Deck 7: B :The Sources and Dimensions of Competitive Advantage

Question 1

11,Between July 2012 and August 2014,Uber launched in 42 countries outside the US.The speed of this global rollout may be viewed as an attempt to pre-empt the market for ride-sharing services.

Answer 1

True

Question 2

Competitive advantage without purposeful activity by a firm-it may arise through it being favored by an external change.

Answer 2

True

Question 3

The main strategy implication of the Boston Consulting Group's analysis of experience curves was that firms should avoid cutting prices in order to expand market share.

Answer 3

False

Question 4

Causal ambiguity-difficulties over diagnosing the sources of a rival's competitive advantage-creates uncertain imitability-uncertainty over the ability to replicate that competitive advantage.

Question 5

The fact that a firm's "activity system" comprises closely linked,complementary activities simplifies the task of imitating a competitor's strategy.

Question 6

Kim and Mauborgne's "strategy canvas" is a tool for identifying novel recombinations of product attributes.

Question 7

Of the two sources of superior profitability,industry attractiveness and competitive advantage within an industry,the latter is more important.

Question 8

If a firm is more profitable than its rivals,this invariably means that it possesses a competitive advantage.

Question 9

If the prices of securities fully reflect all the information available,then passive investors are best advised to invest in index-based mutual funds (unit trusts)with the lowest administration costs.

Question 10

Most of the business models deployed in electronic commerce have no historical precedence

Question 11

A firm's competitive advantages can only be sustained if it is protected by some form of "isolating mechanisms."

Question 12

Causal ambiguity is a type of isolating mechanism.

Question 13

The main challenge of business model innovations is conceiving of novel business models,not implementing them.

Question 14

Most business model innovation involves novel approaches to creating and/or capturing value within an industry.

Question 15

There are two primary sources of competitive advantage: cost advantage and differentiation advantage.

Question 16

The cost reductions that firms derive from moving down their experience curves are mainly the result of learning which increases the productivity of labor.

Question 17

In order to discover a "blue ocean" of uncontested market space,a firm must use technological innovation to create a new product market

Question 18

Strategic innovation comprises the introduction of novel products or processes that embody new technology

Question 19

Sustainable competitive advantage can be established in all types of market-including those financial markets deemed to be "efficient."

Question 20

A contrarian strategy-doing the opposite to what the majority of other market participants are doing-is likely to generate superior returns in markets subject to systematic behavioral trends.

Question 21

The principal distinction between segmentation and differentiation is that segmentation is a strategic choice by a firm while differentiation is a feature of market structure.

Question 22

Cost and differentiation strategies are similar in terms of their potential to confer sustainable competitive advantage.

Question 23

Designing a differentiation strategy requires understanding every possible interaction between a firm and its customers

Question 24

A basic principle of Business Process Reengineering is that dramatic improvements in cost efficiency are better achieved through incremental improvements rather than fundamental redesign.

Question 25

The potential for spreading fixed costs over a greater volume of output means that unit cost continues to decline even after full capacity utilization has been reached.

Question 26

29,Commodity products lack the potential for differentiation: competitive strategy is limited to exploiting the sources of cost advantage.

Question 27

Physical characteristics of a product are of little importance in determining its potential for differentiation

Question 28

In highly concentrated industries such as passenger jet aircraft,microprocessors,construction equipment,and video game consoles,the scale economies in production are more important than scale economies in product development.

Question 29

Business Process Reengineering that starts with a "clean sheet of paper" runs the risk of destroying some valuable organizational capabilities which have taken many years to build

Question 30

Product integrity refers to the consistency of a firm's differentiation across all differentiated features - it is the balance of the overall impression left on most customers' minds

Question 31

The predominance of large companies in most manufacturing industries is mainly the result of economies of scale.

Question 32

Competitive advantage can be defined as:

A)A firm's ability to establish market leadership
B)A firm's ability to grow faster than its competitors
C)A firm's potential to earn a rate of profit that is persistently higher than its rivals
D)A firm's potential for launching innovative new products.

Question 33

To understand customer' willingness to pay for differentiation,it is important to know what motivates customers,and the criteria they apply when choosing among competing products.

Question 34

Tangible differentiation comprises observable product features such as shape,color,size,and style;it does not include performance dimensions such of the product - for instance its reliability and durability.

Question 35

Achieving productivity gains from process innovation usually requires that new production processes are matched by other management changes-including changes in human resource management.

Question 36

A firm's competitive advantage is not necessarily revealed in higher profitability;it may be reflected in:

A)Expanding market share
B)An aggressive quest for acquisitions
C)Increasing employee bonuses
D)Expanding market share and/or increasing employee bonuses

Question 37

The difference between "search goods" and "experience goods" depends upon whether customers can ascertain the product's true attributes: on inspection or only after consuming the product

Question 38

Achieving a differentiation means making your offering unique in a way that makes it more valuable to customers,irrespective of the costs of creating that differentiation.

Question 39

When an industry is subject to externally generated changes,the firms which are most likely to establish a competitive advantage are:

A)Those with the highest market share
B)Those that that respond most quickly to the change and have the resources and capabilities that are most closely aligned to the emerging success factors
C)Those with the greatest agility and capacity for innovation
D)A combination of (a), (b),and (c).

Question 40

One reason that the value chain analysis is a valuable tool for cost analysis is that cost drivers tend to be very different between the different activities of the firm.

Question 41

Pre-emption strategies can help sustain a firm's competitive advantage through:

A)Reducing the opportunities available to competitors to invade the firm's strategic space
B)Threatening competitors with retaliation
C)Engaging in limit pricing that makes entry unprofitable for would-be rivals
D)Reinforcing barriers of mobility

Question 42

Firms pursuing differentiation advantages will implement their strategies differently from those pursuing cost advantage.The implementation of differentiation strategy is likely to feature:

A)Employee remuneration based upon individual productivity
B)Frequent performance reporting
C)High levels of outsourcing
D)Low levels of job specialization.

Question 43

Compared with simple products like flour or toilet paper,complex products such as cars or hotels:

A)Require less efforts to create image differentiation
B)Greater potential for differentiation
C)Offer similar opportunities for differentiation--it all depends upon the creativity of product designers and marketers
D)Run the risk that differentiation will restrict them to a narrow market niche

Question 44

Most of the innovative business models deployed by e-commerce firms:

A)Could not have been conceived of prior to the advent of digital technology
B)Have their roots in in business models developed by firms in the pre-digital era
C)Exploit network externalities
D)Are dependent upon the ability to generate revenues from advertising

Question 45

Isolating mechanisms are:

A)Barriers to the erosion of interfirm profit differentials
B)Mechanisms that impede the equilibration of rents between industries
C)The same as "barriers to mobility"
D)Sources of disequilibrium that cause the profitability of different firms in an industry to diverge over time

Question 46

What is the difference between differentiation and segmentation?

A)There is no difference between the two3
B)Differentiation deals with the "how" a firm chooses to compete,while segmentation describes "where" in the entire market a firm chooses to compete
C)Differentiation is a firm's strategic choice,whereas segmentation is given by its environment
D)Segmentation is the head of the marketing department's responsibility,whereas the CEO is in charge of differentiation

Question 47

Which of the following product categories offers the greatest potential for differentiation?

A)Clothes and restaurants
B)Cement and wheat
C)Jet fuel for airline jets
D)Sulfur and ethylene

Question 48

Conceiving of innovative business models typically involves:

A)Using analogies to transfer and adapt business models from other business sectors
B)Using brain storming to generate creative ideas
C)Deploying artificial intelligence
D)Exploring the interface between customer need and the firm's resources and capabilities

Question 49

In strategic management,the expression "blue oceans" refers to:

A)Radical innovation
B)The potential offered by uncontested market space
C)The campaign to reduce pollution in the world's oceans
D)Cost reduction through offshoring production

Question 50

According to Porter,cost leadership and differentiation are:

A)What leads a firm to "be stuck in the middle"
B)Two names for the same fundamental strategy
C)Distinct generic strategies
D)Strategies that can be pursued simultaneously

Question 51

The examples of Ikea and Southwest Airlines demonstrate:

A)The power of brand as a factor of success
B)The quality of the top management of these firms
C)The power of advertising
D)How a cost-leadership strategy can be combined with distinctive product differentiation

Question 52

As markets become more turbulent and unpredictable,seizing opportunities to establish competitive advantage depends primarily upon:

A)Good forecasting
B)Quick identification of emerging changes
C)Speed of response
D)Agility: quick identification of emerging changes and speed in responding to them

Question 53

Economies of scale in activities such as R&D,new product development,advertising,and government lobbying arise mainly because of:

A)Specialization-as these activities grow in scale,there are productivity gains from division of labor
B)Indivisibilities-these activities involve large fixed costs that can be spread over a larger volume of output
C)Technical input-output relationships-increases in output do not require proportionate increases in input
D)Increased bargaining power-large companies can negotiate lower input prices for these activities

Question 54

The usefulness of the strategy canvas in developing blue ocean strategies rests on its ability to:

A)Suggest possible applications of frontier technologies
B)Identify opportunities for recombining existing product attributes in novel ways
C)Identify unfulfilled customer needs
D)Reconfigure a firm's value chain

Question 55

The principal strategy implication of the experience curve is that:

A)Firms should aim to drive volume growth through increasing their market shares.
B)To reduce costs firms should prioritize learning
C)Firms should concentrate on those products with the greatest sales potential
D)Firms that aim to become cost leaders need to focus on mass production and mass marketing

Question 56

Which of the following is not an isolating mechanism?

A)Private ownership of a company which means that it is not obliged to publish its financial statements
B)Competitive advantage which is based upon the interaction of a number of different resources and capabilities
C)Competitive advantage based upon exploiting pricing anomalies
D)Competitive advantage based upon resources that are difficult to transfer and slow to replicate.

Question 57

In retailing,the cost advantages of large retail chains (such as Wal-Mart in the US,Tesco in Britain,Metro in Germany,and Carrefour in France)is primarily the result of:

A)Scale economies in operating large individual retail units
B)Lower costs of bought-in products as a result of superior bargaining power
C)Higher capacity utilization in retailing and distribution
D)Using superior bargaining power to pay lower wage rates.

Question 58

"Experience goods" are those which:

A)Have performance attributes that are difficult to ascertain at the moment of purchase
B)Only customers with previous experience of using these goods would rationally consider purchasing
C)Only firms with wide experience in an industry would rationally consider making
D)Have been produced by the firm furthest down the learning curve

Question 59

In supplying "lifestyle" products which are designed to meet consumers' social and psychological needs,the key to effective differentiation is:

A)A relentless pursuit of quality
B)Thorough market research
C)Product integrity
D)Market segmentation.

Question 60

Banks spend more money on their head office buildings than most other large corporations because:

A)They tend to be located in financial centers where property prices are high
B)They offer "experience goods",hence they need to signal wealth and stability
C)Their CEOs are more committed to the display of wealth than other CEOs
D)Because their products are essentially commodities,they need to find alternative ways of differentiating.