Deck 13: Competitive Advantage in Mature Industries

Question 1

The profitable "machine bureaucracy", described by Mintzberg, is a(n):

A)Tightly-run ship
B)Example of a laissez-faire organization
C)Example of a matrix structure
D)Caricature of a 19th century firm that is irrelevant in the 21st century

Answer 1

A

Question 2

How should a firm consider innovation in mature businesses?

Answer 2

A firm should not think that innovation is impossible and that the only viable strategy is exiting the industry.
Baden-Fuller and Stopford provide interesting tips about that topic.
Maturity is a state of mind, and not a state of the business. All firms comprise potential for innovation, regarding their own resources and competencies, and their specific scope of products and markets. An industry is only a context, and a firm matters most, and can contribute to the transformation of that industry.
The essence of strategic innovation relies upon the reconciliation of goals generally considered as opposite. A firm that wants to achieve strategic innovation needs an entrepreneurial organization, with freedom to experiment, and the capacity to learn.
Managers exhibit propensity to be trapped within their industry's conventional thinking about business practices and the world in general. These common cognitive patterns are referred as "industry recipes" by JC Spender. Studies have shown that the ability of managers to think out-of-the-box, to question their assumptions and beliefs, and to change their business models, are strengths for a firm's ability to adapt.

Question 3

Which strategies can be used in declining industries where a firm has no strong pockets of demand?

A)Leadership
B)Niche
C)Harvest or divest
D)All of the above

Answer 3

C

Question 4

Some firms in declining industries exhibit:

A)Mental instability
B)Surprisingly high profitability
C)A flair for ruthless entrepreneurial opportunism
D)Fresh flowers in the reception area

Question 5

You can recognize a machine bureaucracy by its:

A)Clear divisional structure
B)Many levels of management and highly routinized operations
C)Clearly laid out fast promotion tracks
D)Exceptional efficiency and profitability

Question 6

Valero Energy Corporation is:

A)The largest oil refiner in the US
B)The fifth largest oil refiner in the US
C)An example of vertical integration
D)An example of successful corporate restructuring

Question 7

In the case of a given industry, why is maturity associated with its specific attributes?

Question 8

The conventional model of strategy implementation in mature industries suggests that strategy is:

A)Based on differentiation
B)Cost-based
C)Primarily reactive to remaining market opportunities
D)Always flexible

Question 9

How can a firm fight the negative effects of bureaucracy, and build a structure more conducive to innovation?

Question 10

What can a firm do in a declining industry?

Question 11

Is a competitive advantage in a mature industry possible? How can a firm differentiate in a mature industry?

Question 12

Electronic vacuum tubes, cigars, leather tanning, baby foods, and meat processing are examples of:

A)Technology-intensive industries
B)Rejuvenated industries
C)Mature industries
D)Declining industries

Question 13

An industry structure that is 'unfavorable to decline' would be?

A)Fragmented and disorganized
B)Warring - containing firms who have traditionally been bitter enemies
C)Containing firms subsidized from other sectors
D)All of the above

Question 14

A mechanistic organization is characterized by:

A)Centralization, well-identified roles, and vertical communication
B)Vertical communication, centralization, and monetary-oriented reward systems
C)Inter-departmental competition, centralization, and horizontal communication
D)Well-identified roles, inter-departmental competition, and centralization

Question 15

Bureaucratic organizations tend to:

A)Benefit from higher returns than more organic firms
B)Be very efficient in stable environments
C)Find it difficult to adapt to environmental changes or to innovate
D)Both b and c

Question 16

The conventional model of strategy implementation in mature industries suggests that communication is:

A)Mainly up and down the chain of command
B)Between functional departments
C)Informal
D)All of the above

Question 17

How can a firm reduce its costs?

Question 18

Hard Rock Café and Planet Hollywood illustrate the concept of:

A)Experience economy
B)Entertainment industry
C)Celebrity-backed businesses
D)Extremely competitive markets

Question 19

According to W. Buffet, which evolution characterizes the media industry?

A)A decrease in innovation
B)An increase in potential competitive advantages
C)A shift from a "franchise" to a "business"
D)A decline of the industry

Question 20

Banks, supermarkets, credit card companies, hotels, and Las Vegas casinos apply the concept of:

A)High rollers
B)Intensive players
C)High risk profile customers
D)Four star customers

Question 21

If maturity is a state of mind, then:

A)Potential always exists for rejuvenation within an industry
B)It cannot be a state of the industry as well
C)Cultivating an entrepreneurial organizational spirit within a firm helps to rejuvenate the industry
D)Answers a and c

Question 22

There are fewer opportunities for differentiation in mature industries, because:

A)Competition puts too much pressure on price
B)Firms do not have enough resources to differentiate their offerings
C)The trend toward commoditization narrows the scope for differentiation and reduces customer willingness to pay
D)Technological innovation hinders the potential for differentiation

Question 23

A firm may strategically innovate by:

A)Embracing the experience economy
B)Augmenting products and prices
C)Augmenting products and services, and adding new customer groups
D)Both a and c

Question 24

Jehovah's Witnesses' rapid development in Russia illustrates:

A)The power of lifestyle marketing
B)The openness of Russia
C)A reaction to gangster capitalism that illustrates Galbraith's 'countervailing power'
D)A focus on new customer groups by an organization in a mature industry

Question 25

In mature industries, product standardization:

A)Eliminates any potential for differentiation
B)Offers the potential for non profitable differentiation
C)Has no impact on potential for differentiation
D)None of the above

Question 26

Customer Relationship Management can be used to:

A)Disaggregate a market down to the level of an individual customer if desired
B)Aggregate the market to achieve more economies of scale
C)Establish customer loyalty building programs
D)Obtain price increases

Question 27

Cognitive maps are:

A)The mental frameworks through which people understand and frame their firm's political environment
B)A person's mental picture of their business environment
C)A key psychometric tool for recruitment
D)A way of comparing different dimensions or attributes of a product or service

Question 28

What distinguishes Toys-R-Us, Circuit City, and Mothercare, from Target, Lowe's, TJX, and Bed, Bath and Beyond?

A)Their differentiation strategies and success
B)Their size
C)Their corporate governance systems
D)Their ethical corporate cultures

Question 29

Which two factors determine the "competitive fate" of a declining industry?

A)The balance between capacity and output, and the nature of demand (the speed, predictability and uniformity of decline)
B)The nature of demand, and rivals' power of retaliation
C)Innovation and customers' speed of adoption
D)The balance between capacity and output, and industry structure

Question 30

What tool can a firm use to assess the return generated from a customer relationship?

A)Value adder
B)Value builder
C)Value chain
D)Value exchange

Question 31

Why should structures, systems, and management styles in firms operating in mature industries, mesh several performance goals? Because:

A)Employees are more demanding in these firms
B)Competitive advantage requires achieving two conflicting aims: operational efficiency and innovation
C)They are always necessary, regardless of the stage of the industry life cycle
D)Competition is stronger in mature industries

Question 32

The second stage of CRM is to:

A)Target more attractive customers
B)Target younger, better-looking, customers
C)Ask unattractive customers to buy from another company
D)Persuade existing valuable customers to reduce costs by using the product less frequently

Question 33

What are the unintended consequence of long-established "industry recipes"?

A)Top managers' understanding of their industry tends to fossilize, so they cannot imagine reconfiguring the industry with new products or new ways of doing business
B)They have no side effects at all
C)They can lead mature executives to take large risks because they are rejuvenating while having mid-life crises
D)They can foster radical innovation

Question 34

To earn a satisfying return in a declining industry a firm must have:

A)A well-oiled machine bureaucracy
B)Pockets of demand that are resilient and relatively price-insensitive
C)Plans to leave the industry at short notice
D)All of the above

Question 35

According to Baden-Fuller and Stopford, maturity is:

A)A universal stage of life
B)A state of the industry
C)Coincidence or luck
D)A state of mind

Question 36

To achieve strategic innovation you need to:

A)Break industry recipes by bringing in outsiders and younger people to formulate strategy
B)Devise and smoothly execute strategies to acquire new customer groups or augment products or services
C)A and B above
D)Use existing teams to study the issue and generate recommendations for top managers

Question 37

Strategic innovation:

A)Goes beyond strategic rethinking
B)Goes way beyond strategic rethinking
C)Requires good execution as well as strategy formulation
D)Comes into and out of fashion in mature industries ('cyclicality')

Question 38

Tires, brassieres, and fishing rods are mature industries. These industries exhibit:

A)Extreme stability and no competitive or technological change
B)Totally standardized products
C)Players still pursuing technological improvement
D)A paradoxical "technological regression"

Question 39

In the "experience economy", firms try to:

A)Offer products and services that will save money and that are perceived as cheap by customers
B)Offer 'hybrid' products and services that are better value than their prices would warrant
C)Engage customers at the emotional, intellectual, and spiritual levels
D)Engage customers in processes to test the product before its final release

Question 40

Strategic innovation is defined as:

A)A third phase of innovation, after product and process innovations
B)A radical new strategy that changes a fundamental aspect of the competitive game
C)Adding new products and services
D)Both a and b

Question 41

Analysis of competitive advantage in mature industries shows that:

A)Competitive advantage has completely disappeared
B)Fewer opportunities for competitive advantage exist and most have shifted from differentiation-related factors to cost-related factors
C)Competition increases, as do cases of unfair behavior
D)The opportunity for competitive advantage is not significantly different from early stages of the industry life cycle

Question 42

Maturity implies that an industry:

A)Is close to its end
B)Still has some opportunities
C)Generates very low returns
D)Has incumbents that are all trying to exit

Question 43

For mature industries three cost drivers are especially critical:

A)Economies of scale, the experience curve, and low overheads
B)Low-cost inputs, low overheads (or, more generally, good efficiency in using all inputs), and economies of scale
C)Low-cost inputs, R&D expenditures, and economies of scope
D)Economies of scale, economies of scope, and R&D expenditures

Question 44

Differentiation exists in the early stages of the industry life cycle, but is not an option in a mature industry

Question 45

Filing patents on new products or processes is surprisingly found quite often in mature industries

Question 46

Once product and process innovation have slowed, a third type of innovation - game innovation - can change the game and open up competitive advantage possibilities

Question 47

Industries in decline exhibit attributes such as decline in demand, aggressive price competition, and lack of technical change

Question 48

Warren Buffet distinguished mature businesses from young franchises by defining a "business" as:

A)A market where firms only earn exceptional profits if they are low cost operators
B)A market where firms only earn exceptional profits if their service is tight
C)A market where both A and B are true
D)A and B above, and where poor management will soon lead to a firm's demise

Question 49

Why do firms in mature industries tend to have higher gearing ratios?

A)Bankers are averse to lending to industries making risky new products
B)Mature firms have significant assets, long financial track records, and can obtain more debt to lower their overall cost of capital than firms in growth industries
C)Bankers have actually heard of the names of these firms before studying detailed borrowing proposals
D)All of the above

Question 50

In mature industries, the diffusion of process technology leads to:

A)Attacks of established firms by rivals targeting specific niches
B)Increasing difficulty in obtaining a cost advantage based on technology
C)A 'level playing field' and perfect competition
D)The emergence of new standards

Question 51

The experience economy refers to a model where firms try to involve their customers emotionally, intellectually, and even spiritually

Question 52

Mature industries can require drastic intervention to reduce costs because:

A)Corporate restructuring is easier to implement in mature industries
B)Market pruning allows us to focus on more attractive industries
C)Cost efficiencies tend to be institutionalized
D)Cost inefficiencies tend to be institutionalized

Question 53

One way to make a profit in a declining industry is to show industry leadership by buying competitors, encouraging others to quit, and announcing that you are replacing old capital equipment with lower-cost plant

Question 54

Fashion clothing, airlines, coffee shops, and steel illustrate:

A)Mature industries
B)Emerging industries
C)Thriving industries
D)Mature industries where innovation is still possible

Question 55

It will be difficult to execute a profitable strategy in an industry with declining but cyclical demand, warring competitors, and a strong sense of pride in their product

Question 56

Standardization of a product's attributes reduces opportunities for meaningful and profitable differentiation, but, once obtained, competitive advantage is easy to sustain

Question 57

In a mature industry, differentiation often has to take the form of:

A)New products
B)Specific resources and capabilities
C)A cost advantage
D)Complementary services

Question 58

How does an industry's maturity impact potential economies of scale?

A)It has no impact at all
B)A shrinking market destroys the potential for economies of scale
C)Greater standardization facilitates the exploitation of economies of scale
D)It increases competition and the risk of price wars

Question 59

Why does the profitability of a mature industry tend to be lower than at other stages?

A)Demand growth is low
B)Product differentiation is difficult
C)International competition is fierce
D)All of the above

Question 60

Are mature industries identical?

A)Yes
B)No
C)They are different but with similar characteristics
D)They all follow the same extinction pattern

Question 61

Low-cost inputs, low overheads, and R&D efficiency are the three drivers of cost

Question 62

Value exchange is the relationship between the investment a company makes in a type of customer or market segment and the profitability of that segment

Question 63

"Asset and cost surgery" is one of the three approaches that a firm may undertake to reduce costs in a mature industry

Question 64

Mature industries generally have lower profitability

Question 65

The value chain can be reconfigured by targeting non-traditional customer segments, such as non-believers for a church, or people who never normally use motorbikes for Harley Davidson

Question 66

When an industry becomes mature, fewer opportunities exist for establishing competitive advantage, and these opportunities shift from cost-based factors to differentiation-based factors

Question 67

Industry recipes are industry or system-wide beliefs and common cognitive patterns

Question 68

CRM stands for Cost Relationship Management

Question 69

Efficiency through bureaucracy is one method of maintaining profitability in a mature industry

Question 70

Food, energy, construction, vehicles, financial services, and restaurants are examples of mature industries

Question 71

To break the cognitive maps of middle management in a mature industry one could hire experienced managers from outside the industry

Question 72

Enterprise Rent-A-Car's different strategy to Avis and Hertz is to target customers who want to rent a car from home, rather than when travelling