Deck 1: What Is Strategy and the Strategic Management Process

Question 1

For the purposes of this book, a firm's strategy is defined as its theory about how to gain competitive advantages.

Answer 1

True

Question 2

A "good strategy" does not necessarily have to create a competitive advantage.

Answer 2

False

Question 3

Corporate level strategies are actions firms take to gain competitive advantages in a single market or industry.

Answer 3

False

Question 4

By conducting an external analysis, a firm identifies the critical threats and opportunities in the industry's competitive environment.

Question 5

Mission statements often contain so many common elements that even if a firm's mission statement does not influence behavior throughout an organization, it is likely to have a significant impact on a firm's actions.

Question 6

The second step in the strategic management process is the definition of a firm's mission.

Question 7

The greater the extent to which a firm's assumptions and hypotheses accurately describe how the competition in the industry is likely to evolve, and how that evolution can be exploited to earn a profit, the more likely it is that a firm will gain a competitive advantage from implementing its strategies.

Question 8

Firms whose mission statement is central to all they do are known as missionary firms.

Question 9

There is complete consensus among strategic managers and academic researchers about what a "strategy" is.

Question 10

Visionary firms earn substantially higher returns than average firms because they acknowledge that profit maximizing is their primary reason for existence.

Question 11

High quality objectives are tightly connected to the elements of a firm's mission but tend to be relatively difficult to measure and track over time.

Question 12

Mission statements that are very inwardly focused and are defined only with reference to the personal values and priorities of its founders and top managers can hurt a firm's performance.

Question 13

One of the central questions that all strategic managers must address, regardless of the industry they work in, is "How is the industry likely to evolve?"

Question 14

The strategic management process is a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy that generates competitive advantages.

Question 15

Objectives are the specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission.

Question 16

Business level strategies are actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously.

Question 17

Strategy implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy.

Question 18

The ultimate objective of the strategic management process is to enable a firm to choose and implement a strategy that leads to a competitive advantage.

Question 19

A firm's mission defines both what it wants to be in the long run and what it wants to avoid in the meantime.

Question 20

It is usually possible to know for sure that a firm is choosing the right strategy.

Question 21

The size of a firm's competitive advantage is the sum of the economic value a firm is able to create and the economic value rivals are able to create.

Question 22

A sustained competitive advantage is virtually permanent.

Question 23

When a firm earns above average accounting performance, it is said to enjoy competitive parity.

Question 24

All firms have almost entirely emergent strategies.

Question 25

A firm that earns below average accounting performance generally experiences a competitive disadvantage.

Question 26

Waring found that firms that operate in industries that are informationally complex, require customers to know a great deal in order to use the industry's products, require a great deal of R & D, and have significant economies of scale are more likely to have sustained competitive advantage than those firms in industries without those characteristics.

Question 27

Liquidity ratios are ratios that focus on the firm's ability to meet its short-term financial obligations.

Question 28

The correlation between economic and accounting measures of competitive advantage is generally low.

Question 29

Applying accounting measures of competitive advantage for firms that are headquartered in different has become less challenging today with the globalization of business.

Question 30

Johnson & Johnson's introduction of "Johnson's Toilet and Baby Powder" as a result of customers asking to purchase the talcum powder is an example of a planned strategy.

Question 31

Strategic choices are generally limited to very experienced senior managers in large corporations; in smaller and entrepreneurial firms, many employees end up being involved in the strategic management process.

Question 32

The greatest disadvantage of accounting measures of competitive performance is that they are relatively difficult to compute.

Question 33

Activity ratios are ratios with some measure of profit in the numerator and some measure of firm size or assets in the denominator.

Question 34

Firms with strategies that are unlikely to be a source of competitive advantage will rarely provide the same career opportunities as firms with strategies that do generate such advantages.

Question 35

A firm's accounting performance is a measure of its competitive advantage calculated using information from a firm's published profit and loss and balance sheet statements.

Question 36

Emergent strategies are theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented.

Question 37

Emergent strategies are only important when a firm fails to implement the strategic management process effectively.

Question 38

The cost of equity is equal to the interest a firm must pay its debt holders in order to induce those debt holders to lend money to the firm.

Question 39

Economic measures of competitive advantage compare a firm's level of return to its costs of capital instead of to the average level of return to the industry.

Question 40

The residual claimants' view of equity holders argues that the interests of equity holders come before all other stakeholders of the firm in receiving payment.

Question 41

A competitive advantage that lasts a very short period of time is known as a ________ competitive advantage.

A) temporary
B) sustained
C) transient
D) perpetual

Question 42

Firms whose mission is central to all they do are known as ________ firms.

A) missionary
B) emergent
C) parity
D) visionary

Question 43

The strategic management process begins when a firm

A) determines its objectives.
B) defines its mission.
C) makes a strategic choice.
D) implements its strategy.

Question 44

When a firm is able to create more economic value than rival firms it is said to have a(n)

A) comparative advantage.
B) competitive advantage.
C) residual advantage.
D) economic advantage.

Question 45

If TechnoGeek and VarsityBlue compete in the same market for the same customer and TechnoGeek generates $900 of economic value each time it sells a product or service while VarsityBlue generates $400 of economic value each time it sells a product or service, TechnoGeek has a(n) ________ of $500.

A) perceived benefit
B) economic value
C) cost advantage
D) competitive advantage

Question 46

Actions firms take to gain competitive advantages in a single market or industry are known as

A) business level strategies.
B) corporate level strategies.
C) diversification strategies.
D) strategy implementation.

Question 47

By conducting a(n) ________, a firm identifies the critical threats and opportunities in its competitive environment.

A) internal analysis
B) competitive analysis
C) external analysis
D) strategic choice

Question 48

The mission statements of visionary firms

A) suggest that profit maximizing, while an important corporate objective, is not their primary reason for existence.
B) suggest that profit maximizing is neither an important corporate objective nor their primary reason for existence.
C) suggest that profit maximizing is their primary reason for existence.
D) suggest that value maximizing is their primary reason of existence.

Question 49

A sequential set of analyses and choices that can increase the likelihood that a firm will choose a strategy that generates competitive advantages is the

A) organizational change process.
B) strategic management process.
C) mission statement process.
D) goal setting process.

Question 50

The center of Osterwalder and Pigneur's business model canvas is the

A) parity point.
B) value proposition.
C) competitive advantage.
D) strategy box.

Question 51

________ occurs when a firm adopts organizational policies and practices that are consistent with its strategy.

A) Strategy formulation
B) Strategic choice
C) Strategy implementation
D) Strategic control

Question 52

________ helps a firm understand which of its resources and capabilities are likely to be sources of competitive advantage.

A) Competitive analysis
B) Internal analysis
C) Strategic choice
D) External analysis

Question 53

High quality objectives are those that are

A) tightly connected to elements of a firm's mission and are relatively easy to measure and track over time.
B) difficult to measure and track over time.
C) non-existent.
D) not quantitative.

Question 54

Which of the following statements regarding firm mission is accurate?

A) While some firms have used their missions to develop strategies that create significant competitive advantages, firm missions can hurt a firm's performance as well.
B) Virtually all firms have used missions to develop strategies that create significant competitive advantages, while very few firms have used missions that can hurt their performance.
C) It is very rare for firms to be able to use their missions to develop strategies that create significant competitive advantages, and most firm missions actually hurt their performance.
D) Missions tend to have very little impact on a firm's ability to create significant competitive advantages.

Question 55

A firm's ________ is defined as its theory about how to gain competitive advantages.

A) objective
B) mission
C) vision
D) strategy

Question 56

________ are specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission.

A) Strategies
B) Missions
C) Competitive advantages
D) Objectives

Question 57

A firm's ________ is its long-term purpose that defines both what it aspires to be in the long run and what it wants to avoid in the meantime.

A) mission
B) strategy
C) objective
D) goal

Question 58

Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously are known as

A) corporate level strategies.
B) diversification strategies.
C) business level strategies.
D) strategic alliance strategies.

Question 59

The difference between the perceived benefits gained by a customer who purchases a firm's products or services and the full economic cost of these products or services is the (Note: Porter was deleted from this edition)

A) value proposition.
B) cost advantage.
C) economic value.
D) competitive advantage.

Question 60

From 1926 to 1995, visionary firms earned ________ returns compared to firms that were not visionary firms.

A) substantially lower
B) substantially higher
C) marginally lower
D) equivalent

Question 61

One of the first scholars to examine the longevity of competitive advantage was

A) Dennis Mueller.
B) Geoffrey Waring.
C) Peter Roberts.
D) Rich Houston.

Question 62

Which of the following is a reason why it is important for students to study strategy and the strategic management process?

A) Studying strategy and the strategic management process can give students tools to evaluate the strategies of firms that may employ them.
B) It can be very important to a new hire's career success to understand the strategies of the firm that hired them and their place in implementing these strategies.
C) While strategic choices are generally limited to very experienced senior managers in large organizations, in smaller and entrepreneurial firms many employees end up being involved in the strategic management process.
D) All of the above.

Question 63

________ are ratios with some measure of profit in the numerator and some measure of firms' size or assets in the denominator.

A) Liquidity ratios
B) Leverage ratios
C) Activity ratios
D) Profitability ratios

Question 64

Ratios that focus on the level of a firm's financial flexibility, including its ability to obtain more debt, are known as

A) leverage ratios.
B) liquidity ratios.
C) activity ratios.
D) profitability ratios.

Question 65

The two types of measures of competitive advantage include

A) accounting measures and strategic measures.
B) strategic measures and economic measures.
C) accounting measures and economic measures.
D) qualitative measures and quantitative measures.

Question 66

Firms that generate less economic value than their rivals experience a competitive

A) advantage.
B) parity.
C) disadvantage.
D) perceived benefit.

Question 67

A firm that is able to attract additional capital because debt holders and equity holders will scramble to make additional funds available for it is likely earning

A) normal economic performance.
B) average accounting performance.
C) temporary advantage.
D) above normal economic performance.

Question 68

Fed Ex entered their market with a well-defined mission and objectives, making strategic choices and implementing those strategies. This is an example of which type of strategy?

A) intended
B) economic
C) emergent
D) visionary

Question 69

A firm's ________ is a measure of its competitive advantage calculated using information from a firm's published profit and loss and balance sheet statements.

A) economic performance
B) accounting performance
C) strategic performance
D) sustainable performance

Question 70

The realized strategy of most firms tends to be

A) almost exclusively a reflection of their intended strategy.
B) almost exclusively a reflection of their emergent strategy.
C) a combination of both intended and emergent strategies.
D) reflective of neither the firms' intended nor emergent strategy.

Question 71

The percentage of a firm's total capital that is debt times the cost of debt plus the percentage of a firm's total capital; or equity times the cost of equity is the

A) weighted cost of capital.
B) weighted average cost of capital.
C) cost of capital.
D) average cost of capital.

Question 72

Which type of ratios focus on the ability of a firm to meet its short-term financial obligations?

A) activity ratios
B) liquidity ratios
C) leverage ratios
D) profitability ratios

Question 73

Theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented are known as

A) emergent strategies.
B) objective strategies.
C) planned strategies.
D) ad hoc strategies.

Question 74

A firm that earns its cost of capital is said to be earning

A) above normal economic performance.
B) normal economic performance.
C) below normal economic performance.
D) normal accounting performance.

Question 75

In many ways, the difference between traditional economics research and strategic management research is that the former attempts to explain why ________, while the latter attempts to explain ________.

A) competitive advantages should not persist; when they can
B) competitive advantages should persist; when they can
C) competitive advantages should persist; why they should not
D) competitive parity should not persist; why they should

Question 76

________ measures of competitive advantage compare a firm's level of return to its cost of capital instead of to the average level of return in the industry.

A) Economic
B) Accounting
C) Strategic
D) Sustainable

Question 77

Using ratio analysis, a firm earns ________ when its performance is greater than the industry average.

A) above average economic performance
B) below average accounting performance
C) above average accounting performance
D) below average economic performance

Question 78

The ________ is the rate of return that a firm promises to pay its suppliers of capital to induce them to invest in the firm.

A) cost of debt
B) cost of advantage
C) cost of parity
D) cost of capital

Question 79

The view that equity holders only receive payment on their investment in a firm after all legitimate claims by a firm's other stakeholders are satisfied is known as the ________ view of equity holders.

A) stakeholder
B) residual claimants
C) legitimate claimants
D) extraordinary claims

Question 80

An important limitation of comparing a firm's performance to its cost of capital occurs when a firm is

A) privately held.
B) an IPO.
C) an entrepreneurial venture.
D) experiencing below normal economic performance.