take actions free of organizational constraints.
c. ability to be a leader in the marketplace.
d. propensity to take actions that allow it to outperform rivals consistently and substantially.
Which of the following is NOT related to a CEO having long tenure in his or her position?
a. More effective strategic control
b. Greater influence on board decisions
c. More limited perspective
d. A broader knowledge base
Firms needing to change their strategies should:
a. create more heterogeneous top management teams.
b. focus on their core customer base.
c. implement transformational leadership.
d. emphasize the training and development of internal managerial talent.
Normally, the more involved a Board of Directors is in shaping the firm’s strategic direction, the:
a. more balanced the organization is.
b. higher the corporation’s performance is.
c. more rapidly executive decisions can be made.
d. more difficult it becomes to make effective executive decisions.
The top management team is composed of the:
a. heterogeneous group of advisors selected by the CEO.
b. CEO and chairperson of the Board.
c. key individuals who are responsible for selecting and implementing a firm’s strategy.
d. officers listed in a firm’s annual report and the Board of Directors.
A characteristic of the manager that may affect managerial discretion is his/her:
a. amount of industry experience.
b. level of education.
c. tolerance for ambiguity.
d. length of tenure.
Which of the following statements is TRUE regarding effective organizational cultures?
a. Once a corporate culture is developed, strategic leaders can focus on other activities.
b. A strategy that is historically new for a firm should be implemented by incremental changes in the organization’s culture.
c. A central task of strategic leaders is to revise the corporate culture on an annual basis after analyzing the changes occurring in the competitive environment.
d. Organizational culture can be a source of competitive advantage because it influences employee behavior and how the firm’s conducts its business.
The ____ is a framework firms can use to verify that they have established both strategic and financial controls to assess their performance.
a. managerial model
b. holistic control system
c. balanced scorecard
d. internal auditing system
The top management team at Ingenuity, Inc., has assigned a team of scientists to a multi-year project to investigate the viability of growing large amounts of fur from cloned cells of minks and foxes to produce no-kill fur products for coats and other clothing items. This idea would satisfy all the dimensions of the entrepreneurial orientation EXCEPT:
a. innovativeness.
b. risk taking.
c. proactiveness.
d. competitive autonomy.
Human capital refers to:
a. the net present value of the future competencies of the workforce.
b. the amount of money purchasers of the firm would pay for the continuing employment of the present workforce.
c. the value-added that the firm’s workforce contributes to each product produced or service rendered.
d. knowledge and skills of the firm’s work force.
Strategic control focuses on the ________ of strategic actions, whereas financial controls focus on the _____ of strategic actions.
a. revenues; costs
b. long-term financial outcomes; short-term financial performance
c. content; outcomes
d. outcomes; content
Four perspectives are integrated to form the balanced scorecard framework. The financial perspective focuses on the view of the firm by the:
a. customer.
b. employee.
c. shareholder.
d. general society.
When the top management team is homogeneous and a new CEO is selected from inside the firm, it is:
a. unlikely that the current strategy will change.
b. likely that product innovation will continue.
c. likely there will be a change in strategy.
d. unlikely the new CEO will have a long tenure.
Actions that effective strategic leaders can take to develop an ethical organizational culture include all of the following EXCEPT:
a. relying on the fundamental goodness of individuals.
b. using reward systems that recognize acts of courage.
c. communicating goals that describe the firm’s ethical standards.
d. creating a work environment where individuals are treated with dignity.
Monahegan Plasma Company is facing a performance downturn and realizes that a major rethinking of its strategy is in order. Under these circumstances, Monahegan Plasma would benefit from a(n):
a. internal CEO with short tenure.
b. external CEO with a heterogeneous top management team.
c. dual CEO/chairperson with a homogenous top management team.
d. CEO with long tenure who has a strong sense of hubris.
Executive headhunters have approached Charles about taking the position of senior vice president of marketing for a well-known company. Although this company has been highly successful since 1995, Charles has heard persistent rumors of overly aggressive marketing tactics, questionable reporting of sales data, and an atmosphere of intolerance of criticism. The CEO is a powerful and charismatic individual, who built the company from a small regional firm to an international powerhouse in only a decade. The other top managers have been hand-picked by the CEO, as have a number of the members of the Board of Directors. The salary for this position is very high and includes generous stock options. It would be a major step up in Charles’s career and would position him to move to CEO of another company in the future. Charles has prided himself on his high moral values and is viewed as an exceptionally ethical person by his peers. What should Charles do?
a. Charles should take the job because he can effect real change in the culture of the organization, and take advantage of the personal financial and career opportunities.
b. Charles should realize that personal moral values and the realities of the corporate world differ in both quality and degree. Consequently, he can take a job in an ethically borderline company without tainting his personal moral standing.
c. Charles should not rely on rumors to dissuade him from making an advantageous career decision.
d. Charles should not take the job because the culture of the organization is set by the CEO and other top managers. He would have little influence on the organizational culture as one of many top managers.
The primary responsibility for effective strategic leadership of the organization rests with the:
a. Board of Directors.
b. top management team.
c. CEO.
d. stakeholders.
The ability to attract and manage ____ may be the most important skill a strategic leader must have.
a. human capital
b. financial resources
c. responses to competitors’ actions
d. investment strategies
____ capital increases cooperation among individuals inside and outside the firm.
a. Human
b. Social
c. Visionary
d. Cultural
Which of the following is NOT a factor that determines the amount of a manager’s decision discretion?
a. Characteristics of the manager
b. Characteristics of the organization
c. Cohesiveness of the Board of Directors
d. The external environmental
Christina is evaluating Maximum Brands as an investment opportunity. She is very concerned about future financial performance by Maximum Brands. Christina does not believe that the CEO can act as a steward. Christina will probably be most concerned if:
a. there is CEO duality.
b. many of the members of the Board of Directors are outsiders.
c. the positions of chairman of the Board and CEO are held by different persons.
d. there is an independent Board leadership structure.
Faced with declining enrollment and increased competition from not-for-profit organizations offering inexpensive art courses for new hobbyists, the for-profit Delta Academy of Art has steadfastly stayed true to its mission of offering high-quality classical art instruction for both beginners and advanced artists at high tuition. Delta has been noted for the excellence of its artistic training for decades. This is an example of:
a. adhesion to the status quo.
b. lack of an envisioned future.
c. competence becoming a liability.
d. failure to have a clear core ideology.
Criteria for reevaluating internal business processes using the balanced scorecard include all of the following EXCEPT:
a. asset utilization improvements.
b. improvements in employee morale.
c. increases in employee skills.
d. changes in turnover rates.
A CEO’s breadth of knowledge base is constrained by:
a. his or her relationship with the Board of Directors.
b. whether he or she is also the chairperson of the Board of Directors.
c. his or her long tenure with the firm.
d. the level of social capital in the firm.
The CEO/chairman of PharmaPacifica was recently killed in an airplane crash. This tragedy has thrown PharmaPacifica into turmoil as there is no one in the organization qualified to step into the former CEO’s shoes. This is an example of:
a. a failure of succession management.
b. managerial hubris.
c. the risk inherent in CEO duality.
d. excessive reliance on the internal managerial labor market.
The goal of investing in human capital is to:
a. increase the number of employees in the firm.
b. reduce organizational slack.
c. maximize current productivity per employee.
d. develop a workforce capable of continuous learning.
Research shows that ____________ is the most effective means of ensuring that employees comply with the firm’s ethical requirements.
a. a written code of ethics
b. a statement in the firm’s mission statement
c. a speech on ethics by the CEO of the company
d. a value-based culture
Which of the following is NOT one of the five dimensions thought to characterize an employee’s entrepreneurial mind-set?
a. Autonomy
b. Reactivity
c. Risk taking
d. Innovativeness
The CEO of CLEO, Inc., in all her communications to employees consistently refers to her dream of CLEO becoming the company of choice for employee assistance programs. She keeps this theme uppermost and it is reflected in the firm’s motto, the title of its Web newsletter, and even on the company t-shirts and mugs. This is an example of the firm’s:
a. core ideology.
b. organizational culture.
c. strategy.
d. envisioned future.
An organization’s ____ is composed of the key individuals who are responsible for selecting and implementing the firm’s strategies.
a. top management team
b. Board of Directors
c. keiretsu
d. governance circle
All of the following are external environmental sources that affect managerial discretion EXCEPT:
a. industry structure.
b. corporate culture.
c. market growth rate.
d. potential for product differentiation.
Which of the following is NOT a benefit to the firm using the internal labor market to select a new CEO?
a. Internal hiring results in an increased level of innovation.
b. Insiders are familiar with the firm’s products, markets, technologies, and operating procedures.
c. Use of the internal labor market reduces turnover among existing employees.
d. Insiders are more familiar with a firm’s operating procedures.
Omicron Artificial Intelligence is able to respond quickly to competitors’ actions and to opportunities in the marketplace. This is an example of:
a. agility.
b. a core competency.
c. flexibility.
d. responsiveness.
A CEO gains power from all of the following circumstances EXCEPT:
a. when many of the outside directors are appointed by the CEO.
b. when the CEO is also the chairman of the Board.
c. when tenure of the top management team is shorter than the tenure of the Board.
d. the fact that inside Board members report to the CEO.
Which of the following is NOT one of the four perspectives in the balanced scorecard framework?
a. entrepreneurial
b. financial
c. customer
d. learning and growth
____ provide information about the results of past actions, but do not communicate the drivers of the firm’s future performance.
a. Financial controls
b. Accounting information systems
c. Policies and procedures
d. Strategic feedback systems
Sony previously selected Sir Howard Stringer as CEO. Sir Howard was not Japanese and he was not a Sony employee before his selection. Which of the following statements is FALSE?
a. Sony’s top management team will be more heterogeneous with the addition of Sir Howard.
b. Sir Howard will have a broader perspective of the firm and its competitive environment than would a Sony insider.
c. If Sony’s top management team is homogeneous, Sir Howard’s future impact on Sony’s strategy is ambiguous.
d. The decision-making process on Sony’s top management team will be smoother and faster with the addition of Sir Howard.
To successfully implement a firm’s strategy, the workforce must be viewed as a:
a. variable cost.
b. depreciating asset.
c. resource to be maximized.
d. renewable asset.
The firm of Bergeron has existed for hundreds of years, having made exquisite clocks and watches. In its advertising it refers to clocks the firm made for such past royalty as Marie Antoinette and the Czars of Russia. Employees are constantly reminded of the firm’s rich history and its long tradition of excellence of design and execution. Bergeron is motivating its employees through its:
a. core ideology.
b. envisioned future.
c. organizational culture.
d. business strategy.
Exploiting and maintaining core competencies is part of the key strategic leadership action “Effectively Managing the Firm’s Resource Portfolio.” Which of the following is most important for developing and using core competencies?
a. Extensive financial assets
b. Transformational leadership
c. High-quality human capital
d. An ethical organizational culture
The CEO of Icon Image Associates wishes to radically change the corporate culture of the firm. She knows that she must convince others at Icon Image of the necessity for the culture change and gain their active support. The CEO knows that the key players in energizing the culture change and fostering alignment with the new strategic vision are:
a. the members of the Board of Directors.
b. top management team members.
c. the CEO, top managers, and middle managers.
d. rank-and-file employees.
CEO duality refers to:
a. firms where there is both a president and a CEO.
b. CEOs who sit on the Board of Directors of other firms.
c. CEOs who hold office in more than one company.
d. the situation where the CEO is also chairperson of the Board of Directors.
Managerial actions that support development of an ethical organizational culture include all of the following EXCEPT:
a. establishing a code of conduct.
b. disseminating the code of conduct to all stakeholders to inform them of the firm’s ethical standards and practices.
c. creating a work environment in which people are treated with dignity.
d. disciplining whistle-blowers.
An organization engaging in strategic entrepreneurship focuses on identifying opportunities that it can exploit through innovations.
Most large, complex firms innovate through cooperative strategies or strategic alliances, but not through internal activities.
Corporate entrepreneurship describes the opportunity seeking and exploitation of innovations in new start-up enterprises.
Entrepreneurial opportunities exist because of competitive imperfections in the markets and among the factors of production.
The essence of entrepreneurship is to capture most of the existing markets from less aggressive and innovative competitors.
Entrepreneurship is the economic engine driving national economic growth in many nations.
Innovation is the means by which the entrepreneur creates wealth.
Entrepreneurial opportunities are conditions in which new goods or services can satisfy a need in the market.
As a process, entrepreneurship results in the “creative destruction” of existing products (goods or services) or methods of producing them and replaces them with new products and production methods.
Invention is defined as the adoption of a similar innovation by different firms.
Joseph Schumpeter suggested that firms engage in three types of innovative activity when managing the innovation process: imitation, invention, and innovation.
Evidence demonstrates that large firms with well-funded R&D operations are more effective at innovation than are smaller firms.
Given the rapid rate of technological change, patents are not a useful gauge of a firm’s entrepreneurial prowess.
Rosalie has become totally preoccupied by her idea for creating a business leasing horses to riders on the same principle as time-shares on condominiums. Rosalie is researching the legal, financial, and insurance aspects of her idea and is preparing a prospectus to take to banks to ask for a business loan. Rosalie’s significant other is complaining that she “sleeps, eats, and drinks” this concept. Rosalie has the entrepreneurial characteristic of passion.
The entrepreneurial mind-set is found primarily among managerial and scientific employees.
Bill Kroganski is the owner of a moderately successful industrial services firm. His reaction to the introduction of a new process technology that could be a direct competitor to the process his firm utilizes is fear. He spends his time considering ways to isolate his firm from this new technology. Bill has characteristics consistent with the entrepreneurial mind-set.
If the company’s workers have scant existing knowledge, their “absorptive capacity” to learn new knowledge will be limited.
For firms to be entrepreneurial, they must stress individualism in their employees above all other characteristics.
A society’s cultural characteristics influence a nation’s rate of entrepreneurship and its related practices.
In order to be successful, a new entrepreneurial enterprise should be sheltered from the global environment until it is firmly established in domestic markets.
Research has shown that internationally diversified firms are generally more innovative.
Larger, established firms, mainly those competing globally, use their R&D labs to create disruptive technologies and products.
Most innovations are incremental, not novel.
Toyota’s Prius, the first mass-produced hybrid-electric car is an example of a novel innovation that has changed the industry by providing new functionalities for users.
A company with a need for immediate, large returns should invest in research and development.
While both incremental and novel innovations can create value, incremental innovations have the potential to contribute more significantly to a firm’s efforts to earn above-average returns.
A product champion should come from outside the organization in order to ensure that the entrepreneurial vision has the objective support it needs.
An innovation developed through autonomous strategic behavior will probably take the firm into new markets not addressed by its current strategy.
Firms that continually change their strategic context and strategies because of the continuous changes in the current competitive landscape are in danger of losing sight of their main competitive strengths.
Induced strategic behavior does not result in true innovation because it is a top-down process rather than a bottom-up process.
Autonomous strategic behavior results in internal innovations that are highly consistent with the firm’s current strategy.
The iPod likely resulted from autonomous strategic behavior at Apple, though the iPhone was more the result of induced strategic behavior.
Cross-functional work teams are best supported by vertical organizational structures.
Political activity that is centered on the allocation of resources to the different functions may limit the effective use of cross-functional teams.
An entrepreneurial mind-set, cross-functional product development teams, and shared values/leadership are the three ways that firms implement internal innovations.
Innovations can only be produced by actions and activities within the firm.
While smaller firms must use cooperative strategies as a means of producing innovations, larger firms with large R&D units such as P&G and 3M can produce most if not all innovations internally.
Acquisitions are a means of extending the company’s product line and increasing revenues. The capital market values growth. Therefore, some firms make acquisitions to improve their standing in the capital markets.
Acquisitions are a low-risk approach to producing and managing innovation.
A key risk of acquisitions is that a firm may substitute an ability to buy innovations for an ability to produce innovations internally.
Entrepreneurial ventures often produce more novel innovations than do their larger, more established counterparts.
Firms develop innovations in all the following ways EXCEPT:
a. through autonomous or induced strategic behavior.
b. by acquiring other companies.
c. through cooperative strategies.
d. via divestiture of low-performing units.
Pet Care Companion Connection (PCCC) is an organization that trains persons with mild-to-moderate mental disabilities to care for pets in a pet boarding facility. This organization has been successful in providing a quality service for pet owners and a supportive training environment for their trainees. The tuition charged to trainees is only somewhat higher than the fee, which day-care providers would charge for these individuals. Graduates of the program are qualified for employment by commercial kennels. PCCC is an example of:
a. taking advantage of a need in the marketplace.
b. creative destruction of existing services for pet boarding.
c. institutionalized entrepreneurship.
d. internal corporate venturing.
Isidore Security Services is a national provider of guard and security services for businesses. It has been in business for over 90 years, having been founded by one of Teddy Roosevelt’s Rough Riders (Isidore O’Malley). Lately it has been losing clients to more aggressive and innovative firms offering remote security monitoring systems instead of a guard-based approach. The board of directors of Isidore Security Services is concerned that this downward trend may threaten the existence of this venerable firm and the jobs of its employees. Which one of the following is true?
a. This is an example of an established firm neglecting the opportunity-seeking aspect of strategic entrepreneurship.
b. This example shows the dysfunctional aspects of unrestricted entrepreneurialism.
c. This is an example of the lack of human capital hampering internal innovation.
d. Isidore Security Services is suffering from the “novelty effect” wherein new firms are more attractive to clients/customers merely because they are new and not because they add value.
The use or application of entrepreneurship within an established firm is called:
a. corporate emergence.
b. transformational leadership.
c. exceptional R&D.
d. corporate entrepreneurship.
Entrepreneurship is the process by which individuals or groups identify and pursue ____ without being immediately constrained by the ____ they currently control.
a. opportunities; resources
b. opportunities; core competencies
c. threats; resources
d. threats; core competencies
____ exist(s) when there is a need in the market that can be satisfied by new goods or services.
a. Potentiality
b. Market readiness
c. Entrepreneurial opportunities
d. Critical core competencies
Because it replaces existing products and methods of production, entrepreneurship is a process of:
a. harnessing the human potential.
b. creative destruction.
c. creation of opportunity.
d. exploitation of innovation.
GreenBox, a company that recycles paper products to make cardboard cartons, has introduced a new product that resists damage by moisture. GreenBox can expect that:
a. this innovation will resist competitors’ attempts to imitate it.
b. its investors will react positively to the introduction of the new product because of the potential for higher returns.
c. its investors will react negatively because of the risk and cost entailed in introducing a new product.
d. this will be recognized in the industry as a radical innovation.
Innovation creates a(n):
a. opportunity for a new product or process.
b. new product or process.
c. commercial product.
d. idea for potential exploitation.
According to Peter Drucker,the primary goal of innovation is to:
a. promote social well-being.
b. increase the number of jobs.
c. create wealth.
d. support national economies.
The three types of innovative activity include all of the following EXCEPT:
a. invention.
b. imitation.
c. implementation.
d. innovation.
Products developed through ______ are often offered at lower prices without as many features as products developed through ______.
a. innovation; imitation
b. imitation; invention
c. imitation; innovation
d. innovation; invention
The number of patents held by an organization is a rough guide to the:
a. effective use of organizational politics.
b. future success of an initial public offering.
c. amount of venture capital a firm will be able to attract.
d. level of innovation in a firm.
3M’s Cubitron II, described as “an industrial abrasive that cuts faster, lasts longer, sharpens itself, and requires less elbow grease than any other abrasive on the market” is an example of:
a. imitation of a competitor’s product.
b. a novel innovation.
c. an incremental innovation.
d. a(n) innovation created through a cooperative strategy.
____are individuals, acting independently or as part of an organization, who see an opportunity and then take risks to develop an innovation to exploit it.
a. Leaders
b. Innovators
c. Entrepreneurs
d. Transformative leaders
Entrepreneurs tend to have all the following characteristics EXCEPT:
a. willing to take responsibility for projects.
b. passion.
c. preference for certainly about projects.
d. optimism.
Roland has developed and patented an inexpensive and organic way to enhance the fertility of clay soils without the addition of chemical fertilizers. But established agricultural chemical companies have rejected his proposals. After 6 months of promoting his invention during his time off from his regular job, Roland has decided to set his dream aside. Roland lacks a key characteristic of successful entrepreneurs, which is:
a. the ability to identify opportunities.
b. a corporate sponsor.
c. financial slack.
d. passion for his invention.
If the firm’s current employees are well-trained in their jobs, but also have other knowledge, skills, and abilities, these employees have:
a. social capital.
b. entrepreneurial capabilities.
c. high absorptive capacity to learn.
d. intellectual slack.
Knowledge must be transferred to others in the firm to enhance the entrepreneurial competence of the firm. This requires that:
a. the receiving party has adequate absorptive capacity to learn.
b. the communication process be highly intensive.
c. the knowledge be broken into the smallest comprehensible units.
d. training consultants be involved in every step of transference.
The risks of international entrepreneurship include all the following EXCEPT:
a. unstable foreign currencies.
b. problems with market efficiencies.
c. limitations on market size.
d. strong “buy-domestic” programs.
Research shows that internationally diversified firms tend to be ____ than domestic-only firms.
a. less profitable
b. more innovative
c. less technologically advanced
d. more likely to have an individualistic culture
The level of entrepreneurial activity in a nation is ____ the nation’s level of economic development.
a. negatively related to
b. independent of
c. positively related to
d. weakly related to
____ is one of the reasons for the differences in rates of entrepreneurship among different countries.
a. Climate
b. Competitiveness
c. Culture
d. Constitution
Research suggests that _________ is needed to encourage entrepreneurial behavior.
a. individualism rather than collectivism
b. a balance between individualism and cooperative behavior
c. collectivism rather than individualism
d. limited autonomy and incentives
AgroPharm is searching for a top-level executive. AgroPharm has marketed its products only to U.S. farmers and agribusinesses in the past. Now, the company plans to expand operations to Mexico and Central America in the next 2 years. To maximize the chances of success it is critical that the new executive:
a. be of Hispanic descent.
b. have international experience.
c. possess an advanced degree in animal science.
d. have a background in managing agribusiness firms.
Which of the following is true? For firms to be entrepreneurial, they require a culture with:
a. an emphasis on individualism in Western nations and an emphasis on collectivism in Eastern nations.
b. an exceptionally high level of collectivism.
c. a balance of individualism and collectivism.
d. an exceptionally high level of individualism.
Successfully creating innovations through internal means requires:
a. a highly individualistic culture.
b. significant spending on R&D.
c. acquisitions of innovative firms.
d. venture capital.
Panera Bread has innovated to improve the quality of its distribution system, to improve the quality of its bread dough, and to introduce new menu items. These are examples of:
a. incremental innovation.
b. invention.
c. imitation.
d. the use of social capital.
QuadroVax is investing heavily in research and development on new methods of vaccine development that would speed up the creation of vaccines for newly emerging viruses and to get these vaccines to the market rapidly. QuadroVax’s shareholders can expect:
a. immediate wealth creation.
b. a long wait for an uncertain payoff.
c. a long wait for a high probability payoff.
d. a large payoff in the short term with rapidly decreasing wealth generation in the longer run.
A successful ____ innovation will be less risky but less profitable than a successful ____ innovation.
a. incremental; novel
b. novel; incremental
c. alliance-generated; acquisition-generated
d. acquisition-generated; alliance-generated
The development of the original personal computer (PC) was a(n) ____ innovation at the time, whereas adding a different kind of whitening agent to a soap detergent in an example of a(n) ____ innovation.
a. incremental; novel
b. novel; incremental
c. concentric; novel
d. novel; concentric
Innovations that involve significant technological breakthroughs and create new knowledge:
a. build incrementally on the firm’s existing technologies and knowledge.
b. are the most common type of innovation.
c. involve substantial uncertainty and risk.
d. typically have clear market opportunities.
____ involves internally developed incremental and novel innovations that result from deliberate efforts.
a. Internal corporate venturing
b. Autonomous strategic behaviors
c. Bottom-up strategic behaviors
d. Product championing
Internal corporate venturing does NOT involve:
a. autonomous strategic behavior.
b. induced strategic behavior.
c. strategic alliances.
d. product champions.
WayWard Products has a deliberate strategy to encourage internal innovations. It has established processes to support autonomous strategic behavior as well as induced strategic behavior. WayWard Products is involved in:
a. entrepreneurial incubation.
b. creative destruction.
c. internal corporate venturing.
d. cooperative innovation strategies.
One of the distinguishing differences between the two sources of internal corporate venturing (autonomous strategic behavior and induced strategic behavior) is whether the innovation process:
a. is encouraged through a bottom-up or top-down process.
b. is encouraged by a product champion or an entrepreneur external to the organization.
c. relies on internal structure or existing strategy to encourage innovation.
d. is in a large or small organization.
Autonomous strategic behavior is a(n) ____ process in which product champions pursue new ideas.
a. top-down
b. horizontal
c. integrated
d. bottom-up
The idea that it is “vital to sell the ideas to others in the organization so that innovations will be commercialized” is the rationale behind the use of:
a. product champions.
b. joint ventures.
c. strategic leadership.
d. cross-functional teams.
A negative effect of acquiring other firms for the purpose of innovation is:
a. innovations cannot be transferred between organizations.
b. the effect it can have on the firm’s own ability to produce innovations.
c. innovations may not actually be present in the firm after the purchase is completed.
d. the acquired firm’s employees usually leave.
Charles is a customer service representative for a home improvement store. He has creative ideas about how to increase customer satisfaction. Charles’s talents will be most likely to be used in a firm that:
a. uses the induced strategic behavior form of internal corporate venturing.
b. uses the autonomous strategic behavior form of internal corporate venturing.
c. makes significant investment in research and development.
d. focuses on an acquisition strategy for gaining innovative ideas.
The new abrasive, Cubitron II, was developed through cooperative relationships among 3M business units. As such, Cubitron II is an example of:
a. the use of autonomous strategic behavior.
b. the use of induced strategic behavior.
c. development of novel innovations.
d. innovation through acquisitions.
To be successful, an autonomous process for developing new products relies on:
a. the diffusion of tacit knowledge.
b. the acquisition of innovative firms.
c. strategic alliances with other firms.
d. internal corporate venturing.
Induced strategic behavior is a process that fosters product innovations that:
a. are likely to change a firm’s strategic intent and mission.
b. will lead to greater financial returns.
c. are aligned closely with current strategy and structure.
d. will come to market in a short period of time.
Induced strategic behavior as a form of internal innovation is a(n) ____ process.
a. bottom-up
b. top-down
c. free-flowing
d. external
Induced strategic behavior as a form of internal innovation is a(n) ____ process.
a. bottom-up
b. top-down
c. free-flowing
d. external
In the implementation of internal innovations, formal and informal processes are best supported through ____ organizational structures.
a. vertical
b. horizontal
c. functionally oriented
d. multidivisional
A major barrier to the use of cross-functional teams is:
a. excessive individualism of creative people.
b. lack of communication skills of technical people.
c. independent frames of reference of team members.
d. lack of social capital by team members.
When used effectively, cross-functional teams will often bring about:
a. faster product development processes.
b. an increased need for additional information.
c. conflicting information about the business environment.
d. future cooperative alliances.
Which of the following is one of the barriers to effectiveness when using cross-functional teams to integrate organizational functions?
a. dissension within the top management team
b. informal organizational processes within the firm
c. the firm’s strategic orientation
d. organizational politics
A cross-functional work team is having difficulties in operating smoothly and friction has developed among some of the members. Many of the strongest complaints are from the representatives of management who complain that the research scientists are disorganized, haphazard, and undisciplined. Managers complain the scientists do not adhere to any fixed rules or procedures. On the other hand, the research scientists complain that the managerial representatives are excessively rule-oriented bureaucrats, and have no flexibility or spontaneity. The main problem with this team seems to be centered around differences in:
a. interpersonal orientation.
b. time orientation.
c. goal orientation.
d. formality of structure.
The dimensions on which functional departments can vary include all the following EXCEPT ____ orientation.
a. time
b. customer
c. technological
d. interpersonal
The competition for resources among those representing different organizational functions within a firm often leads to:
a. erosion of social capital.
b. heightened communication.
c. organizational politics.
d. empowerment of organizational members.
The firm’s culture promotes unity of purpose for cross-functional work teams through:
a. a collectivist structure.
b. an entrepreneurial mind-set.
c. shared values.
d. resource allocation.
Value creation through internal innovation originates with:
a. an entrepreneurial mind-set.
b. cross-product development teams.
c. shared values and entrepreneurial leadership.
d. innovation.
PracticalSolutions is a small firm providing employee assistance programs for companies with troubled employees. PracticalSolutions frequently partners with other consulting firms to provide creative solutions for companies with personnel problems. This history of partnering exemplifies:
a. intellectual capital.
b. institutional capital.
c. alignment of complementary assets.
d. technological capital.
Blixin Concrete Products, an established firm, is seeking a technologically advanced partner for a strategic alliance. If the potential partner is a new entrepreneurial venture, the main benefit the Blixin Concrete can offer is probably:
a. investment capital.
b. management expertise.
c. research and development competencies.
d. social networks.
Regarding partnering in cooperative alliances, entrepreneurial new companies may seek ____ while more established companies may need _____.
a. distribution channels; tacit knowledge
b. deep technological expertise; distribution channels
c. social capital; technical capital
d. investment capital; new technological knowledge
The main risk in a strategic alliance is that:
a. the alliance will not result in a successful innovation.
b. critical employees will be hired away by the strategic partner.
c. one partner will use the other partner’s knowledge and use it to enhance its own competitive abilities.
d. the partners will lose control over their internal processes.
Why have large pharmaceutical companies been forming alliances with biotechnology companies?
a. To evade legislative restrictions on drug research in the United States
b. To develop new products and bring them to market
c. Because both firms had declining profitability and needed cash infusions from other firms
d. In order to gain absorptive capacity
New entrepreneurial firms are better than larger established firms at:
a. implementing innovations.
b. gaining competitive advantage.
c. making alliances.
d. identifying entrepreneurial opportunities.
____ is(are) critical in order for a firm to gain access to resources from partners in a cooperative alliance.
a. Complementary strategic goals
b. Shared values
c. An entrepreneurial mind-set
d. Compatible organizational cultures

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