Deck 1: What Is Strategy and the Strategic Management Process

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

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

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

Question 7

In general, a firm has a competitive advantage when it is able to create more economic value than rival firms.

Question 8

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 9

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

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

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 12

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

Question 13

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

Question 14

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 15

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

Question 16

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

Question 17

One of the central questions that all strategic managers must address, regardless of the industry they work in, is "What is our competition going to do next?"

Question 18

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

Question 19

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 20

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

Question 21

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 22

A firm that earns below average accounting performance, performance that is less than the industry average, generally experiences a competitive disadvantage.

Question 23

The residual claimants' view of equity holders argues that the interests of equity holders and a firm's other stakeholders often collide.

Question 24

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

Question 25

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 26

Applying accounting measures of competitive advantage for firms that are headquartered in different countries is not complicated by issues such as differences in accounting practices and exchange rates.

Question 27

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

Question 28

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

Question 29

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 30

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

Question 31

All firms have almost entirely emergent strategies.

Question 32

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 33

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

Question 34

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 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

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 37

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 38

A sustained competitive advantage is virtually permanent.

Question 39

Firms that create the same economic value as their rivals experience competitive parity.

Question 40

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

Question 41

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 profit maximizing is an important corporate objective and is their primary reason of existence.

Question 42

High quality objectives are those that are

A) tightly connected to elements of a firm's mission.
B) difficult to measure.
C) difficult to track over time.
D) not quantitative.

Question 43

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) functional level strategies.
D) sustainable strategies.

Question 44

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 45

Missions are often written in the form of

A) vision statements.
B) mission statements.
C) corporate objectives.
D) organizational goals.

Question 46

The 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 47

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

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

Question 48

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

A) Strategy formulation
B) Organizational change
C) Strategy implementation
D) Strategic control

Question 49

Firms that create the same economic value as their rivals experience competitive

A) disadvantage.
B) parity.
C) superiority.
D) advantage.

Question 50

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 competitive advantage of

A) $1,300.
B) $3,600.
C) $360,000.
D) $500.

Question 51

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 52

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

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

Question 53

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) substantially equivalent

Question 54

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) vision
C) objective
D) goal

Question 55

________ 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) Comparative analysis
D) External analysis

Question 56

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) economic analysis

Question 57

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

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

Question 58

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) strategic choice.
D) economic advantage.

Question 59

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

A) corporate level strategies.
B) functional strategies.
C) business level strategies.
D) macro level strategies.

Question 60

The difference between the perceived benefits gained by a customer who purchases a firm's products or services and the full economic costs of these products or services is known as

A) accounting value.
B) comparative value.
C) economic value.
D) sustainable value.

Question 61

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 62

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 63

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 64

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 65

If the risk free rate of return is 4%, the market rate of return is 9%, and a firm's beta is 2.0, what is the firm's cost of equity?

A) 30
B) 6
C) 18
D) 14

Question 66

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 67

________ 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 68

________ 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.

A) Intended
B) Realized
C) Emergent
D) Visionary

Question 69

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 that is equity times the cost of equity is the

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

Question 70

If a firm has total assets of $10 million, stockholder's equity of $6 million, a cost of equity of 10, and an after tax cost of debt of 5%, what is the firm's weighted average cost of capital?

A) 8
B) 18
C) 7
D) 1

Question 71

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 72

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 73

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 74

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 75

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

A) advantage.
B) parity.
C) disadvantage.
D) preference.

Question 76

________ 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 77

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 78

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 79

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 80

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.