Deck 5: Competitive Advantage and Firm Performance

Question 1

The balanced-scorecard approach to assessing competitive advantage is useful because it identifies areas for improvement and positions the company for future growth.

Answer 1

True
Explanation: The balanced scorecard allows managers to assess past performance, identify areas for improvement, and position the company for future growth.

Question 2

When crafting strategy under an economic value context,the goal is to achieve all of the following EXCEPT:

A) Capturing as much economic value as possible.
B) Making sure that the relationship between value, cost, and price results in a positive economic contribution.
C) Creating more economic value than rivals.
D) Ensuring that the value captured is equally distributed between producer and consumer.

Answer 2

D
Explanation: The distribution of value between producer and consumer need not be equal under economic value creation.

Question 3

Competitive advantage and firm strategy are best assessed using a variety of approaches.

Answer 3

True
Explanation: Both qualitative and quantitative performance dimensions are important when assessing firm strategy and competitive advantage.

Question 4

Qualitative dimensions such as a firm's environmental reputation matter more than quantitative dimensions like accounting profitability when evaluating whether or not a firm's strategy is working.

Question 5

One of the main lessons from the Chapter 5 case comparing Google and Microsoft and measuring overall firm performance is that:

A) Competitive performance differences should be measured by using a variety of evaluation tools.
B) Qualitative measurements are superior to quantitative measurements when evaluating firm differences.
C) Management should utilize just a few measurement tools in order to get exact information when evaluating firm differences.
D) The type of measurement tool used by management is dependent on which area of the firm is being measured.

Question 6

An important feature of the triple-bottom-line approach to creating a firm's competitive advantage is that it increases the chances that the strategy chosen will be sustainable.

Question 7

When using accounting profitability data to assess competitive advantage,it is important to make comparisons across different industries.

Question 8

Macroeconomic factors such as unemployment levels can influence a stock price and make it difficult to measure a firm's competitive advantage under the shareholder value creation framework.

Question 9

When measuring competitive advantage under the economic value creation approach,it can be easy to determine what the consumer's maximum willingness to pay will be.

Question 10

When a firm evaluates its performance utilizing metrics such as the balanced-scorecard approach or accounting measurements,it should interpret the results relative to its competitors,not against its own past performance.

Question 11

The balanced scorecard helps a firm formulate strategy.

Question 12

The accounting profitability approach to measuring competitive advantage relies on data that is backward-looking.

Question 13

It is important to measure competitive advantage at the firm level by looking at the economic value created for all products and services offered by the firm.

Question 14

A firm's stock price is one of the best indicators of overall performance.

Question 15

Intangibles such as a firm's reputation for innovation and quality increase a firm's stock market valuation.

Question 16

An important question to ask when looking at differences in firm performance and competitive advantage is how to best measure these differences.

Question 17

Which of the following is NOT one of the three critical factors used to evaluate economic value creation and competitive advantage?

A) Value
B) Price
C) Stock price
D) Cost

Question 18

According to Chapter Case 5,Microsoft outperforms Google when it comes to performance per employee.

Question 19

____________ is created when a customer is willing to pay more for a good or service than it costs the firm to produce it.

A) Economic value
B) Product value
C) Consumer value
D) Economic advantage

Question 20

__________ is measured by a product's performance characteristics and its attributes for which customers are willing to pay.

A) Competitive advantage
B) Profit potential
C) Contribution
D) Value

Question 21

What is one of the challenges of measuring competitive advantage using the economic value creation approach?

A) The value placed on a product or service by the consumer changes according to income and preferences.
B) It is difficult to measure the economic value created for all products and services across the organization.
C) It is challenging to determine the value of a product or service from a customer's perspective.
D) All of these.

Question 22

Under the economic value creation framework,value can be viewed as:

A) How much the product improves along the value chain.
B) The firm's book value of the product line.
C) The consumer's maximum willingness to pay.
D) How important the product is to the firm's overall strategy.

Question 23

From an economic value created perspective,the volume of a firm's goods or services sold is generally driven by the relationship between ___________ and __________.

A) The value created for customers; the price of the good or service
B) How value is created; how customers view the firm
C) The firm's core competencies; how shareholders view the firm
D) The unemployment rate; shareholder value

Question 24

From an economic value creation perspective,competitive advantage is achieved by the firm that does which of the following?

A) Creates and captures more economic value than its rivals.
B) Ensures that the value captured is evenly divided between producer and consumer.
C) Concentrates on tangible assets available as opposed to intangible assets.
D) Formulates strategy based primarily on the balanced-scorecard approach.

Question 25

A(n)______________ is the value lost due to choosing to use resources for one alternative over another.

A) Opportunity cost
B) Alternative loss
C) Resource loss
D) Opportunity loss

Question 26

From an accounting profitability perspective,competitive advantage is achieved by the firm that does which of the following?

A) Projects the highest book value for the upcoming year.
B) Delivers the most positive profitability metrics.
C) Has the highest value of intangible assets.
D) Has the highest value of off-balance sheet items.

Question 27

In the economic value creation framework of measuring competitive advantage (VPCs),V - P = __________.

A) Profits
B) Deadweight loss
C) Goodwill
D) Consumer surplus

Question 28

Under the accounting profitability framework to competitive advantage,comparing return on revenue (ROR)between companies is important because:

A) It adjusts for size differences and provides a relative comparison.
B) It reflects the firm's stock price.
C) It includes the value of the firm's intangible asset base.
D) All of these.

Question 29

Return on invested capital,return on equity,return on revenue,and _____________ are the profitability metrics that are commonly used by a firm in the quest for competitive advantage.

A) Return on surplus
B) Return on assets
C) Return on value
D) Return on production

Question 30

Value creation is important to competitive advantage because:

A) The product or service that is valued the highest by the firm will deliver competitive advantage(s).
B) The product or service that is valued the highest by the customer can charge the highest price.
C) The company with the highest future value will have highest profits.
D) The company with the highest present value will sustain competitive advantage(s).

Question 31

Under the economic value creation framework,producer surplus is important in the quest for competitive advantage because:

A) This is the profit that a firm captures when producing and selling a good or service.
B) The firm will have enough inventory to meet higher future demands.
C) The value surplus can be transferred to the consumer.
D) The greater the amount of producer surplus, the higher the book value of the firm.

Question 32

Economic value can be viewed as the amount of the total value created that is captured and distributed between ________ and ________.

A) Stakeholder; shareholder
B) Consumer; producer
C) Employees; consumer
D) Producer; supplier

Question 33

When a firm has a greater positive difference between cost and value than its rivals,it can achieve competitive advantage by:

A) Raising the price and maintaining market share and volumes.
B) Increasing production costs while lowering prices.
C) Charging the same or even lower prices and selling more goods or services.
D) Minimizing the difference between value and cost and lowering prices.

Question 34

When the value that a customer attaches to a good or service exceeds the price paid for the good or service,this is a(n):

A) Economic surplus.
B) Consumer surplus.
C) Value surplus.
D) Consumer value.

Question 35

One of the drawbacks to the accounting profitability approach to measuring competitive advantage is that it does not consider:

A) Tangible assets such as land.
B) Off-balance sheet items such as pension obligations.
C) Profit earned per dollar.
D) How the company performed in the past.

Question 36

When comparing Exxon Mobil and Liberty Media using the return on revenue metric,__________ had a relative competitive advantage in 2010.

A) Neither firms
B) ExxonMobil
C) Liberty Media
D) Both Exxon and Liberty

Question 37

When viewed from an economic value creation perspective,the major strategic objective for a firm is to:

A) Distribute the value created to the consumer.
B) Maximize the economic value created.
C) Improve the qualitative attributes of the product/service.
D) Decrease the producer surplus.

Question 38

Analyzing accounting profitability is important to managers because:

A) This data reflects how much profit the firm will make in the future.
B) How the customer views the firm is reflected in accounting data.
C) This information tells management how much to invest in intangibles.
D) Comparing "hard numbers" against rivals provides competitive insight.

Question 39

Suppose that a firm wanted to find profitability information about its rivals.The most likely source of this information would be:

A) Publicly available information including 10-K reports.
B) Employees who work for the competition.
C) Customers who are loyal to the competition.
D) Stakeholders of the competition.

Question 40

In 2010,Exxon Mobil posted 19.3 billion in profits and was ranked as the top performer by the Fortune 500 list.However,Liberty Media,which is a smaller organization than Exxon,posted the highest return on revenue for the year at 62.1 percent.Using the accounting profitability framework,Exxon outperformed Liberty in ________ terms,and Liberty outperformed Exxon in _________ terms.

A) Accounting; shareholder value
B) Shareholder value; profitability
C) Absolute; relative
D) Competitive; absolute

Question 41

Microsoft compares its stock performance annually to two stock indices: NASDAQ and the S&P 500.The NASDAQ covers over 400 high-tech companies,including Apple,Dell,and Intel.The S&P is a broader index and includes stocks from many industries.These stock indices are useful ________ that allow the public to assess whether Microsoft has a competitive advantage.

A) Targets
B) Benchmarks
C) Reports
D) Markets

Question 42

Under the shareholder value creation approach to measuring competitive advantage,profitability and stock price increases indicate:

A) That investors are ignoring macroeconomic factors.
B) That the firm is most likely at competitive parity with its rivals.
C) That investors will get a poor return on their risk capital.
D) That a firm is utilizing effective strategies.

Question 43

Shareholders include individuals and organizations that are the ___________ of a public company.

A) Targeted consumers
B) Largest patrons
C) Legal owners
D) Client base

Question 44

Under the shareholder value creation framework,______________ makes it difficult to evaluate firm performance,particularly in the short term.

A) Internal volatility
B) Stock market volatility
C) Value chain volatility
D) Supplier volatility

Question 45

The ______________ is the idea that the market price of a firm's stock includes all publicly available information about a firm's performance.

A) Efficient-market hypothesis
B) Normalized market hypothesis
C) Rational-market hypothesis
D) Shareholder knowledge hypothesis

Question 46

When crafting strategy under a shareholder value creation context,the goal is to achieve all of the following EXCEPT:

A) Provide the highest return to shareholders relative to the competition.
B) Minimize shareholder risk relative to the competition.
C) Sell more stock than the competition.
D) Deliver the greatest stock price appreciation relative to the competition.

Question 47

The fact that in its 2010 annual report,Microsoft outperformed the S&P but underperformed in the NASDAQ over the previous five years indicates all of the following EXCEPT:

A) Benchmarks are important to consider in competitive advantage.
B) Competitive advantage is defined in relative terms.
C) The NASDAQ is not a good indicator of competitive advantage.
D) Competitive advantage can be difficult to assess.

Question 48

Assets such as innovation and quality are ________ assets that contribute to growth potential but are typically not included in a firm's book value.

A) Intangible
B) Off-balance sheet
C) Tangible
D) Historical

Question 49

As of 2010,______________ have become more important than tangible assets when it comes to a firm's stock market valuation and competitive advantage.

A) Business-level strategic initiatives
B) Off-balance sheet obligations
C) Intangible assets
D) Accounting data projections

Question 50

The types of assets that are the primary focus of accounting data but are no longer most important to competitive advantage are:

A) Intangible.
B) Tangible.
C) Indefinable.
D) Unobserved.

Question 51

Measuring profitability on a relative rather than absolute basis is important because of all of the following EXCEPT:

A) It indicates how much profit a firm earns per dollar of revenue instead of overall profit.
B) It helps to compare firms of different sizes.
C) Relative profitability is a better reflection of competitive advantage than is absolute profitability.
D) A firm that has the greatest overall profit will sustain competitive advantage(s).

Question 52

Macroeconomic factors such as the unemployment rate and economic contraction:

A) Minimize stock price volatility.
B) Are irrelevant to shareholder value creation.
C) Have a direct bearing on a firm's stock price.
D) Help shareholders evaluate whether a firm's strategy is working.

Question 53

To _________ a stock return means to compare the percentage change of a stock price over the course of a certain time period from a common base year.

A) Normalize
B) Standardize
C) Regulate
D) Stabilize

Question 54

A firm's stock market valuation is based on historical accounting data and ___________.

A) Off-balance sheet obligations
B) Balance sheet obligations
C) Market expectations for the future
D) Managerial expectations for the future

Question 55

Total return to shareholders includes stock price appreciation and is an __________ measurement that reflects how the market views a firm's competitive position.

A) Internal
B) External
C) Intangible
D) Integrated

Question 56

The return on risk capital that includes stock price appreciation plus dividends received over a specific period is:

A) Total return on assets.
B) Normalized returns.
C) Total return to shareholders.
D) Capitalized returns.

Question 57

A drawback to evaluating competitive advantage under the shareholder valuation perspective is:

A) The effectiveness of a firm's strategy cannot be reflected in its stock price.
B) It is not as effective as the accounting profitability approach to measuring competitive advantage.
C) The psychological mood of investors does not necessarily reflect how effective a firm's strategy actually is.
D) It is the only "one-dimensional" framework that does not compare the firm to its rivals.

Question 58

Hyundai's reputation for quality is an asset that:

A) Will not be reflected in Hyundai's accounting information.
B) Will be reflected in Hyundai's market valuation.
C) Will be important to Hyundai's competitive advantage.
D) All of these.

Question 59

A firm's _________ captures the historical costs of a firm's assets.

A) Market value
B) Value created
C) Book value
D) Economic value

Question 60

Shareholders are most concerned with _____________ when it comes to measuring a firm's competitive advantage.

A) Value creation
B) Global expansion
C) Return on risk capital
D) Market share

Question 61

Using either the accounting profitability or shareholder value creation approach to determine whether Microsoft or Google have competitive advantage(s)is complicated by the fact that:

A) The key to their performance is based on intangible assets.
B) The technology sector is difficult to evaluate.
C) One-dimensional approaches reveal the best information.
D) They have no tangible assets.

Question 62

Measuring how a customer views a firm under the balanced-scorecard framework is important because:

A) Customer perspective is directly linked to firm revenues and profits.
B) The customer viewpoint tells a firm much needed information about rivals.
C) Surveying customers makes them feel important to the firm.
D) It is a good indicator of future stock price.

Question 63

Understanding the shareholder's view of value creation under the balanced scorecard leads a firm to:

A) Focus on value chain activities.
B) Select which product markets to be in.
C) Decide how many shares of stock it should sell.
D) Adopt a more future-oriented perspective.

Question 64

"What is our social impact?" is a question most relevant to:

A) The balanced scorecard.
B) The triple bottom line.
C) Value creation.
D) Shareholder value.

Question 65

The three traditional approaches that are considered fairly one-dimensional when measuring competitive advantage include all of the following EXCEPT:

A) Economic value creation
B) Shareholder value creation
C) Accounting profitability
D) Balanced scorecard

Question 66

Under the balanced-scorecard framework,management concentrates on all of the following areas when it comes to improving how customers view the firm EXCEPT:

A) Service.
B) Quality.
C) Stock price.
D) Cost.

Question 67

The effectiveness of the balanced scorecard is contingent upon all of the following EXCEPT:

A) The type of technology used.
B) The skills of the managers using it.
C) The metrics chosen.
D) Asking the right questions.

Question 68

When a firm assesses its performance by asking questions such as "How do our customers view us?" and "What core competencies do we need?",it is using which tool?

A) The strategy map
B) The triple bottom line
C) The balanced scorecard
D) A PESTEL analysis

Question 69

Organizational learning,innovation,and financial performance are all ____________ performance metrics.

A) Balanced scorecard
B) Accounting profitability
C) Value scorecard
D) Triple profit

Question 70

An assessment tool that takes a multidimensional approach to evaluating a firm's competitive position by utilizing specific questions and performance metrics is:

A) The comprehensive scorecard
B) The shareholder scorecard
C) The balanced scorecard
D) The strategic scorecard

Question 71

When viewed from a balanced-scorecard approach,a strategic objective for a firm is to:

A) Balance the firm's investment portfolio in order to minimize risk.
B) Take incremental strategic actions to protect the firm from retaliation.
C) Integrate internal and external performance data to assess and strengthen the firm's current position.
D) Integrate internal departments and processes and flatten the organization.

Question 72

Which of the following is TRUE concerning the balanced scorecard?

A) It is useful when formulating strategy, not when implementing it.
B) It does not provide any insight on how to correct a problem once a firm deviates from its goals.
C) It is superior to the triple bottom line when it comes to a holistic approach to competitive advantage(s).
D) It monitors and reports how balanced a firm's investment portfolio is.

Question 73

Failure to achieve competitive advantage is an indication of:

A) Using the incorrect measurement tools.
B) A poor economy.
C) A failure in strategy.
D) Being in the wrong strategic group.

Question 74

Firms use a balanced scorecard for all of the following reasons EXCEPT:

A) It links strategic vision to all responsible parties.
B) It helps design and plan business processes.
C) It encourages the firm to improve its ecological position.
D) It aids in organizational learning.

Question 75

As noted in Chapter 5,Microsoft is many times larger than Google and records higher net income,return on assets,and return on equity in absolute terms when it comes to accounting profitability.However,when looking at normalized stock returns,Google has outperformed both Microsoft and the NASDAQ-100 index by a wide margin over the 2005-2010 time period.Suppose you were a manager for Microsoft.Evaluating this information would tell you that:

A) Microsoft has a sustained competitive advantage from a shareholder value creation framework.
B) Google has a sustained competitive advantage from a shareholder value creation framework.
C) Both Microsoft and Google have sustained competitive advantages from a shareholder value creation framework.
D) Google has a competitive disadvantage from a shareholder value creation framework.

Question 76

The basic way that the balanced scorecard provides competitive insight to managers is through the use of:

A) Employee feedback.
B) Concise reports that track and measure chosen metrics.
C) Balance sheets and income statements.
D) Stakeholder surveys.

Question 77

A drawback to evaluating competitive advantage under the balanced-scorecard perspective is:

A) There is little guidance for management as to which metrics to use.
B) The balanced scorecard concentrates too much on financial performance.
C) It pays little attention to how customers view the company's products.
D) The focus is on internal performance as opposed to external performance.

Question 78

As discussed in Chapter 5,the chemical manufacturer FMC Corporation overcame short-term thinking and underperforming business units by adopting a balanced-scorecard approach.All of the following are true about FMC's successful implementation of a balanced scorecard EXCEPT:

A) Managers could focus on new-product introductions.
B) Managers were able to formulate new strategies.
C) Managers could focus on core competencies within each division.
D) Managers were able to align different perspectives to create a more overall focus.

Question 79

Under the balanced-scorecard framework,the question "How do we create value?" is relevant to all of the following EXCEPT:

A) Increasing the value added to a product along the supply chain.
B) Challenging managers to come up with new strategic objectives.
C) Focusing on future competitiveness.
D) Improving innovation and organizational learning.

Question 80

The balanced scorecard is a tool for strategy _________,not ___________.

A) Formulation; implementation
B) Implementation; formulation
C) Analysis; sustainability
D) Formulation; sustainability