Chapter 1 The Concept of Strategy Multiple Choice Questions 21. The primary purpose of strategy is: @ Pages and References: p4 a. Being better than rivals b. chieving success c. !atisfying all sta"eholders sta"eholders d. Being an e#cellent $corporate citi%en& 22. The successful careers of both 'ueen (li%abeth )) and *ady +aga may be attributed to the fact that both: @ Pages and References: pp4,a. ave used dressing up as a means of attracting attention and establishing identity b. ave a "nac" for being in in the right place at the right right time c. ave a consistency consistenc y of direction based on clear goals d. ave built a loyal fan base based on astute use of the media. 2/. 0or both individuals and businesses successful strategies are characteri%ed by: @ Pages and References: p a. 3nrelenting commitment to ambitious goals b. lear goals deep understanding understanding the competitive environment environment careful resource appraisal and effective implementation c. 5eticulous planning d. The possession of superior abilities and resources 6hich are then deployed to build competitive advantage. 24. !trategic goals should be: @ Pages and References: pp7,18 a. !imple b. onsistent c. *ong term d. ll of the above 2-. The main problem of !9T as a frame6or" for strategy analysis is that: @ Pages and References: p11 a. ;istinguishing ;istinguishing opportunities opportunities from threats threats and strengths strengths from 6ea"nesses is is often difficult difficult b. )t has been around for five decades and has no6 been superseded by more sophisticated analytical frame6or"s c. )t is focused on strategy formulation and fails to ta"e account of of strategy implementation d. )t is so 6idely used that it no longer has any novelty. 2<. )f a firm ad=usts its strategy to ensure it is consistent 6ith its e#ternal environment environment it benefits from a: @ Pages and References: p18 a. !trategic fit b. !trategic leadership leadership c. *ocation 6ithin an attractive industry d. license to operate 2>. !trategic fit refers to: @ Pages and References: pp18,11 a. The need for a firm?s firm?s strategy to be consistent consistent 6ith its vision mission and culture culture b. The consistency consistency of a firm?s strategy 6ith its e#ternal and internal internal environments environments c. The need for a firm?s strategy to be uniue d. The need for a firm?s firm?s strategy to meet the needs needs of all its sta"eholders sta"eholders not =ust shareholders © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 1
2. Ryanair?s strategic position is as (urope?s (urope?s lo6est,cost airline may be attributed to: @ Pages and References: pp11,12 a. The 6illingness of its ( 5ichael ?*eary to challenge conventional notions of customer and employee satisfaction b. )ts use of secondary secondary airports 6here 6here costs are lo6er lo6er c. The high operating costs of ma=or airlines such as British ir6ays *ufthansa and ir 0rance,A*5 on short,haul routes d. n integrated integrated consistent set of activities designed to ma#imi%e ma#imi%e productivity and minimi%e minimi%e operating costs. 27. The principal similarity bet6een business business and military strategy is that: @ Pages and References: p12 a. They share the same ob=ective: to annihilate rivals b. They share common concepts and principles c. The nature of leadership is much the same 6hether 6hether in a military or business conte#t d. They are both concerned concerned 6ith tactical maneuvers that can establish establish positions of advantage. /8. )n the military field 6e generally ma"e the follo6ing distinction bet6een strategy and tactics: @ Pages and References: p12 a. Tactics comprise the overall plan 6hereas strategy focuses on specific actions b. Tactics relate to specific actions 6hereas strategy relates to the overall plan c. Tactics Tactics encompass specific political actions 6ithin the firm 6hereas strategy is the overall plan for deploying resources to establish a favorable position d. Tactics form the overall plan 6hereas strategy is concerned 6ith the maneuvers to 6in battles /1. The main reason for the transition from corporate planning to strategic management during the latter half of the 17>8s 6as: @ Pages and References: p1/ a. The influence of 5ichael Porter b. ;isappointing ;isappointing returns of corporate corporate diversification diversification c. more turbulent business environment that became increasingly difficult to predict d. +ro6ing disillusionment disillus ionment 6ith central planning. /2. The primary distinction bet6een corporate strategy and business strategy is: @ Pages and References: p17 a. orporate strategy strategy is the responsibility of the ( ( business strategy is formulated formulated by the heads of business units b. orporate strategy is concerned concerned 6ith 6here the firm competes business business strategy 6ith ho6 it competes c. orporate strategy strategy is concerned 6ith establishing competitive competitive advantage advantage business strategy 6ith strategy implementation in individual businesses d. orporate strategy is concerned concerned 6ith the long,term performance performance of the firm business strategy 6ith resource deployment. //. The notion of $strategic fit&: @ Pages and References: p18 a. )s common in strategic literature but means different things to different e#perts b. )mplies deep coherence across all functions 6ithin the organi%ation c. (#presses ho6 6ell a firm?s strategy fits its internal environment environment d. ns6ers a and c /4. $!trategy& derives from a +ree" 6ord meaning: @ Pages and References: p1/ a. The art of arranging men in a battlefield b. +eneralship c. The art of maintaining maintaining a state?s security security d. 5aintaining ethical and spiritual purity © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 2
/-. The boo" that is considered as the first treatise on strategy is: @ Pages and References: p12 a. arl Con lause6it%?s Com Ariege Dn 6arE b. !un T%u?s rt of 9ar c. The Bible d. Ficcolo 5achiavelli?s ;ell?arte della +uerra DThe art of 6arE /<. 5ilitary strategy and business strategy differ in that: @ Pages and References: p12 a. There is no concept li"e tactics in business b. +ood military strategist must first be a good military tactician G practicing it in the field first c. The ob=ective of military strategy is to defeat the enemy business strategy see"s coe#istence rather than annihilation d. Fone , there is no conceptual difference /. )n the 178s 5ichael Porter pioneered: @ Pages and References: p1/ a. The application of industrial organi%ation economics for analy%ing industry profitability b. The development of $P)5!& at the !trategic Planning )nstitute c. The first synthesis of the resource and capability approach d. The application of game theory to strategic management /7. ;uring the 1778s the focus of strategy analysis shifted: @ Pages and References: p14 a. 0rom corporate planning to strategic management b. To the role of resources and capabilities as a foundation for firm strategy c. To the application of microeconomics to analy%e the sources of firm profitability d. 0rom the structure,based approach to the value,added perspective 48. The increasingly comple# business environment of the 21st century has resulted in: @ Pages and References: p14 a. 0irms shifting their emphasis to6ards the gro6th mar"ets of sia frica and *atin merica. 0irms abandoning shareholder value ma#imi%ation in favor of ma#imi%ing sta"eholder interests c. 0irms increasingly depending upon other firms through outsourcing and strategic alliances d. 0irms embracing digital technologies 41. The e#pression $blue oceans& in strategic management is: @ Pages and References: p14 a. only a figure of speech b. a concept that signifies the immensity of potential ne6 mar"ets c. a concept employed in the 3! Favy?s strategic planning process d. an e#pression coined by business school professors to ma"e their boo" more appealing to practicing managers 42. 9hen the environment becomes more turbulent unpredictable and full of ne6 opportunities: @ Pages and References: p1< a. strategy appears to not be very useful b. strategy becomes a vital tool to navigate the firm through $stormy seas& c. strategy should be put into the hands of e#ternal consultants d. strategy becomes an $impossible e#ercise& 4/. The essence of strategy is: @ Pages and References: p12,1< a. 5a"ing choices b. ;oing things differently c. 9here and ho6 to compete d. ll of the above © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 3
44. The t6o uestions of $6here and ho6 to compete& define: @ Pages and References: p1 a. a firm?s corporate and business strategies b. a firm?s strategic management process c. a firm?s vision and mission d. a firm?s values and culture 4-. o6 do corporate level strategy and business level strategy differH @ Pages and References: p1 a. orporate strategy defines the scope of a firm?s activities 6hile business strategy focuses on ho6 to beat the competition in a specific product mar"et b. orporate strategy defines the scope of a firm?s structure 6hile business strategy emphasi%es the relationship of each business 6ith its environment Dstate regulators etc.E c. orporate strategy focuses on the overall strategic plan 6hile business strategy focuses on implementing strategic decisions in each product mar"et d. orporate level strategy is concerned 6ith long term goals 6hile business level strategy focuses on short term sustainability 4<. orporate strategy is concerned 6ith: @ Pages and References: p17 a. the scope of the firm in terms of industries and mar"ets and the allocation of its resources b. a firm?s relationships 6ith its principal sta"eholders c. the corporate governance of each individual business d. Fone of the above 4>. Business strategy defines: @ Pages and References: p17 a. the 6ay a firm competes in a particular industry or mar"et b. the 6ay a firm establishes a competitive advantage over its rivals 6ithin a specific industry or mar"et c. Both of the above d. Feither of the above 4. Bet6een the t6o levels of strategy the division of responsibility is consistent 6ith the follo6ing principle: @ Pages and References: p17 a. There is no principle but only limited rationality and trial,and,error processes to find the best allocation bet6een different levels of management b. orporate level strategy is the domain of headuarters e#ecutives 6hile division managers are in charge of their business level strategies c. orporate level strategy is the domain of the parent company business level strategy is handled by the functional department managers d. orporate and business level strategies are not any specific organi%ational level?s responsibility because of the principle of ma#imum delegation and decentrali%ation 47. )n regard to strategy ma"ing most firms are li"ely to e#hibit: @ Pages and References: p2/ a. combination of design and emergence b. decentrali%ed bottom,up process c. n interaction bet6een strategic design through organi%ational processes and strategic enactment through decisions made by all d. *imited involvement by boards of directors -8. !trategy improves decision,ma"ing by: @ Pages and References: pp1<,1> a. Reducing the number of choices being considered b. )ntegrating and pooling the "no6ledge of different members of the organi%ation c. 0acilitating the use of analytic tools d. ll of the above © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 4
-1. onda?s successful entry into the 3! motorcycle mar"et has: @ Pages and References: p2/ a. Provided a battleground for the debate opposing the ;esign !chool and the *earning !chool b. Been an e#traordinary epic 6here players 6ere discovering the field 6hile dealing 6ith its traps c. !ho6n that the rational and analytical model 6as superior to the emergence model because only intensive analysis and forecasting 6ere able to fuel this success story d. !ho6n the difficulty of entering the 3! mar"et for Iapanese firms because of the cultural organi%ational and legal gaps -2. )n all organi%ations strategy ma"ing involves a combination of top,do6n strategy design and decentrali%ed mergence. The balance bet6een the t6o depends mainly upon: @ Pages and References: p2/ a. o6 turbulent and unpredictable is the e#ternal environment of the organi%ation b. The e#tent to 6hich decision ma"ing is centrali%ed c. The commitment of the organi%ation to e#perimentation d. The e#tent to 6hich the organi%ation has a formali%ed process of strategic planning. -/. The applicability of the tools and techniues of strategy analysis to not,for,profit organi%ations is: @ Pages and References: p2a. +reater for organi%ations that face competitions than those that do not. b. +reater for organi%ations that charge for their services than those 6hich do not c. +reater for organi%ations that both charge for their services and face competition than those 6hich are monopolists providing services free of charge. d. )s severely limited by the lac" of a profit motive.
Chapter 2 Goals, Values and Performance 2-. (very business enterprise has a distinct purpose ho6ever common to all businesses is the goal of: @ Pages and References: p/a. 5a"ing customers satisfied and happy b. reating value c. !atisfying as many sta"eholders as possible d. 5a#imi%ing dividend payments to shareholders over the long term. 2<. Business strategy is primarily a uest for: @ Pages and References: p/a. ttractive mar"ets Jb. Profit c. !uperior technology d. 5otivated and talented personnel 2>. ma=or impediment to the sta"eholder vie6 of the firm is: @ Pages and References: p/< a. The practical problem of ta"ing account of multiple goals in strategic decision ma"ing b. The fact that customers and employees are li"ely to be even more short,term oriented than shareholders c. The difficulties of uantifying the performance of the sta"eholder,focused firm d. The need to represent each sta"eholder group on the board of directors. 2. To survive and prosper over the long run reuires a firm to: @ Pages and References: p/> © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 5
a. ommit itself to gro6ing its sales b. Be responsive to its e#ternal environmentKincluding its social political and natural environment c. Pursue simultaneously strategies of lo6 cost and differentiation d. (nsure the ethical conduct of e#ecutives 27. 0or a firm to create value involves: @ Pages and References: p/a. (arning profits for shareholders then using these profits to fund lo6er prices for customers b. reating strong customer loyalty and then to progressively increase prices thereby creating e#tra value c. reating value for customers and appropriate some of that value as then e#tracting some of that customer value as profit d. reating value for employees through attractive pay benefits and 6or" conditions then relying upon employees to drive customer satisfaction and eventually profits. /8. The principal means by 6hich firms create value is through production: transforming less valuable inputs into more valuable outputs. 0irms can also create value through: @ Pages and References: p/a. (ntrepreneurship: creating ne6 businesses b. Restructuring: turning around and selling off divisions or units c. ommerce d. dvertising 6hich increases consumer?s perception of a product?s value. /1. ommerce creates value by: @ Pages and References: p/a. Physically transforming products b. Repositioning products in space c. Repositioning products in time d. Repositioning products in space and time /2. Calue added can be defined as: @ Pages and References: p/a. The difference bet6een sales and e#penses b. The difference bet6een the money values of a firm?s output and physical inputs c. The difference bet6een sales and 6ages d. The retained profits //. The primary =ustification for the assumption that primary goal of strategy is to ma#imi%e profits over the long term is: @ Pages and References: p/> a. The fact that in today?s intensely competitive mar"ets firms must f ocus on profit ma#imi%ation in order to survive b. The legal reuirement on Boards of ;irectors to ensure that companies are operated in the interests of their shareholders c. )n order to earn profits over the long run firms must attend to the interests of all their sta"eholders d. !hareholders 6ill oust (s that are not effective at ma#imi%ing profits. /4. The principal difference bet6een accounting profit and economic profit is: @ Pages and References: p/ a. ccounting profit is distorted by the arbitrary treatment of depreciation and unusual items b. (conomic profit is pure surplus accounting profit includes the normal return to the providers of euity capital. c. (conomic profit is cash flo6 based and is less sub=ect to manipulation that accounting profit d.. (conomic profit is endorsed by economists 6ho tend to be more rigorous than accountants.
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/-. There are t6o main concepts of profit: @ Pages and References: p/ a. The normal return to capital and the abnormal return of capital b. Return on capital and return on sales c. ccounting profit and the economic profit d. (conomic rent and the economic profit
/<. Profit ma#imi%ation and value of the firm are t6o concepts 6hich are: @ Pages and References: p/7 a. 3nrelated because cash flo6 is only one component of a firm?s value b. losely lin"ed because profit ma#imi%ation translates into ma#imi%ing a firm?s value c. 3nrelated because the Fet Present Calue is used to assess the value of a firm d. losely lin"ed because the value of a firm is the sum of its free cash flo6s in each year discounted at the firm?s interest rate
/>. The value of a firm can be defined as: @ Pages and References: p/7 a. The sum of its free cash flo6s in each year discounted at the firm?s 6eighted average cost of capital D9E b. The sum of the firm?s operating cash flo6s in each year discounted at the firm?s cost of capital c. The sum of its free cash flo6s in each year discounted at the cost of euity d. The sum of its cash flo6s in each year discounted at the ris",free rate of interest
/. 5a#imi%ing enterprise value and ma#imi%ing shareholder value are lin"ed because: @ Pages and References: p48 a. (nterprise value and shareholder value are the same thing b. shareholder value is calculated by adding debt and other non,euity financial claims to the ;0 value of the firm c. shareholder value is calculated by subtracting debt and other non,euity financial claims from the enterprise value of the firm d. )t is obvious that they must be lin"ed
/7. To use the ;iscounted ash 0lo6 method the future cash flo6s have to be forecasted. To determine these estimates management 6ill: @ Pages and References: p48 a. 5a"e =ustified assumptions about income e#penses profit and all other significant figures b. 3se a benchmar"ing approach to align the firm?s cash flo6s 6ith its rivals? cash flo6s c. 3se accounting data and directly e#trapolate from the past the future cash flo6s d. Reach consensus by discussion 6ith a group of e#ternal e#perts such as stoc"bro"ers 48. "ey merit of long,term profit ma#imi%ation as a prime goal is its: @ Pages and References: p41 a. simplicity b. consistency over time c. tendency to optimi%e long,term survival d. ll of the above
41. To diagnose the sources of a firm?s poor financial performance it is useful to: @ Pages and References: p4/ a. 0ocus on the firm?s cash flo6 statement rather than its income statement and balance sheet b. oncentrate on sales gro6th and mar"et share rather than profit data c. dopt a for6ard,loo"ing approach through analy%ing share price performance rather than loo"ing at bac"6ard,loo"ing accounting statements © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 7
d. ;isaggregate overall return on capital into its component items. 42. 3sing accounting ratios to analy%e firm performance: @ Pages and References: pp42,4/ a. Benchmar"s b. naly%ing trends over at least - years c. 5ultiple indicators d. ll of the above 4/. )n appraising a firm?s profit performance: @ Pages and References: pp41,42 a. Return on sales is a better indicator than return on invested capital b. Return on invested capital is a better indicator than return on sales c. Fet margin is a better indicator than operating margin d. Farro6 measures of profit Dsuch as after,ta# net incomeE are better indicators than broad, based measures Dsuch as (B)T;Kearnings before interest ta# depreciation and amorti%ationE. 44. The fundamental problem of any type of performance management system is: @ Pages and References: pp4-,4< a. The tendency for performance management systems to be based entirely on financial targets b. performance management systems needs short,term measures to assess performance yet the ultimate goal is to enhance the long,term performance of the firm c. Performance targets al6ays lead to unintended conseuences because individuals al6ays $game the system& d. 5anagerial political and personal interests need to be ta"en into account 4-. The Balanced !corecard is a techniue of performance management that establishes and monitors four dimensions of performance: @ Pages and References: p4< a. 0inancial strategic operational and ethical performance b. 0inancial customer internal and learningLinnovation performance c. Profit sales productivity and asset management performance d. !hareholder customer employee supplier and social performance 4<. The main lesson to be dra6n from Boeing?s deteriorating performance during the late 1778s 6hen top management emphasi%ed the pursuit of profit and shareholder value is: @ Pages and References: p4 a. !hareholder value ma#imi%ation is only appropriate to financial service companies b. Pursuing profit and shareholder value 6ill inevitably lead to damaging ethical problems c. 0ocusing on the interests of shareholders is detrimental to employee morale and customer satisfaction d. 5anagement should focus upon the factors that drive profitability and shareholder value rather than profitability and shareholder value themselves. 4>. )nfluential scholars such as 5ilton 0riedman harles andy 5ichael Porter and A Prahalad: @ Pages and References: p47 a. gree that !R is an essential $moral imperative& b. ;isagree 6idely about the =ustification for !R c. Believe that the capitalist system 6ould operate better if all firms adopted !R d. Regard most firms? !R initiatives as primarily e#ercises in public relations 4 5ichael Porter and 5ar" Aramer?s notion of $shared value& reconceptualises !R Dcorporate social responsibilityE by emphasi%ing: @ Pages and References: p-8 a. !R as a value creating activity b. !R as advantageous to the firm by conferring reputational and legitimacy benefits c. !R a means of transferring value from shareholders to less fortunate members of society d. !R as a counter6eight to greed and amorality among managers. © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 8
47. The field of $real option analysis& emerged in: @ Pages and References: p-8 a. )ndustrial economics b. orporate finance c. !ystems theory d. !trategic management -8. )n formulating strategies under uncertainty real option analysis is a valuable strategic tool because: @ Pages and References: p-2 a. )t allo6s firms to create value from fle#ibility and a 6ider range of gro6th opportunities b. )t can assist firms in using comple# financial derivatives to hedge ris" c. )t allo6s firms to ma"e investment decisions 6ithout the need to forecast cash flo6s long into the future d. )t renders obsolete most conventional tools and techniues of strategy analysis. -1. 0or product development a $phases and gates& approach means that: @ Pages and References: p-2 a. a firm?s mar"et is divided into specific phases separated by gates 6hich must be crossed to establish synergies across segments b. a firm?s product development relies on time segments that must be lin"ed through gates c. product development is split into several consecutive phases at the end of each the product is reassessed to continue D go through the $gate& E or discontinue d. 0or each gate the value of each product is assessed and some are abandoned until there is only one left. -2. Cie6ing strategy as a portfolio of options rather than a portfolio of investments relies upon the central idea that: @ Pages and References: p-2 a. strategy needs to reconcile direction and fle#ibility in an uncertain environment b. $all or nothing& strategic pro=ects can be such costly mista"es as to be fatal to the firm c. the advantage of an option follo6s from the potential to amend or stop a strategic pro=ect during the development d. ll of the above
Chapter 3 ndustry !nalysis" The #undamentals 24. +iven the plethora of e#ternal influences understanding the e#ternal environment reuires managers to: @ Pages and References: pp<1,<2 a. 3se a frame6or" or a system that allo6s them to organi%e information and ran" factors b. 5onitor their rivals closely to detect signals of change in their strategies c. 3se all e#isting techniues to gather and analy%e information d. 9or" on the matter full,time 2-. The core of a firm?s business environment is determined by: @ Pages and References: pp<1,<2 a. )ts relationships 6ith customers competitors and suppliers b. )ts relationships 6ith customers competitors government and suppliers )ts relationships 6ith its ma=or sta"eholders d. The social and economic sstems 6ithn 6hich the firm must coe#ist
2>. Calue is created 6hen: @ Pages and References: pp<1,<2 a. The price that the customer is 6illing to pay for a product e#ceeds the costs of the material inputs used to produce the product © 2013 Robert M. Grant www.contemporarystrategyanalysis.com
b. The surplus of value is distributed bet6een customers and producers in the industry by the forces of competition c. The value of a product to consumers e#ceeds the price they paid for it. d. The price that the customer is 6illing to pay for a product e#ceeds the cost of supplying it.
/8. The profits earned by firms i)n an industry are determined by: @ Pages and References: p<2 a. The overall state of the economy and the intensity of competition 6ithin the industry b. 6 much customers value the products supplied by the industry c. The e#tent to 6hich the industry is protected by barriers to entry d. The value of the product for customers the intensity of competition and the relative bargaining po6ers of producers their suppliers and their buyers /1. The basic premise of industry analysis is that: @ Pages and References: p. (conomies of scale are a barrier to entry because: @ Pages and References: p<> a. Fe6 entrants do not "no6 6here they are positioned on their learning curve b. Fe6 entrants do not "no6 the economies they can generate in the future and therefore cannot precisely determine their selling price c. Fe6 entrants face a ris" of retaliation from the incumbents 6hich could occur immediately on a large scale and start a price 6ar as a deterrent of their entry d. Fe6 entrants face the cost and ris" of creating large,scale capacity to start 6ith or a severe cost disadvantage if they enter on a smaller scale /. The merican 5edical ssociation encourages limits on the number of medical school places for training ne6 doctors: a. )n the interests of ensuring that only the the most capable applicnsats are admitted ot the medical profession b. To ensure that the 3nited !tsates maintains the highest standards of training in the 6orld c. To "eep doctors? remuneration high d. To ensire that medical school graduates 6ill find 6or" at medical doctors
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4/. The bargaining po6er of buyers depends on: @ Pages and References: p>< a. The buyer?s price sensitivity b. The si%e of buers relative ot that of sellers c. Buyer?s price sensitivity and the bargaining po6er of buyers relative to that of sellers d. The ability of buers ot bac"6ard integrate 44. Bargaining po6er rests ultimately on: @ Pages and References: p>< a. The negotiating s"ills of the buyer versus the seller b. istoric and accidental events c. The respective effectiveness and cohesion of top management teams d. The perceived or real threat f or one party to refuse to deal 6ith the other party 4-. The relative bargaining po6er of buyers depends on: @ Pages and References: p>< a. ll of the items belo6 b. The si%e and concentration of buyers relative to suppliers c. buyer?s access to information about products and costs d. The ability or threat to integrate vertically 4<. The bargaining po6er of suppliers is li"ely to be high: @ Pages and References: p>> a. 9hen the suppliers? industry is concentrated b. 9hen suppliers are supplying differentiated products c. 9hen $our& Dthe customer?sE industry is relatively fragmented d. ll of the above 4>. The analytical tools described in the te#t: @ Pages and References: p> a. 5ust be used if one is to understand the industry structure b. re simply that =ust tools. Their value depends on the s"ill 6ith 6hich they are deployed. c. !hould really only be used by academics. d. Both and above. 4. To forecast industry profitability consistently accurately professional analysts have to: @ Pages and References: p> a. *oo" at the lin" bet6een industry and structure performance then use information on ma=or trends in industry structure to predict their effects upon the forces of competition b. *oo" at the probability of ne6 entries in the industry to determine the ma=or trends and to forecast the probable overall industry profit c. ;etermine the five larger players in the industry and their relative bargaining po6er in regards to their buyers and customers and to identify their strengths and 6ea"nesses d. ;evelop a deep understanding of ho6 the industry creates value no6 and in the future 6hether they use the tools described in the chapter or not 47. n industry?s current profitability: @ Pages and References: p> a. n its o6n tends to be a poor predictor of future profitability b. )s an e#cellent predictor of its future profitability c. (#plains the past in that industry d. )s determined by the forces of competition and so many other factors that gaining insights into its causes is almost impossible -8. !uppose that an industry?s profitability is %ero or negative overall: @ Pages and References: p> a. Then all firms in the industry are performing badly b. Then no firm in the industry can be performing 6ell c. Then the biggest firm in the industry is performing badly d. Then even so it?s entirely possible that some firms are ma"ing very good profits © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 11
-1. 3nderstanding the competitive forces in an industry is: @ Pages and References: p> a. largely futile e#ercise for managers b. )s of academic interest but does not bring any value for strategic management c. 6ay to enable managers to allocate their resources 6here competition is the strongest d. 6ay to enable managers to position the firm 6here its particular capabilities can be deployed to best advantage -2. hanging the industry structure is: @ Pages and References: p2 a. Fot really 6ithin the po6er of a single firm b. n endeavor that firms are underta"ing on a permanent basis 6ith great success c. ris"y strategic move that may bac"fire because of retaliation from the industry?s incumbents d. !ometimes possible even by small firms if the mi# of drivers for change and e#isting structure ma"e it susceptible to change -/. $The mar"et& and $the industry& are: @ Pages and References: p/ a. nalogous concepts but in practice mar"ets tend to be defined more narro6ly than industries b. oncepts 6hose everyday meaning has become divorced from their true economic definitions c. (#actly the same concept and can be used interchangeably d. (#clusively used in mar"eting and strategic management respectively -4. 5ar"et and industry are: @ Pages and References: p/ a. Cery specific economics terms 6hich must be rigidly adhered to b. re concepts 6hich reuire careful consideration of their philosophical underpinning to use correctly. c. !ome6hat fle#ible in scope depending on 6hat aspect of business you are considering d. lose concepts 6here mar"et is identified 6ith broader sectors 6hile industries refer to specific technologies --. mar"et?s boundaries are defined by: @ Pages and References: pa. The geographies of the mar"ets that are supplied by the incumbents b. The type of product 6hich is sold and the type of customers 6illing to pay for the product c. !ubstitutability on the demand side and substitutability on the supply side d. !ubstitutability on both the demand side and the supply side combined 6ith an element of =udgment depending on conte#t and purpose -<. )n practice dra6ing the boundaries of industries and mar"ets is: @ Pages and References: pa. matter of the personal preference of top managers b. lmost impossible to carry out 6ith rigor because it reuires many $rules of thumb& and appro#imations c. *argely a matter of =udgment and e#perience contingent on the purpose of the analysis d. ritical to the output of the analysis and therefore should only be underta"en 6ith the help of an academic or consultant ->. The mar"et in 6hich a consumer produce competes is in reality: @ Pages and References: pa. Precisely defined 6ith a specific analysis of products mar"ets and rivals b. continuum 6ith no clearly defined boundar c. The mar"et for all products 6hich consumers may choose to spend their money on in some sense d. ns6ers b and c © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 12
-. Aey success factors are: @ Pages and References: p< a. 0actors that lead rivals to undermine a firm?s competitive advantage b. 0actors derived from the competitive environment that a firm?s must satisfy if it is to succeed. c. 0actors in the internal environment that determine a firm?s ability to survive and prosper d. 0actors in the five forces of competition that are critical for a firm?s survival and prosperity -7. naly%ing "ey success factors leads one to as" the follo6ing t6o uestions: @ Pages and References: p< a. 9hat do customers 6ant 6hich 6e could supply and 6hat should the firm do to survive competitionH b. 9hat do customers 6ant and 6hat type of operational changes should a firm implement to survive competitionH c. 9hich of the five forces of competition most threaten a firm?s survival and ho6 could the firm deal 6ith themH d. 9hat should managers do to a information collected from the mar"et and the firm?s operational unitsH <8. The uestion $9hat do customers 6antH&: @ Pages and References: p< a. )s not relevant because customers 6ill sho6 their preferences through their behavior b. 5ust be as"ed by managers and an accurate ans6er obtained and understood since it?s the driving force behind generating profit. c. an be addressed by an e#tremely good 5ar"et Research company d. )s best ans6ered by ensuring that certain managers are educated in 5ar"eting <1. The uestion $9hat does a firm need to survive competitionH&: @ Pages and References: p< a. an be addressed through a careful analysis of competitors using all possible means even at the edge of legality and ethics b. an be addressed by studying very carefully the t6o largest rivals in the industry c. Reuires an understanding of the current and future basis of competition specific to the industry d. an never be ans6ered clearly because competitors 6ill not divulge 6hat they are doing <2. The value to managers of understanding "ey success factors is: @ Pages and References: p< a. !elf,evident b. *egitimate because it is accepted by the academic 6orld c. )n uestion because some academics disagree 6ith it. d. +enerally accepted by the corporate consulting and academic 6orlds but as 6ith most business concepts and models there are al6ays some detractors
d. To conduct a survey of managers to as" 6hat they thin" are the reasons 6hy their firm is profitable <-. )n a nightclub a single supplier of beverages can charge a price that e#ploits its position and the customers? 6illingness,to,pay. )f many suppliers could offer their products on the same site: @ Pages and References: p
. 9hich characteristics differentiate industries such as on the one hand aircraft manufacturers and commercial satellites and on the other hand e,service and fast food industriesH @ Pages and References: p>1 a. The second category of industries has very fe6 players 6hereas the first category of industries is very fragmented 6ith thousands of players b. The capital reuirements are very high for the f irst category and relatively lo6 for the second category c. The first category is highly sophisticated and reuires top notch technical s"ills 6hereas the second category relies upon mar"eting competencies d. The intensity of competition is lo6er in the first category of industries than in the second category <. Regulations in ban"ing telecommunications and broadcasting industries are: @ Pages and References: p>1 a. n illustration of barriers to entry imposed by legal or professional authorities b. n illustration of ho6 governments and regulators unfairly protect incumbents from competition c. onstraints on competition that are essential to protect consumers d. nly an illustration of the intervention of the state on business practices <7. 9hich is the most difficultH @ Pages and References: p> a. )dentifying the boundaries for furniture manufacturing industries in comparison to the same analysis for television programming and entertainment industries D0o# and FBE b. ;escribing the "ey success factors for steel airlines and automobiles in c omparison to identifying the critical factors for 0o# and FB in the television programming and entertainment industries c. naly%ing the bargaining po6er of suppliers in cartels Dsuch as P(E in comparison to identifying the bargaining po6er of customers in the Personal omputer industry Jd. )dentifying the boundaries bet6een service industries in comparison to doing the s ame bet6een manufacturing industries
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Chapter $ #urther Topics in ndustry and Competiti%e !nalysis /8. Porter?s five forces model of competition is too simple as originally conceived because it overloo"s phenomena such as: @ Pages and References: p a. The relationships of substitution bet6een products or services 6ithin one segment of the mar"et b. ompetitors? strategies may shape the industry structure rather than structure shaping competition c. The comple#ity and stability of the competitive 6orld 6here rivals? strategies affect each other d. The different levels of industry analysis that the five forces model can be applied to /1. (mpirical research sho6s that proportion of inter,firm differences in profitability that industry factors e#plain is: @ Pages and References: p a. 5ore than >-M b. bout half c. *ess than 2-M d. The uestion is cannot be ans6ered because $industry& is a meaningless concept.
/2. The difference bet6een substitute and complementary products may be summari%ed as follo6s: @ Pages and References: p7 a. !ubstitutes reduce the value of a product 6hereas complements increase value b. omplements reduce the value of a product 6hereas substitutes increase value c. omplements cannot be used together 6hereas substitutes can d. omplements increase the average price of any of them 6hereas substitutes do the opposite //. Cideo game consoles and video games are complementary products: the availability of one increases the value of the other. o6 this value is distributed bet6een the suppliers of video game consoles and the suppliers of video games depends upon: @ Pages and References: p78 a. 9hich costs more to develop consoles or video games b. Relative bargaining po6er c. 9hether video games are e#clusive to a single video console platform d. The si%e of the video console producers relative to the si%e of the video game publishers. /4. The combined value created by complementary products is shared among different groups of producers according to: @ Pages and References: pp78,71 a. greement that share it on an eual basis 6here each player has an incentive to stay b. The relative technological comple#ity of the t6o products c. The bargaining po6er of the different groups and the effectiveness 6ith 6hich it is deployed d. ggressive rivalry over appropriation 6here the outcome is often to destroy much of the aggregate value created /-. The producer of a complementary product can ma#imi%e its relative bargaining po6er by means of: @ Pages and References: pp78,71 a. dopting a differentiation strategy that allo6s it to sell at a premium price b. dopting a cost cutting strategy to provide its product at the lo6est possible cost and so e#ploit economies of scale c. Reducing the value contributed by restricting complementors? access to the mar"et d. )t creates a differentiated mar"et got its product and commodity mar"et for the complementary good. © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 15
/<. Ioseph !chumpeter vie6ed competition as: @ Pages and References: p71 a. n unstable and dynamic field 6here more destruction e#ists than creation b. gale of creative destruction c. bree%e of creative destruction d. )nevitable />. !chumpeter?s process of $creative destruction& suggests that: @ Pages and References: p71 a. indu and Buddhist notions of rebirth are applicable to business strategy b. ooperation is more common in business than competition c. ompetitors? behavior determines industry structure rather than the other 6ay round d. ompetition is essential for the rene6al of mature and declining industries /. 9hile the Porter five forces frame6or" vie6s industry structure as determining competitive behavior !chumpeter and the ustrian !chool vie6: @ Pages and References: p71 a. ompetition as an active rather than a passive force b. ompetition as a diseuilibrium phenomenon c. ompetition as determining industry structure d. ompetition as a temporary phase before the emergence of monopolies. /7. The "ey implication of $hypercompetition& in business is that: @ Pages and References: p71 a. ompetitive advantage is temporary b. Technological change 6ill continue to accelerate c. $)f it ain?t bro"e don?t fi# it& is an obsolete piece of advice d. The concept of !chumpeterian competition needs to be updated to realities of the 21st century. 48. )s hyper,competition a common phenomenon across industriesH @ Pages and References: pp71,72 a. (mpirical research sho6s that the ans6er is Nes b. (mpirical research sho6s that the ans6er is Fo c. (mpirical research remains inconclusive d. 9e can all see evidence of the absence of the phenomenon 41. The value of game theory to the field of management is in: @ Pages and References: p7< a. Bringing greater rigor to the analysis of competition b. (#tending the theory of competition behavior to embrace cooperative behavior c. (#tending the analysis of competitive behavior to the realms of politics diplomacy and social behavior d. 0raming strategic decisions predicting the outcome of competitive situations and identify optimal strategic choices. 42. )n a mar"et 6here 0irm and 0irm B are leading suppliers if 0irm initiates a price cut the li"elihood that 0irm B responds 6ith an identical price cut 6ill be greater: @ Pages and References: pp74,7< a. )f 0irm B?s medium term goal is to ma#imi%e profit b. )f 0irm B?s medium term goal is to ma#imi%e mar"et shareO c. )f 0irm B is a private rather than a public DlistedE company d. )f the mar"et is gro6ing. 4/. )n many business relationships competition: @ Pages and References: pp72,7/ a. Results in an inferior outcome for the players compared to cooperation b. Results in a superior outcome for the players compared to cooperation c. Results in an outcome not statistically different compared to cooperation d. )s so different from cooperation that a comparison does not ma"e sense © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 16
44. The $prisoners? dilemma& can be described as: @ Pages and References: p74 a. situation 6here prisoners representing industry players e#hibit behavior sho6ing that collusion 6ould improve outcome b. situation 6here prisoners rat on each other and finally get out of =ail c. situation 6here no one can obtain an optimal outcome because actors are playing blind and can only ever reach $Fash euilibrium& d. n invention of business =ournalists to illustrate the fight bet6een substitute product sellers 4-. ;eterrence is defined as: @ Pages and References: p7/ a. strong incentive to behave in a certain 6ay b. strong incentive not to behave in a certain 6ay c. strong incentive to create organi%ational punishment d. strong incentive to delay the game until a Fash euilibrium appears optimal for all 4<. )f administering deterrence is costly or unpleasant for the threatening party then: @ Pages and References: p7/ a. )t appears as not at all credible b. )t appears as e#tremely credible c. )t does not influence its po6er d. )t reinforces the po6er of the threatening party 4>. ommitment involves: @ Pages and References: pp7/,7a. )ncreased ris" and better solutions for building successful strategies b. )ncreased ris" and measurement of rivals? determination before a competitive attac" c. ard commitment for first movers or soft commitment for fast second movers d. )ncreased ris" and removal of some possible strategic operations 4. 9hy is commitment so importantH Because: @ Pages and References: pp7/,7a. )t ma"es deterrence appear more credible b. )t sho6s the po6er of the focal firm c. )t demonstrates the 6ill of rivals to resist d. )t strengthens a leader?s image in the eyes of his follo6ers
47. !ignaling refers to: @ Pages and References: pp7-,7< a. ommunications that announce your strategic intentions or plans to rivals b. ny deliberate action that is intended to influence rivals? perceptions or behavior c. ;eception through misinformation d. )nternal communications that divert strategic orientations and obtain the buy,in of the organi%ation?s "ey sta"eholders
-8. The relationship bet6een competition and cooperation can be described as follo6s: @ Pages and References: p7/ a. )ndustries either compete or cooperate if they cooperate they 6ill be investigated by competition bodies b. ooperation and competition may e#ist in an industry but not at the same time c. Both can co,e#ist simultaneously d. Both can co,e#ist at the same time but not in the same industry segment or strategic group
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-1. ompetitive intelligence the systematic collection and analysis of information about rival firms is: @ Pages and References: pp7>,77 a. practice 6hich though legal in most countries is unethical b. *i"ely to distract firms from their efforts to establish positions of competitive advantage based upon their distinctive strengths c. useful activity that forms an important element of firm?s environmental scanning and strategic analysis d. useful activity because it can help firms imitate the strategies of their more successful competitors. -2. ompetitive intelligence aims to: @ Pages and References: pp7>,77 a. 0orecast competitors? behavior predict their reactions and e#plore ho6 their behavior may be positively influenced b. 0orecast competitors? future financial performance and analy%e responses to their previous strategic initiatives c. (#plore ho6 rivals? behavior could be positively influenced in the firm?s interest and signal the firm?s strategic initiatives d. ollect information about rivals in other countries and especially to forecast their attac"s against the focal firm?s domestic mar"et -/. The distinction bet6een legitimate competitive intelligence and industrial espionage: @ Pages and References: pp7>,77 a. )s clearly defined by legislation and case la6 relating to trade secrets b. )s not al6ays clear c. )s a myth G they are almost the same d. )s easily resolved by hiring a good la6yer -4. To attempt to predict competitive behaviors Porter suggests a four,step frame6or" 6here analysts must identify: @ Pages and References: pp7,77 a. To analyse the rival?s current strategy its ob=ectives its assumptions about the industry and itself and its available resources and capabilities b. The rival?s current strategy its future strategy its assumptions and its vulnerabilities c. The rival?s assumptions about the industry its available resources and competencies its ob=ectives and its competitive advantage d. The rival?s available resources and competencies its ob=ectives then its competitive advantage and finally its performance
--. The level of a rival?s current performance in relation to its ob=ectives: @ Pages and References: pp7,77 a. as no specific influence on any player?s strategy b. ;etermines the li"elihood of the rival?s strategy change c. ;etermines the li"elihood of a strategy change in your firm d . ;etermines the li"elihood of a state?s intervention in the competitive game -<. )n the automobile industry an e#ample of an industry recipe is: @ Pages and References: p77 a. 0irms forming an industry association to represent their common interests b. The perception that cost efficiency reuires an annual production volume of over four million cars annually. c. The formation of strategic alliances 6ith one another d. The assumption that all cars must have an engine and four 6heels
->. !egmentation is a process through 6hich: @ Pages and References: pp77,188 a. ne can assess the strengths and 6ea"nesses of any firm in its mar"et © 2013 Robert M. Grant www.contemporarystrategyanalysis.com 18
b. )ndustries are divided into specific mar"ets c. )ndustries are divided into groups of similar products d. Product characteristics are matched 6ith customer preferences -. The main use of industry segmentation analysis is: @ Pages and References: p188 a. )dentify the most attractive segments for a firm to locate 6ithinO b. 3nderstand better the needs of different customer groups c. 0ormulate better mar"eting strategies d. Predict the li"ely evolution of mar"et structure -7. Barriers to mobility are: @ Pages and References: p182 a. barriers that protect a segment from firms established in other segments of the same industry b. barriers that protect a segment from firms established in other industries c. obstacles to changing a firm?s strategy over time once it becomes obsolete or inadeuate for the changing environment d. barriers that prevent globali%ation and developing a firm?s business abroad <8. firm 6ill choose to compete across multiple segments rather than speciali%e in a single segment if: @ Pages and References: p182 a. )t is a family o6ned firm b. )f the same resources and capabilities can be shared across different segments c. There are large differences in income among consumers d. Barriers to mobility are high. <1. The main usefulness of strategic group analysis is in understanding: @ Pages and References: pp184,18a. 9hy some groups of firms 6ithin an industry are more profitable than others b. The positioning of different firms and patterns of competition 6ithin an industry c. The evolution of competition 6ithin an industry d. )dentifying area of $blue ocean& 6ithin an industry.
<2. The difference bet6een barriers to entry and barriers to mobility is 6hatH @ Pages and References: p182 a. Barriers to entry target more specifically the entry by aggressive 6ould,be incumbents b. There is no real difference c. Barriers to mobility protect a dynamic industry 6hile barriers to entry protect a static industry d. Barriers to entry protect the industry as a 6hole 6hereas barriers to mobility protect segments 6ithin the industry
<-. !trategic group analysis is primarily useful for: @ Pages and References: p18a. )dentifying strategic niches b. ;escribing and understanding the strategic positioning of firms 6ithin an industry c. ns6ers a and b d. Feither a nor b
<<. )n (uropean airline industry (asyIet Balticir !"y(urope and Ryanair: @ Pages and References: p18a. ave different route net6or"s therefore do not compete directly b. re generally small si%e firms this small si%e gives them the advantage of fle#ibility and the capacity to adapt rapidly c. Belong to the same strategic group d. ave nothing in common
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