Competing for Advantage 3rd Edition by Hoskisson Test bank

Competing for Advantage  3rd Edition by Hoskisson  Test bank
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Chapter 5 Business-Level Strategy

TRUE/FALSE

1. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

ANS: T PTS: 1 DIF: med REF: p. 142
OBJ: 1 NOT: knowledge

2. Business-level strategy can be thought of as the firms core strategy.

ANS: T PTS: 1 DIF: med REF: p. 143
OBJ: 1 NOT: knowledge

3. A business-level strategy reflects a firms beliefs about what products and services it should be offering to customers, how to manufacture or create them, and how to distribute them to the marketplace.

ANS: T PTS: 1 DIF: med REF: p. 144
OBJ: 1 NOT: knowledge

4. Firms can be most effective if they develop business-level strategies that will serve the needs of the average customer.

ANS: F PTS: 1 DIF: hard REF: p. 144
OBJ: 2 NOT: comprehension

5. Common characteristics on which customers needs vary include demographic variables and physical characteristics.

ANS: F PTS: 1 DIF: hard REF: p. 147 (Table 5.1)
OBJ: 2 NOT: comprehension

6. Business-level strategies are concerned with a firms ability to reach its maximum profit potential.

ANS: F PTS: 1 DIF: hard REF: p. 142
OBJ: 2 NOT: knowledge

7. The functional structure is most appropriate for larger firms implementing a strategy that includes high levels of diversification.

ANS: F PTS: 1 DIF: med REF: p. 149
OBJ: 3 NOT: comprehension

8. The primary factors that cause firms to change from a functional structure to a multidivisional structure are the CEOs increasingly limited ability to set a strategic direction for the firm and the focus of functional managers on local issues.

ANS: F PTS: 1 DIF: hard REF: p. 149
OBJ: 3 NOT: comprehension

9. Firms implementing cost leadership strategies often sell no-frills standardized goods or services to the industrys most typical customers.

ANS: T PTS: 1 DIF: med REF: p. 149
OBJ: 2 NOT: comprehension

10. Human Resources and other support functions are not value-creating activities in the value chain, only the value chain activities create value.

ANS: F PTS: 1 DIF: hard REF: p. 150 (Figure 5.2)
OBJ: 2 NOT: comprehension

11. Once a competitor has achieved a cost leadership position, the firm must continue a consistent focus on driving costs lower.

ANS: T PTS: 1 DIF: med REF: p. 153
OBJ: 6 NOT: comprehension

12. A cost leadership strategy is not a valuable defense against rivals when competing on the basis of price.

ANS: F PTS: 1 DIF: hard REF: p. 151
OBJ: 6 NOT: comprehension

13. A low-cost leader may create entry barriers to potential entrants by continually improving its levels of efficiency.

ANS: T PTS: 1 DIF: med REF: p. 152
OBJ: 6 NOT: comprehension

14. Specialization refers to the extent to which authority for decision-making is retained at higher managerial levels.

ANS: F PTS: 1 DIF: med REF: p. 153
OBJ: 3 NOT: knowledge

15. A differentiators premium price is typically less than that of a cost leader.

ANS: F PTS: 1 DIF: med REF: p. 155
OBJ: 3 NOT: comprehension

16. A firm using a differentiation strategy seeks to be different from its competitors on a single crucial dimension of value to customers.

ANS: F PTS: 1 DIF: med REF: p. 155
OBJ: 3 NOT: knowledge

17. Companies without the core competencies to link value chain activities and support functions required to create value are still able to successfully implement a differentiation strategy.

ANS: F PTS: 1 DIF: med REF: p. 155
OBJ: 3 NOT: knowledge

18. Because firms need to respond quickly to environmental opportunities and threats, the implementation of the differentiation strategy is positively affected when the firm is centralized and formalized.

ANS: F PTS: 1 DIF: hard REF: p. 157|p. 158
OBJ: 3 NOT: comprehension

19. The finance and R&D functions are emphasized in the differentiation strategys functional structure.

ANS: F PTS: 1 DIF: hard REF: p. 158
OBJ: 3 NOT: comprehension

20. Unlike a cost leadership and a differentiation strategy, the focus strategy is less dependent on the completion of various value chain activities and support functions in order to compete in a superior manner.

ANS: F PTS: 1 DIF: hard REF: p. 160
OBJ: 3 NOT: comprehension

21. A risk of a focus strategy is that the needs of the customer within a narrow competitive segment may become more similar to those needs of customers as a whole.

ANS: T PTS: 1 DIF: med REF: p. 161
OBJ: 7 NOT: comprehension

22. Firms successfully implementing an integrated cost leadership/differentiation strategy earn above-average returns because the benefits of the strategy are additive.

ANS: T PTS: 1 DIF: hard REF: p. 162
OBJ: 6 NOT: comprehension

23. A flexible manufacturing system is a computer-controlled process used to produce a variety of products in moderate, flexible quantities with minimal manual intervention.

ANS: T PTS: 1 DIF: med REF: p. 163
OBJ: 3 NOT: knowledge

24. One of the benefits of the integrated cost leadership/differentiation strategy is that it is NOT associated with substantial risk.

ANS: F PTS: 1 DIF: hard REF: p. 165
OBJ: 7 NOT: comprehension

25. A firm is stuck in the middle when its industry is in the middle of a rapid technological change.

ANS: F PTS: 1 DIF: hard REF: p. 165
OBJ: 7 NOT: comprehension

26. Firms following a stuck in the middle strategy are able to successfully deal with the five competitive forces and earn above-average returns.

ANS: F PTS: 1 DIF: hard REF: p. 165
OBJ: 7 NOT: comprehension

27. Outsourcing is a common method of reducing costs, often used in reaction to competitor moves.

ANS: T PTS: 1 DIF: med REF: p. 151
OBJ: 3 NOT: knowledge

28. The risk of obsolescence is lower in firms which outsource major activities.

ANS: F PTS: 1 DIF: med REF: p. 154
OBJ: 3 NOT: knowledge

MULTIPLE CHOICE

1. An integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage is the definition of:
a.
strategy.
c.
sustained competitive advantage.
b.
core competencies.
d.
strategic mission.

ANS: A PTS: 1 DIF: med REF: p. 142
OBJ: 1 NOT: knowledge

2. A firms core strategy is its ____.
a.
corporate strategy
b.
business strategy
c.
acquisitions and restructuring strategy
d.
international strategy

ANS: B PTS: 1 DIF: med REF: p. 143
OBJ: 1 NOT: knowledge

3. Business-level strategies detail commitments and actions taken to provide value to customers and gain competitive advantage by exploiting core competencies in:
a.
the selection of industries in which the firm will compete.
b.
specific product markets.
c.
specific functional departments.
d.
specific plant locations.

ANS: B PTS: 1 DIF: hard REF: p. 142
OBJ: 1 NOT: knowledge

4. A ____ reflects where and how the firm has an advantage over its rivals.
a.
business-level strategy
c.
differentiated-cost strategy
b.
strategy
d.
core competence profile

ANS: A PTS: 1 DIF: med REF: p. 143
OBJ: 1 NOT: knowledge

5. In evaluating its customers, which of the following questions should the firm NOT ask?
a.
How will core competencies meet the customers needs?
b.
Who is the customer?
c.
What are the customers needs?
d.
How will our top management team interact with the customer?

ANS: D PTS: 1 DIF: med REF: p. 143|p. 147
OBJ: 2 NOT: knowledge

6. Customer needs are related to the:
a.
characteristics that can be used to subdivide a large market into segments.
b.
set of values exhibited by a group of customers.
c.
use of core competencies to implement a strategy.
d.
benefits and features of a good or service that customers want to purchase.

ANS: D PTS: 1 DIF: med REF: p. 143|p. 147
OBJ: 1 NOT: knowledge

7. The example of General Motors dropping the Oldsmobile brand illustrates the fact that
a.
brands are ultimately unimportant to the customer, regardless of their history.
b.
this brand appealed to a generation which is no longer actively spending money.
c.
this brand no longer conveyed specific benefits and features that satisfied target customer needs.
d.
brands are fungible properties of products.

ANS: C PTS: 1 DIF: hard REF: p. 147
OBJ: 2 NOT: application

8. Among college students, Subway targets a more narrow market segment than the segment on which McDonalds focuses. Subway focuses on students interested in healthy fast food. This is a result of studying all EXCEPT which of the following?
a.
demographic factors.
c.
consumption-pattern factors.
b.
psychological factors.
d.
geographic factors.

ANS: D PTS: 1 DIF: med REF: p. 147 (Table 5.1)
OBJ: 2 NOT: application

9. SAS Institute is the worlds largest privately owned software company. Its core competence is ____ on which it allocates over 30 percent of its revenues.
a.
research and development
c.
employee training
b.
marketing and sales
d.
inbound and outbound logistics

ANS: A PTS: 1 DIF: med REF: p. 148
OBJ: 2 NOT: application

10. Business-level strategies are concerned specifically with:
a.
creating differences between the firms position and its rivals.
b.
the industries in which the firm will compete.
c.
how functional areas will be organized within the firm.
d.
how a business with multiple physical locations will operate one of those locations.

ANS: A PTS: 1 DIF: med REF: p. 144
OBJ: 3 NOT: knowledge

11. Which of the following is NOT considered a generic strategy?
a.
Product diversification
b.
Cost leadership
c.
Focused differentiation
d.
Integrated cost leadership/differentiation

ANS: A PTS: 1 DIF: med REF: p. 144
OBJ: 3 NOT: knowledge

12. The four generic business-level strategies a firm can implement include all of the following EXCEPT:
a.
focused cost leadership.
c.
differentiation.
b.
cost leadership.
d.
leadership.

ANS: D PTS: 1 DIF: med REF: p. 144
OBJ: 3 NOT: knowledge

13. A company using a narrow scope in its business strategy is:
a.
following a cost leadership business strategy.
b.
focusing on a broad array of geographic markets.
c.
limiting the group of product segments served.
d.
likely to earn only average returns.

ANS: C PTS: 1 DIF: med REF: p. 144|p. 145
OBJ: 3 NOT: knowledge

14. The effectiveness of any of the generic business-level strategies is contingent upon:
a.
customer needs and competitors strategies.
b.
the firms resources, capabilities, and core competencies and the opportunities/threats of the environment.
c.
product line scope and national economic conditions.
d.
managements leadership style and the wealth of the firms target market.

ANS: B PTS: 1 DIF: hard REF: p. 145
OBJ: 1 NOT: comprehension

15. A simple structure can be described by all of the following EXCEPT:
a.
informal relationships.
b.
limited task specialization.
c.
active involvement by a chief executive officer.
d.
few rules.

ANS: C PTS: 1 DIF: hard REF: p. 148
OBJ: 5 NOT: comprehension

16. The functional structure allows for effective:
a.
control of strategic issues by functional managers.
b.
control of potentially time-consuming activities by the chief executive.
c.
control of any myopic vision.
d.
development of professional expertise in functional areas.

ANS: D PTS: 1 DIF: med REF: p. 149
OBJ: 5 NOT: comprehension

17. Functional structures work best for firms with:
a.
diversified products.
b.
diversified markets.
c.
single and dominant business strategies.
d.
conglomerate strategies.

ANS: C PTS: 1 DIF: med REF: p. 149
OBJ: 5 NOT: comprehension

18. One disadvantage of the functional structure is that:
a.
career paths and professional development are not facilitated.
b.
it does not allow for functional specialization.
c.
the CEO cannot coordinate and control the efforts of functional level employees.
d.
communication is hindered among organizational functions.

ANS: D PTS: 1 DIF: hard REF: p. 149
OBJ: 5 NOT: comprehension

19. Which of the following does NOT cause a firm to move from a functional structure to a multidivisional structure?
a.
Increasing diversification
b.
Coordination and control issues
c.
Decreasing sales revenues
d.
Greater amounts of data and information to process

ANS: C PTS: 1 DIF: hard REF: p. 149
OBJ: 5 NOT: comprehension

20. A cost leadership strategy can be summarized as:
a.
providing products with features acceptable to customers at the lowest competitive price.
b.
providing products with features that are very inexpensive so that the price of the product is very low.
c.
providing products that are so unique that customers are willing to pay a premium.
d.
focusing on a few unique features for which customers are willing to pay a premium.

ANS: A PTS: 1 DIF: med REF: p. 149
OBJ: 3 NOT: knowledge

21. To achieve strategic competitiveness, Ryanair has relied upon:
a.
becoming the low-cost provider.
b.
adding services that make the airline more like large carriers.
c.
offering luxury-based in-flight amenities.
d.
cutting down on fuel costs.

ANS: A PTS: 1 DIF: med REF: p. 149
OBJ: 3 NOT: application

22. Research suggests that having a competitive advantage in ____ creates more value in the cost leadership strategy than in the differentiation strategy.
a.
marketing and sales
c.
inbound and outbound logistics
b.
technology development
d.
human resource management

ANS: C PTS: 1 DIF: med REF: p. 151
OBJ: 3 NOT: knowledge

23. The firm successfully implementing the cost leadership strategy would expect:
a.
competitors to compete against it primarily on the basis of prices charged.
b.
to constantly face challenges from a steady stream of new entrants to the industry.
c.
to be able to fend off the challenge of product substitutes.
d.
to focus on its own cost structure, but not its competitors cost structures.

ANS: C PTS: 1 DIF: hard REF: p. 152
OBJ: 6 NOT: comprehension

24. When the costs of supplies increase in an industry, the low-cost leader may:
a.
continue competing with rivals on the basis of product features.
b.
lose customers as a result of price increases.
c.
make it difficult for new entrants to the industry to achieve above-average returns.
d.
be the only firm able to pay the higher prices and continue to earn average or above-average returns.

ANS: D PTS: 1 DIF: hard REF: p. 152
OBJ: 6 NOT: comprehension

25. ____ is the degree to which rules and procedures govern the activities of an organization.
a.
Formalization
c.
Specialization
b.
Centralization
d.
Unification

ANS: A PTS: 1 DIF: med REF: p. 153
OBJ: 3 NOT: knowledge

26. Firms implementing a cost leadership strategy should use a ____ structure.
a.
highly formalized, simple
c.
product line
b.
specialized multidivisional
d.
highly centralized, functional

ANS: D PTS: 1 DIF: med REF: p. 153
OBJ: 3 NOT: application

27. Wal-Marts effective strategy/structure configuration is:
a.
cost leadership/functional structure.
b.
related-linked/SBU multidivisional structure.
c.
unrelated diversification/competitive form multidivisional structure.
d.
cost leadership/differentiation/functional structure.

ANS: A PTS: 1 DIF: med REF: p. 153
OBJ: 3 NOT: application

28. The risks of a cost leadership strategy include:
a.
becoming stuck in the middle.
b.
production and distribution processes becoming obsolete.
c.
the ability of competing firms to provide similar features in a product.
d.
customers deciding the product isnt worth what the firm must charge for it.

ANS: B PTS: 1 DIF: med REF: p. 154
OBJ: 7 NOT: comprehension

29. The risks of a cost leadership strategy include all of the following EXCEPT:
a.
manufacturing equipment can become obsolete due to innovation.
b.
firms may fail to understand customers perceptions of competitive levels of differentiation.
c.
competitors may learn how to successfully imitate their strategy.
d.
firms may fail to include enough unique features in the product.

ANS: D PTS: 1 DIF: hard REF: p. 154
OBJ: 7 NOT: comprehension

30. The products or services that differentiate often have qualities that are:
a.
perceived by the customer to add value.
b.
valued by the typical industry customer.
c.
appealing to the customer regardless of price.
d.
seen as classic attributes rather than passing fads.

ANS: A PTS: 1 DIF: hard REF: p. 154|p. 155
OBJ: 3 NOT: comprehension

31. When a products unique attributes provide value to customers, the firm is implementing:
a.
a differentiation strategy.
b.
a cost leadership strategy.
c.
an integrated cost leadership/differentiation strategy.
d.
a single-product strategy.

ANS: A PTS: 1 DIF: med REF: p. 154
OBJ: 3 NOT: knowledge

32. The differentiation strategy calls for a firm to provide products that:
a.
are at the lowest cost possible.
b.
have acceptable features.
c.
incorporate features for which the customer will pay a premium.
d.
solve the problem of being stuck in the middle.

ANS: C PTS: 1 DIF: med REF: p. 155
OBJ: 3 NOT: comprehension

33. All of the following are examples of differentiated products EXCEPT:
a.
Toyotas Lexus.
b.
Acer Computer Corporations PCs.
c.
McKinsey & Cos consulting services.
d.
Caterpillars heavy equipment.

ANS: B PTS: 1 DIF: med REF: p. 155
OBJ: 3 NOT: application

34. Firms pursuing a differentiation strategy want to be differentiated from competitors:
a.
on only one central dimension.
b.
only to the point where the features of their products are adequate.
c.
along as many dimensions as possible.
d.
on only two or three central dimensions.

ANS: C PTS: 1 DIF: hard REF: p. 155
OBJ: 3 NOT: knowledge

35. The firm successfully implementing a differentiation strategy would expect all of the following EXCEPT:
a.
customers to be more sensitive to price increases.
b.
to be able to charge a premium price for its product.
c.
to be able to pass additional costs of supplies to the customer.
d.
to be partially insulated from competitive rivalry.

ANS: A PTS: 1 DIF: hard REF: p. 155
OBJ: 6 NOT: comprehension

36. A firm successfully implementing a differentiation strategy would expect:
a.
customers to be sensitive to price increases.
b.
to charge premium prices.
c.
customers to perceive the product as standard.
d.
to automatically have high levels of power over suppliers.

ANS: B PTS: 1 DIF: med REF: p. 155
OBJ: 6 NOT: comprehension

37. Which of the following is NOT a value-creating activity associated with the differentiation strategy?
a.
intensive training programs to improve employee effectiveness and efficiency
b.
strong capability in basic research.
c.
rapid and timely deliveries to customers.
d.
procurement systems focused on finding the highest quality raw materials.

ANS: A PTS: 1 DIF: hard REF: p. 156
OBJ: 3 NOT: knowledge

38. The differentiation strategy can be effective in controlling the power of rivalry in an industry because:
a.
customers will seek out the lowest cost product.
b.
customers have no loyalty.
c.
customers are loyal to brands that are differentiated in meaningful ways.
d.
the differentiation strategy benefits from rivalry.

ANS: C PTS: 1 DIF: med REF: p. 156|p. 157
OBJ: 6 NOT: comprehension

39. A differentiation strategy can be effective in controlling the power of substitutes in an industry because:
a.
buyers are not brand loyal.
b.
substitute products are from a different industry.
c.
customers want the low-cost product.
d.
customers are loyal to a brand offering differentiated features that they value.

ANS: D PTS: 1 DIF: med REF: p. 157
OBJ: 6 NOT: comprehension

40. Firms seeking to differentiate particularly need support from the ____ and ____ functions.
a.
finance, accounting
c.
product R&D, marketing
b.
finance, record keeping
d.
management information, finance

ANS: C PTS: 1 DIF: hard REF: p. 157
OBJ: 3 NOT: comprehension

41. Which of the following is a true statement about organizational structures for implementing business-level strategies?
a.
A cost leadership strategy requires a simple structure emphasizing high specialization, centralization, and structured job roles.
b.
A differentiation strategy requires a functional structure with limited formalization, broad job descriptions, and an emphasis on the R&D and marketing functions.
c.
An integrated cost leadership/differentiation strategy requires a multidivisional structure using high formalization, decentralized decision-making, and vertical coordination.
d.
A focused strategy requires a functional structure featuring high levels of both specialization and formalization.

ANS: B PTS: 1 DIF: hard REF: p. 157|p. 158
OBJ: 3 NOT: comprehension

42. Typically, a successful firm pursuing a differentiation strategy will:
a.
have a very hierarchical structure.
b.
require a structure which is very formal.
c.
use cross-functional development teams.
d.
develop free-standing business units.

ANS: C PTS: 1 DIF: med REF: p. 157
OBJ: 3 NOT: comprehension

43. Successful implementation of the differentiation strategy requires that:
a.
decision making be centralized.
b.
decision making be decentralized.
c.
the finance function be the dominant function.
d.
the accounting function be the dominant function.

ANS: B PTS: 1 DIF: med REF: p. 157|p. 158
OBJ: 3 NOT: comprehension

44. The risks of a differentiation strategy do NOT include which of the following?
a.
Customers may find the price differential between the low-cost producer and the differentiated product too large.
b.
Customers learning can narrow a customers perception of the value of a firms differentiated features.
c.
The means of differentiation no longer provide value to the customer.
d.
The differentiation strategy is built on product features that the customer values.

ANS: D PTS: 1 DIF: hard REF: p. 159
OBJ: 7 NOT: comprehension

45. One risk of the differentiation strategy is that:
a.
a competitor may generate process innovations.
b.
equipment may quickly become obsolete.
c.
the firm may offer differentiated features that exceed the customers needs.
d.
the firm may fail to detect competitors efforts to differentiate the commodity product.

ANS: C PTS: 1 DIF: med REF: p. 159
OBJ: 7 NOT: comprehension

46. The risks of the differentiation strategy include:
a.
being stuck in the middle.
b.
other firms being able to match the low cost.
c.
customers being willing to pay a premium for the features.
d.
a decision that the differentiated features are not worth the price.

ANS: D PTS: 1 DIF: med REF: p. 159
OBJ: 7 NOT: comprehension

47. When implementing a focus strategy, the firm seeks:
a.
to be the lowest cost producer in an industry.
b.
to offer products with unique features for which customers will pay a premium.
c.
to avoid being stuck in the middle.
d.
to serve the specialized needs of a market segment.

ANS: D PTS: 1 DIF: med REF: p. 159
OBJ: 3 NOT: comprehension

48. A focus strategy seeks to exploit core competencies:
a.
on an industry-wide basis.
b.
by serving the needs of a certain industry segment.
c.
by servicing one particular corporation within a given industry.
d.
by servicing several professions.

ANS: B PTS: 1 DIF: med REF: p. 159
OBJ: 3 NOT: comprehension

49. Focus strategies are:
a.
associated only with cost leadership.
b.
associated only with differentiation.
c.
associated with both cost leadership and differentiation strategies.
d.
typically avoided due to their high risk.

ANS: C PTS: 1 DIF: med REF: p. 160
OBJ: 3 NOT: knowledge

50. The risks of a focus strategy do NOT include:
a.
a competitor outfocuses the focuser.
b.
a firm pursuing an industry-wide strategy decides that the segment being served by the focuser is attractive.
c.
the needs of customers in the narrow segment served by the focuser grow more similar to those of customers in the entire industry.
d.
the top management team deciding to change strategies.

ANS: D PTS: 1 DIF: med REF: p. 161
OBJ: 7 NOT: comprehension

51. The risks of a focus strategy include:
a.
a competitors ability to use its core competencies to outfocus the focuser by serving an even more narrowly defined segment.
b.
a competitors ability to use its core competencies to outfocus the focuser by serving an even more broadly defined segment.
c.
decisions by industry-wide competitors to use their resources to serve a wider range of customers specialized needs than the focuser has been serving.
d.
decisions by focused competitors to use their resources to serve a wider range of customers needs.

ANS: A PTS: 1 DIF: med REF: p. 161
OBJ: 7 NOT: comprehension

52. The integration of a cost leadership and a differentiation strategy will:
a.
not be used extensively in the future.
b.
allow a firm to adapt more quickly.
c.
slow the ability of a firm to respond.
d.
lower the risks of the firm.

ANS: B PTS: 1 DIF: hard REF: p. 162
OBJ: 3 NOT: knowledge

53. Some believe integrated strategies (combining attributes of both cost leadership and differentiation strategies):
a.
have been used successfully in the U.S. since the end of World War II.
b.
are essential to establishing and exploiting competitive advantage in a global economy.
c.
can only be implemented in specific, competitive industries.
d.
blend perfectly with the types of corporate-level strategies implemented by many of todays large diversified companies.

ANS: B PTS: 1 DIF: hard REF: p. 162
OBJ: 3 NOT: comprehension

54. Companies successfully implementing an integrated cost leadership/differentiation strategy are better positioned to do all of the following EXCEPT:
a.
learn new skills.
b.
adapt quickly to a changing environment.
c.
continue using current technology.
d.
leverage core competencies across business units.

ANS: C PTS: 1 DIF: hard REF: p. 162
OBJ: 3 NOT: knowledge

55. The integration of a cost leadership strategy and a differentiation strategy leads to a competitive advantage because:
a.
the managers have greater flexibility in the actions they can take.
b.
different firms need different types of strategies to be successful.
c.
it allows the firm to offer two types of valuesome differentiated features and a relatively low cost.
d.
one strategy is not enough for most large firms.

ANS: C PTS: 1 DIF: med REF: p. 162
OBJ: 3 NOT: knowledge

56. The integrated cost leadership/differentiation strategy is difficult to implement mostly because:
a.
the value chain activities and support functions required to implement the cost leadership and differentiation strategies are not the same.
b.
this strategic approach demands more flexibility than most firms can manage.
c.
it is difficult to balance the structural emphasis between the two strategies.
d.
the cost leadership strategy requires less structured job roles than does the differentiation strategy.

ANS: A PTS: 1 DIF: hard REF: p. 163
OBJ: 3 NOT: comprehension

57. The ____ structure is the most appropriate structure for implementing the integrated cost leadership/differentiation strategy.
a.
simple
c.
multidivisional
b.
functional
d.
flexible

ANS: D PTS: 1 DIF: med REF: p. 163
OBJ: 3 NOT: knowledge

58. As explained in the text, three approaches to organizational work that can increase strategic flexibility are:
a.
Flexible Manufacturing, Management by Walking Around, and Total Quality Management.
b.
Open Book Management, Reengineering, and Flexible Manufacturing.
c.
Reengineering, Total Quality Management, and Information Networks.
d.
Flexible Manufacturing, Total Quality Management, and Information Networks.

ANS: D PTS: 1 DIF: hard REF: p. 163
OBJ: 3 NOT: knowledge

59. The conditions that make it possible for firms to gain a competitive advantage through implementation of the integrated cost leadership/differentiation strategy include all of the following EXCEPT:
a.
flexible manufacturing.
b.
total quality management systems.
c.
information networks across firms.
d.
downsizing of the organization.

ANS: D PTS: 1 DIF: med REF: p. 163
OBJ: 3 NOT: comprehension

60. A flexible manufacturing system is a:
a.
manufacturing system where the output produced varies each month.
b.
computer-controlled process that is used to produce a variety of products in moderate, flexible quantities with minimal human intervention.
c.
system of manufacturing where humans and machines are used interchangeably.
d.
system where firms may choose to produce a product in any given month.

ANS: B PTS: 1 DIF: med REF: p. 163
OBJ: 3 NOT: knowledge

61. The benefit of a flexible manufacturing system is that:
a.
the lot size needed to manufacture a firms product efficiently is reduced.
b.
workers are no longer needed in the numbers required by standard manufacturing systems.
c.
the technological advantage of the company is expanded.
d.
the company is further enabled to shut down during periods of economic decline.

ANS: A PTS: 1 DIF: med REF: p. 163|p. 164
OBJ: 3 NOT: comprehension

62. Elaborate enterprise resource planning (ERP) software systems improve firm efficiency by:
a.
allowing workforce reductions without corresponding losses in productivity.
b.
making it possible to share information quickly with everyone in the industry.
c.
reducing the time required to design and test new products.
d.
identifying the resources required across the firm to receive, record, procure and ship customer orders.

ANS: D PTS: 1 DIF: med REF: p. 164
OBJ: 3 NOT: comprehension

63. Which of the following is an assumption of TQM systems?
a.
The costs of poor quality are greater than costs of developing new processes to produce high quality products.
b.
Total quality of processes requires total control of employees by management.
c.
Quality and costs are tradeoffs.
d.
Finding the one best way and adhering to it results in continuously improving quality.

ANS: A PTS: 1 DIF: hard REF: p. 165
OBJ: 3 NOT: comprehension

64. The term stuck in the middle means:
a.
a middle of the road strategy.
b.
the customers of the firm are willing to pay only a mid-range price for the product.
c.
the customers of the firm have only moderate expectations regarding product quality.
d.
the firm using an integrated strategy fails to establish a leadership position.

ANS: D PTS: 1 DIF: med REF: p. 165
OBJ: 7 NOT: comprehension

65. The integrated cost leadership/differentiation strategy:
a.
is one of the most common successful business strategies.
b.
has been shown by research to be consistently correlated with above-average returns.
c.
is more risky to implement than the cost-leadership or differentiation business strategies.
d.
is a more stable business strategy once the firm is established in a leadership position.

ANS: C PTS: 1 DIF: hard REF: p. 166
OBJ: 7 NOT: knowledge

ESSAY

1. Define strategy and business-level strategy.

ANS:
Strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. A business-level strategy is an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific product markets. The business-level strategy is concerned with the who, what and how of a firms advantage over its competitors.

PTS: 1 REF: p. 142|p. 143 OBJ: 1

2. In analyzing a firms customers, discuss the classic three questions a firm must answer and the various characteristics of each.

ANS:
Customers are the foundation of successful business-level strategies. When considering customers, firms simultaneously examine three issues: who, what, and how. Respectively, these issues cause the firm to determine the customer groups it will serve, the needs those customers have that it seeks to satisfy, and the core competencies it possesses that can be used to satisfy customers needs. The increasing segmentation of markets occurring throughout the world creates multiple opportunities for firms to identify unique customer needs.

PTS: 1 REF: p. 143|p. 148 OBJ: 2

3. Discuss how a cost leadership strategy can allow a firm to earn above-average returns in spite of strong competitive forces.

ANS:
Rivalry: Having the low-cost position serves as a valuable defense against rivals. Because of the cost leaders advantageous position, rivals hesitate to compete based on price. Buyers: The cost leadership strategy also provides protection against the power of customers. Powerful customers can drive prices lower, but they are not likely to be driven below that of the next most efficient industry competitor. Suppliers: The cost leadership strategy also allows a firm to better absorb any cost increases forced on it by powerful suppliers. Entrants: The cost leadership strategy also discourages new entrants because the new entrant must be willing to accept no better than average returns until they gain the experience required to approach the efficiency of the cost leader. Substitutes: For substitutes to be used, they must not only perform a similar function but also be cheaper than the cost leaders product.

PTS: 1 REF: p. 143|p. 148 OBJ: 6

4. Describe a cost leadership strategy and its risks.

ANS:
In a cost leadership strategy, the producer seeks to offer products with acceptable features to customers at the lowest competitive price. One risk of a cost leadership strategy is that the firms investment in manufacturing equipment is made obsolete through technological innovations by competitors. Additionally, a firm with a cost leadership strategy may focus on cost reduction at the expense of trying to understand customers needs and/or competitive concerns. Finally, competitors may be able to imitate a cost leaders competitive advantages in their own unique strategic actions.

PTS: 1 REF: p. 149|p. 154 OBJ: 7

5. Describe the risks of a differentiation strategy.

ANS:
The risks of a differentiation strategy include the fact that the price differential between the low cost producer and the differentiated firms product may be too high for the customer. Thus, while the customer may value the features incorporated by the producer, they are unwilling or unable to pay the price necessary to purchase them. Additionally, differentiation may cease to provide value for which customers are willing to pay. A third risk is that customer learning can narrow the customers perception of the value of the firms differentiated product. The example used in the text is that of IBM and personal computers. As individuals grew more knowledgeable about personal computers, the differentiation associated with IBM became less important in the buying decision. Finally, counterfeit goods might represent a risk to a differentiation strategy if these provide differentiated features to customers at reduced prices.

PTS: 1 REF: p. 159 OBJ: 7

6. Describe a focus strategy and its additional risks.

ANS:
Focus firms face three additional risks beyond these general risks. First, a competitor may be able to focus on a more narrowly defined competitive segment and outfocus the focuser. Second, a competitor may decide the market segment is attractive and worthy of competitive pursuit. Finally, the needs of this customer group may become more similar to the needs of industry-wide customers as a whole, thereby eliminating the advantages of a focus strategy.

PTS: 1 REF: p. 159|p. 161 OBJ: 7

7. Describe the advantages of integrating cost leadership and differentiation strategies.

ANS:
In an increasingly competitive world where firms must compete on a global basis, the integration of cost leadership and differentiation strategies is becoming more common. Such an integration of strategies allows firms to adapt quickly to environmental changes, learn new skills and technologies, and effectively leverage their core competencies across business units and business lines. Evidence is showing that successful use of integrated strategies yields above-average returns.

PTS: 1 REF: p. 162|p. 166 OBJ: 3

8. What are the risks of an integrated cost leadership/differentiation strategy?

ANS:
Integrated strategies present risks that go beyond those that arise from the pursuit of any single strategy by itself. Principal among these risks is that a firm becomes stuck in the middle. In such a situation a firm fails to implement either the differentiation or the cost leadership strategy effectively. The firm will not be able to earn above-average returns, and without favorable conditions, it will earn below-average returns.

PTS: 1 REF: p. 165|p. 166 OBJ: 7

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