Deck 7: Strategy and Technology

Question 1

The economic benefits of standard creation in an industry include compatibility, clarity to the consumer, reduction of production costs and lowered risks for companies supplying complementary products.

Answer 1

True

Question 2

Aggressive marketing is a key factor in jump-starting demand to get potential early adopters to bear the switching costs associated with adopting an innovation.

Answer 2

True

Question 3

Polaroid sells their instant cameras at a lower cost, but their accessories such as filters, lenses and film are priced high to make profits. This is an example of a razor and blade strategy.

Answer 3

False

Question 4

Ownership of an industry standard that is protected from imitation by patents and copyrights is a weak organizational resource.

Question 5

Tony has been a loyal PlayStation user for the last few years and has invested over $500 in the console, controllers and about 20 games that can only be played on the PlayStation platform. A new game has just been launched for the Xbox One that Tony wants to buy, but he would have to purchase a new Xbox and controllers for $500 in order to play the game. Tony decides not to buy the new Xbox game due the costs. Tony's decision was based on high switching costs.

Question 6

It is important for a company to make sure that, in addition to the product itself, there is an adequate supply of complements to win a format war.

Question 7

Computer software products have high marginal costs and low fixed costs.

Question 8

There are no significant benefits to owning a technical standard in an industry.

Question 9

The difference in comparative costs between a conventional producer and a high-tech producer is that they have to understand the law of diminishing returns.

Question 10

A common set of features or design characteristics of a product is called a dominant design.

Question 11

Companies promoting alternative standards can be locked out of the market when consumers are unwilling to bear the switching costs required to abandon the established standard and adopt the new standard.

Question 12

Technical standards do NOT play any role in product differentiation.

Question 13

Microsoft Word, the word-processing software, was so easy to use and had so many useful features, that no other software could compete with it. Therefore, at the time of its introduction, Microsoft Word could be described as a killer application.

Question 14

When a company is trying to win a format war, it should license its format for a low fee rather than a high fee.

Question 15

Microsoft's near-monopoly of PC operating systems substantially reduces the risks facing the makers of complementary products and the costs of those products.

Question 16

Antibody Solutions is a company that specializes in cell-bank storage and producing antibodies for bacterial and viral infections. It is not considered a high-tech company since it is not technically in the computer or software industry, which is typically considered high-tech.

Question 17

The increase in sales of a certain type of cell phone due to the availability and increase in demand of a specific game application only designed for that cell phone is an example of indirect or "cross-side" network effects.

Question 18

The outcome of format wars to control the source and customer value of differentiation can ultimately affect the profitability and survival of a company.

Question 19

When two or more companies compete with each other to get their technology adopted as a standard in an industry, and when network effects and positive feedback loops are important, the company that wins the format war will be the one whose strategy best exploits positive feedback loops.

Question 20

The layout of the keys on a computer keyboard is an example of a technical standard.

Question 21

When comparing two companies, a conventional company facing diminishing returns and a high-tech company with low marginal costs, if both companies sell the same quantity at the same price, the conventional company will make more profit because it has lower average costs than the high-tech company.

Question 22

When standards are part of the public domain, they can be used:

A) only by companies in one particular industry.
B) only by federal contractors.
C) by paying a fee to the Federal Communications Commission.
D) freely by any company.
E) only once without payment of a fee.

Question 23

First movers and late movers that are large companies are able to develop complementary assets at the same rate to quickly develop a presence in the new industry.

Question 24

There is a set of fixed specifications for turbine blades for jet engines. The specifications include the material that needs to be used to manufacture the blades as well as the specific dimensions that they need to have; the same specifications are used by all manufacturers. In this scenario, the specifications for jet blades can be referred to as:

A) format wars.
B) technical standards.
C) technological paradigm shifts.
D) first movers.
E) razor and blade strategies.

Question 25

One important advantage of being a first mover is that it guarantees success.

Question 26

Consumers will bear switching costs if:

A) the benefits of adopting the new technology outweigh the costs of switching.
B) switching costs are substantial.
C) the new products are packaged attractively.
D) there is a lack of complementary products.
E) the new technology is advertised subtly.

Question 27

In order to take advantage of being a first mover in an industry, a new entrant must decide on whether to try to do it alone, enter into a strategic alliance, or license its technology.

Question 28

Switching costs, in the context of technology industries, refer to the costs that:

A) industries incur in order to adhere to technical standards.
B) companies incur to switch from one business model to another.
C) customers need to bear to abandon an established standard and adopt a new standard.
D) industries need to bear to abandon old technology and get license for a new technology.
E) companies need to bear to create product differentiation when they are locked inside an industry.

Question 29

Which of the following is NOT a way that standards can emerge in an industry?

A) Lobbying the government to mandate an industry standard when the benefits of establishing a standard are recognized
B) Emerging rules and regulations about resource use and worker safety
C) Government- or association-set standards fall into the public domain
D) Market demand
E) Industry association between cooperating businesses without government assistance

Question 30

Technological paradigm shifts occur when new technologies revolutionize the structure of the industry, dramatically alter the nature of competition, and require companies to adopt new strategies to survive.

Question 31

Which of the following statements is true about establishing technical standards?

A) Companies in an industry cannot lobby the government to mandate an industry standard.
B) Technical standards are often set by cooperation among businesses, without government help.
C) Companies cannot adopt technical standards that are in the public domain.
D) Market demand is not taken into consideration when it comes to establishing technical standards.
E) The strategy and business model a company has developed for promoting its technological standard holds little importance when it comes to establishing standards.

Question 32

With reference to high-technology industries, which of the following is an example of a technical standard?

A) Prices of complementary products
B) Medium of advertising used for technology products
C) Color of gadgets produced
D) Layout of keys on a keyboard
E) Number of manufacturing units per industry

Question 33

Marginal costs in high-technology industries tend to stay very low as production rises.

Question 34

With reference to technical standards, a dominant design refers to a:

A) set of design standards that are extremely complicated to adhere to.
B) network of complementary products as a primary determinant of the demand for an industry's product.
C) common set of features or design characteristics.
D) product design that requires extremely high production costs.
E) product design that requires extensive advertising.

Question 35

One strategy for success in high-tech industries is to keep prices low to increase sales volume.

Question 36

What is the desired outcome of a format war?

A) To control the source of differentiation which also controls the value that such differentiation can create for the customer.
B) To win the greatest market share in the industry.
C) To have control over setting the price for goods and services.
D) To edge other companies out of the industry.
E) To gain copyright and patent license over a product.

Question 37

With reference to high-technology industries, which of the following statements is true about technical standards?

A) They emerge because there are economic benefits associated with them.
B) They cause compatibility problems between products and their complements.
C) They can create a lot of confusion in the minds of consumers.
D) They often result in higher production costs.
E) They increase the risks associated with supplying complementary products.

Question 38

Which of the following statements is true of technology in industries?

A) Technology in industries is accounting for only a minimal share of economic activity.
B) Technology is revolutionizing aspects of the product or production system even in industries not typically considered high-tech.
C) High-technology industries are not required to adhere to technical standards to achieve product differentiation.
D) The lack of complementary products does not affect the success of a high-technology industry.
E) High-technology industries are usually not faced with the challenge of developing business models to achieve a competitive advantage like low-technology industries.

Question 39

Network effects arise in industries where:

A) the size of the network of complementary products is a primary determinant of demand for an industry's product.
B) a large network of companies in an industry use the same business model and strategies.
C) a company adheres to the same technical standards across its network of outlets.
D) companies network together and lobby for establishing certain technical standards.
E) companies that are not in favor of a technical standard network together.

Question 40

Which of the following is a source of competitive advantage for a company and is the basis for the product differentiation that tends to dominate the industry?

A) Paradigm shift
B) First mover
C) Public domain
D) Technical standard
E) Dominant design

Question 41

Cooperating with competitors:

A) reduces competition in the market.
B) creates confusion among customers and often leads them to delay their purchases.
C) helps lower the entry barriers of the industry, thus allowing new entrants to bring in their own formats.
D) curbs network effects by discouraging complementary products.
E) results in the creation of several new formats, thus intensifying format wars.

Question 42

Which of the following is a disadvantage of first movers?

A) They cannot establish significant brand loyalty due to high costs.
B) They cannot create switching costs for their customers, thus making it difficult to enter the market.
C) They decrease sales volume compared to their rivals, and thus operate at a loss.
D) They run the risk of building the wrong resources and capabilities.
E) They do not have the power to exploit network effects and positive feedback loops.

Question 43

Libra Electronics has invented a new technology to make laptops that are extremely lightweight and unbreakable. The company is advertising aggressively and wishes to create demand for its new range of laptops. To attract customers, the company has priced the laptops attractively. However, to earn a profit, the company has priced the batteries required for the laptops extremely high. Which of the following is illustrated in this scenario?

A) Downsizing strategy
B) Harvest strategy
C) Razor and blade strategy
D) Divestment strategy
E) Switching costs

Question 44

Which of the following is NOT a basic strategy for a first mover?

A) Develop and market the innovation itself
B) Develop and market the innovation jointly with other companies through a strategic alliance or joint venture
C) License the innovation to others
D) Discourage development of complementary assets
E) Increase height of imitation barriers

Question 45

To win a format war, a company should:

A) refrain from aggressive marketing and advertising.
B) ensure that there is a limited supply of complementary products.
C) develop its own killer applications.
D) keep the prices high even if the customer demand is extremely low.
E) refrain from cooperating with competitors under any circumstances.

Question 46

Aggressive marketing strategies such as substantial upfront marketing and point-of-sales promotion techniques:

A) deters early adopters.
B) helps a company jump-start demand.
C) results in lower emphasis on killer applications.
D) attracts potential early adopters who will bear the switching costs associated with adopting the format..
E) usually triggers a negative feedback loop.

Question 47

Mathematica 1.0 was one of the most distinctive applications for the short-lived NeXT Computer. It still sets the standard for symbolic math and visualization on Windows, Mac, Linux, and Unix. Mathematica 1.0 can be described as which of the following applications?

A) Dominant
B) Analogous
C) Hardware
D) Strategic
E) Killer

Question 48

The goal of finding ways to make network effects work in a company's favor and against competitors can be achieved by:

A) taking the time to build a quality installed base for its standard after several tests and redesigns.
B) making sure consumers remain hesitant to bear switching costs.
C) focusing on a slow role out and moderating consumer demand.
D) leveraging the positive feedback loop.
E) relying on other industry members to establish a technological standard or format such that it becomes as quickly as possible as the industry standard.

Question 49

Which of the following is an advantage of first movers?

A) They are not prone to mistakes.
B) They bear lower pioneering costs than later entrants do.
C) They only invest in the latest technology.
D) They do not run the risk of building the wrong resources as they are highly customer-focused.
E) They have an opportunity to exploit network effects and positive feedback loops.

Question 50

Cellular phone service providers often sell the phone itself at a very low price and then charge a relatively high fee for usage. This illustrates:

A) the first-mover strategy.
B) competitive cooperation.
C) the razor and blade strategy.
D) competitive positioning.
E) format licensing.

Question 51

Consider a cost curve with production volume on the horizontal axis and marginal costs on the vertical axis. What shape would the marginal cost curve most resemble in a high-tech industry?

A) Upward at a 45-degree angle
B) U-shape
C) Straight and vertical
D) J-shape
E) Straight and flat

Question 52

Which of the following statements is true about marginal costs in high-technology industries?

A) They are invariably higher than fixed costs.
B) They are the costs that customers need to bear to adopt a new technology.
C) They include the costs of packaging and product distribution.
D) They are extremely high in software-making companies.
E) They do not exist if the product is sold by a sales force directly to end-users.

Question 53

Venus Corp. a high-technology, gadget-making company has introduced a gaming console with attractive features. Even though the console is priced modestly and has better features than the existing ones, it has failed as many customers are apprehensive about buying it. To create demand, Venus Corp. should:

A) price the console extremely high.
B) create its own set of technical standards.
C) ensure that there are adequate complementary products.
D) use minimalistic and subtle advertising and marketing strategies.
E) avoid licensing the format to other companies.

Question 54

Which of the following pieces of advice would you give to a firm that wants to exploit network effects?

A) Charge a heavy license fee for new technology.
B) Refrain from using technical standards.
C) Create incentives for other firms to develop complementary products.
D) Do not use aggressive marketing strategies for killer applications.
E) Increase switching costs.

Question 55

Marginal cost refers to the costs of:

A) switching to a new technology.
B) adhering to technical standards.
C) producing one extra unit of product.
D) product promotions.
E) licensing new technology.

Question 56

Which of the following is NOT true of high-technology industries?

A) First movers have an advantage because their customers avoid switching costs.
B) First movers have higher pioneering costs than later entrants.
C) Later entrants can avoid the mistakes made by first movers.
D) First movers that create a revolutionary product are in a monopoly position.
E) First movers run the risk of building the wrong resources and capabilities.

Question 57

When a first mover does not have complementary assets, barriers to imitation are high, and there are several capable competitors, the first mover should:

A) license the innovation to others.
B) enter into a joint venture to protect the product.
C) lower the barriers for imitation.
D) sell the technology outright to another firm.
E) wait until competitors develop an alternative product.

Question 58

The various strategies that companies should adopt to win format wars revolve around:

A) getting the federal government to intercede.
B) making network effects work in their favor and against their competitors.
C) avoiding aggressive marketing and advertising strategies.
D) curbing the supply of complementary products.
E) charging high license fees.

Question 59

Which of the following strategies should a company NOT adopt if it wants to win a format war?

A) Developing killer applications
B) Developing complementary products
C) Joining forces with other companies to develop new technologies
D) Aggressively marketing to jump-start demand
E) Charging extremely high license fee for the technology

Question 60

An adequate supply of complements to a product can result in:

A) more customers opting for the product.
B) higher switching costs.
C) a significant decrease in sales of the product.
D) a significant decrease in customer demand for the product.
E) the company failing to win a format war.

Question 61

Identify the three factors that influence the innovation strategies used to exploit the advantages of first-movers. When is the best time to use each of these strategies?

Question 62

If you were an outside management consultant, how would you advise a firm attempting to win a format war with a powerful and capable competitor? Give several options.

Question 63

Technological disruption:

A) is typically a temporary phase lasting a few months.
B) occurs when the manufacturing plants of a company fail.
C) mostly affects the new entrants.
D) compels firms to adopt new business models.
E) is a problem primarily in embryonic industries.

Question 64

An advantage of being a first mover is that:

A) the pioneering costs are minimal.
B) there are well-defined distribution channels.
C) there is no risk of building the wrong resources.
D) the focus is always on the mass market.
E) there is an opportunity to increase sales volume ahead of rivals.

Question 65

Which of the following statements is true about new entrants in the context of a technological paradigm shift?

A) New entrants often face the risks of product cannibalization.
B) Pressures to continue the existing out-of-date business model hamstring new entrants.
C) New entrants do not need to worry about their established customer base.
D) It is difficult for new entrants to focus all their energies on the opportunities offered by the new disruptive technology.
E) New entrants are not constrained by lack of capital.

Question 66

Cell phone technology is replacing traditional wired phone technology. This is an example of a(n):

A) first-mover advantage.
B) technological paradigm shift.
C) format war.
D) complementary product.
E) embryonic industry.

Question 67

Which of the following will NOT help an established company in addressing the potential challenge of a disruptive technology?

A) Access to knowledge about how disruptive technologies can revolutionize markets
B) Investing in newly emerging technologies that may ultimately become disruptive technologies
C) Separating out the disruptive technology and creating an autonomous operating division solely for this new technology
D) Asking customers if they are interested in the new technology
E) Understanding that a disruptive technology will require a radically different value chain with a different cost structure

Question 68

Which of the following correctly describes the events that occur as an industry experiences a technological paradigm shift?

A) R&D investments in a new technology tend to yield rapid improvements and increasing returns, inflection point, diminishing returns to cumulative R&D begin to set in and the rate of improvement in performance slows, technology starts to approach its natural limit, research attention turns to possible alternative technologies
B) Inflection point, R&D investments in a new technology tend to yield rapid improvements and increasing returns, diminishing returns to cumulative R&D begin to set in and the rate of improvement in performance slows, technology starts to approach its natural limit, research attention turns to possible alternative technologies
C) Technology starts to approach its natural limit, research attention turns to possible alternative technologies. inflection point, R&D investments in a new technology tend to yield rapid improvements and increasing returns, diminishing returns to cumulative R&D begin to set in and the rate of improvement in performance slows
D) R&D investments in a new technology tend to yield rapid improvements and increasing returns, diminishing returns to cumulative R&D begin to set in and the rate of improvement in performance slows, inflection point, research attention turns to possible alternative technologies, technology starts to approach its natural limit
E) Technology starts to approach its natural limit, inflection point, R&D investments in a new technology tend to yield rapid improvements and increasing returns, diminishing returns to cumulative R&D begin to set in and the rate of improvement in performance slows, research attention turns to possible alternative technologies

Question 69

What are technical standards, why are they important, and how are they established?

Question 70

Give an example of an industry that has recently undergone a technological paradigm shift. What impact did the shift have on established companies and on new entrants to the industry?

Question 71

Describe the advantages and disadvantages of being a first mover or a follower in a high-tech industry. In your opinion, which strategy is preferable, and why?

Question 72

Which of the following statements is true about technological paradigm shifts?

A) They often do not change the nature of competition in an industry.
B) They occur when government regulations restrict the use of certain technologies.
C) They have the potential to threaten the survival of established industries.
D) They can often be handled by established companies without adopting new strategies.
E) They strongly deter new entrants.

Question 73

Which of the following is true of first movers?

A) The first mover cannot be able to establish brand loyalty.
B) The first mover has no opportunity to exploit network effects and positive feedback loops.
C) The first mover cannot create switching costs for its customers to deter rivals.
D) The first mover that creates a revolutionary product is in a monopoly position.
E) Being a first mover guarantees instant success.