Deck 4: The Nature and Sources of Competitive

Question 1

Entrepreneurship can be defined as the ability to identify and rapidly respond to opportunities in the environment.

Answer 1

True

Question 2

A "Blue ocean strategy" refers to the creation of entirely new markets.

Answer 2

True

Question 3

Starting a price war immediately a firm enters your industry is an entry-deterrent tactic that may dissuade other potential entrants for years to come.

Answer 3

True

Question 4

"Causal ambiguity" is the failure to clearly understand the source of a rival's competitive advantages - in particular which of the rival's distinctive features are causes and which are effects of another feature.

Question 5

Porter's value chain is mostly used to analyse the success or otherwise of cost leadership strategies.

Question 6

Because some resources are valuable and not perfectly uniform (they are unique, not homogenous), acquiring or developing these can take years before a firm achieves and sustains higher profitability.

Question 7

For a firm to imitate the strategy of another firm, it must do four things: identify the target firm, incentivize the rival, diagnose the sources of competitive advantage, and acquire the resources needed.

Question 8

Walmart has a competitive advantage in discount retailing in the United States.

Question 9

To "pre-empt" an entrant, a firm can occupy existing and potential strategic niches to reduce the range of opportunities open to potential entrants.

Question 10

Isolating mechanisms are forces tending to equalize profit rates among firms, i.e., phenomena that erode a firm's competitive advantages.

Question 11

In the U.S., Target appears to have competitive advantages from

A)lower costs than any of its rivals.
B)limiting its selection of goods to exclusive labels.
C)better service levels than many of its rivals.
D)fashionable designs/brands at good value.

Question 12

Innovation can be narrowly interpreted as bringing new products or processes to market, but also more broadly as introducing new ways of doing business into an industry or market (new business models).

Question 13

Differentiation means offering many product features that distinguish your product from everyone else's.

Question 14

In the long run competition eliminates differences in profitability between firms.

Question 15

Competitive advantage can be defined as

A)the difference between a firm's return on assets and its return on sales.
B)a firm's ability to earn a persistently higher profit margin than its rivals.
C)a firm's ability to earn a persistently higher profit rate than its rivals.
D)a firm's ability to outwit its competitors.

Question 16

A firm can create competitive advantage by responding better than rivals to changes in its environment or by maintaining strategic differences from its rivals that customers accept.

Question 17

In industries like finance where genuinely unique resources or capabilities are hard to find, imitation is fast and sustainable competitive advantage is hard to achieve.

Question 18

The Boston Consulting Group developed the concept of time-based competition.

Question 19

Firms can achieve competitive advantage by supplying a product at lower cost than competitors or by effectively differentiating their product so that the customer is willing to pay a higher price.

Question 20

The two main sources of competitive advantage are cost leadership and differentiation.

Question 21

Differentiation is when a firm

A)offers customers something valuable and unique.
B)offers customers something valuable and unique other than a low price.
C)offers customers a uniquely low price.
D)offers customers products with many additional features.

Question 22

A firm can pre-empt imitation by

A)vigorous legal action.
B)threatening to imitate its imitators.
C)introducing new products to fill each niche, investing in capacity ahead of market growth and filing many patents.
D)none of these: imitators should be welcomed.

Question 23

How can a firm hide its superior profits?

A)by masking its results so that rivals fail to see its success
B)by avoiding disclosing financial performance
C)by temporarily lowering prices, so that the firm forgoes short-term profits but succeeds in dissuading potential entrants
D)any of the above

Question 24

"Strategic innovation" means introducing

A)new products.
B)new markets.
C)new technologies.
D)all of the above, or introducing new ways of doing business.

Question 25

Is it easy for Sears Holdings (Kmart)to understand Walmart's competitive advantages?

A)No, it is not that easy.
B)Yes: just walk into any Walmart store.
C)any professional retailer could
D)b and c

Question 26

"Strategic innovation" involves

A)limitless financial and organizational resources.
B)spending more on research & development than your competitors.
C)top managers' total dedication to achieving timely innovations.
D)pioneering in at least one of the three dimensions: new industry, new customer segment, or new source of competitive advantage.

Question 27

To successfully imitate the strategy of another firm, an organization must

A)identify and diagnose the rival's advantage, believe in its ability to deliver a superior return, and, finally, acquire the resource.
B)identify and diagnose the rival's advantage, and then acquire the resource.
C)benchmark the rival's activities and resources, believe in a superior return, and build the rival's resource in-house.
D)benchmark the rival's activities and resources, identify the rival's weaknesses, and, finally, believe in its ability to deliver a superior return.

Question 28

Rivals can be pre-empted from entering a firm's markets using the above methods only if

A)there are significant economies of scale in this industry.
B)there is significant first-mover advantage in this industry.
C)brand names matter to consumers in this industry.
D)a and b.

Question 29

Once established, competitive advantage is

A)relatively stable over time.
B)subject to erosion by competitors or entrants.
C)a firm's reward for leading the industry.
D)easily maintained unless entry barriers are high.

Question 30

The development of "collateralized debt obligations", by Drexel Burnham Lambert, shows that

A)well-paid bankers always come up with good ideas.
B)the financial system can be very fragile.
C)financial products are easily copied so first movers must quickly establish a large track record of successful trades.
D)a financial crisis was inevitable.

Question 31

Isolating mechanisms are

A)barriers that slow or stop the equalization of profits between firms, such as barriers to imitation.
B)mechanisms that speed up the equalization of profits between firms.
C)barriers that prevent potential entrants from grabbing a significant market share in the industry.
D)mechanisms that limit or enhance the ex post equilibration of rents among individual firms, depending on their relative bargaining powers.

Question 32

Causal ambiguity and uncertain imitability are

A)two academic phrases to describe a state of confusion.
B)related because causal ambiguity causes uncertain imitability (the rival doesn't know what to imitate).
C)anyone who tries to imitate something they don't fully understand is asking for trouble.
D)all of the above.

Question 33

Cost leadership means a firm must

A)exploit all sources of cost advantage before tailoring the product to each customer.
B)exploit all sources of cost advantage in providing customers with a standardised product.
C)exploit all sources of cost advantage in providing each customer with their minimum requirements.
D)exploit all sources of cost advantage while providing every customer an individual service.

Question 34

To imitate the competitive advantage of another company, a firm must first

A)understand the basis of its rival's success.
B)collect comprehensive information about its rival.
C)analyse its rival's marketing strategy.
D)none of the above.

Question 35

Requirements for quick organizational response to a turbulent environment are

A)flexible manufacturing systems and a good 'gut' feel for customer trends.
B)excellent resources and capabilities.
C)short product launch cycle times and excellent quality control.
D)quick, accurate information, and short product launch cycle times.

Question 36

The fundamental choice for capability acquisitions is the decision to either

A)buy them or sell them.
B)develop them or maintain them.
C)buy them or build them.
D)buy them or copy them.

Question 37

A firm with a competitive advantage other than superior profitability may have

A)a rising market share.
B)strong and rising customer loyalty, or good executive perks, or both.
C)invested in new technologies its rivals do not have.
D)some or all of the above.

Question 38

A firm's ability to turn change in its external environment into profit

A)requires just one key resource: information.
B)depends on its ability to respond by changing its capabilities appropriately.
C)is the test of a sustained focus strategy.
D)is always measured by its market share.

Question 39

Competitive advantage

A)exists only when an industry is in long term equilibrium.
B)emerges from external and internal sources.
C)both a and b.
D)neither a nor b.

Question 40

If an industry has a stable environment and firms pursue similar strategies,

A)firms with similar resources and capabilities should have similar profit rates.
B)firms with similar resources and capabilities should have similar structures.
C)firms without similar resources and capabilities will have left the industry.
D)strategists may as well shoot themselves, this industry is so boring.

Question 41

The success of Japanese Total Quality Management

A)shows that it is possible to pursue cost leadership and differentiation strategies simultaneously.
B)refutes the perceived trade-off between low cost products and high quality products.
C)has made porter's analysis outdated.
D)b and c.

Question 42

The central task of a differentiation strategy is

A)to see how you can 'tweak' the product by adding new features that differentiate it from rival products.
B)to add valuable new features to your product so long as the extra value to customers exceeds the extra cost to you of supplying it.
C)to ask how all your customers' interactions with your product could be enhanced even more.
D)all of the above.

Question 43

Being 'stuck in the middle' gives low profits because

A)the firm loses those customers who want the lowest prices.
B)the firm loses those customers who want the best product on the market.
C)employees become confused about what the firm's goals and strategy really are.
D)all of the above.

Question 44

A typical cost leadership strategy involves

A)a firm producing a few limited-feature standard products, or providing a very standardised service.
B)a medium or small firm with minimal overheads, and cheaply acquired (sometimes second-hand)assets.
C)a and b.
D)being the firm with the highest market share, and, often, the best-known brand in the industry.

Question 45

Porter's value chain

A)can only be used to analyse cost leadership strategies.
B)can be used to look at the current and additional costs of changes in a differentiation strategy.
C)can be used to examine the current and additional service levels offered to customers in a differentiation strategy.
D)b and c.

Question 46

The seven drivers of cost advantage

A)must be equally examined in all firms.
B)can be a useful framework within which to compare a firm's cost improvements in the last few years.
C)can be a useful framework within which to compare a firm's costs with its competitors.
D)can be a useful framework within which to compare a firm's profit margins with its competitors.

Question 47

In many industries the market leaders

A)manage to reconcile low costs with some effective differentiation.
B)are the cost leaders.
C)have very well-differentiated brands.
D)b and c.

Question 48

It is quite natural to combine cost leadership and differentiation strategies

A)into a strategy where you focus on doing both.
B)no: porter says they are mutually exclusive.
C)if you do, you will probably end up being 'stuck in the middle'.
D)b and c.

Question 49

A cost leadership strategy

A)requires a commodity product.
B)requires a firm to commoditize their product - i.e. no frills - even if the industry's product is differentiable (e.g. cars or airlines).
C)can be achieved with a unique brand image.
D)can only be achieved in the modern world by outsourcing to cheap-labour countries.

Question 50

A value chain analysis

A)is an alternative framework within which to compare costs with your competitors.
B)is an alternative framework within which to compare cost improvements in the last few years.
C)is an alternative framework within which to compare a firm's profit margins with its competitors.
D)is a framework for analyzing the chain of production of a good from nature to the 'final consumer'.