1. A firm that incorporates more processes toward 19.

Whenever an organization diversifies, it

the original source of raw materials is an example represents investing a stockholder’s funds in a
of forward integration. way in which the individual investor is unable.
2. From an individual’s perspective, social 20. Diversification that results in strengthening the
networks deliver three unique advantages: value chain and increasing competitive
private information, access to diverse skill sets, advantages is the best possible example of
and power. investing stockholders’ funds in a way that
3. Portfolio management should be considered as individual investors cannot.
the primary basis for formulating corporate-level 21. The use of email can be distracting to employees.
strategies. Some firms limit the time that employees spend
4. Most analysts agree that use of the Internet will using email.
lower transaction costs. 22. According to the text, the two main sources of
5. An important advantage of first movers or synergy in unrelated diversification are parenting
“pioneers” in a market is that they may establish and financial synergies via portfolio
brand recognition that may later serve as an management.
important switching cost. 23. Many firms facing a turnaround situation try to
6. Suring the growth stage of the market life cycle, reduce their costs by outsourcing the production
customers are very likely to establish brand of many inputs.
loyalty. 24. Vertical integration is attractive when market
7. The acquisition of two or more counter-cyclical transaction cost are higher than internal
businesses is an example of using diversification administrative costs.
to reduce risk. 25. In most effective evaluation and reward systems
8. The internet offers few advantages for focusers employees only receive evaluation and feedback
because niche players and small companies from their immediate supervisor.
cannot implement capabilities as effectively as 26. As markets mature, the magnitude of
their larger competitors. differentiation and cost leadership advantages
9. Michael Porter’s three generic strategies can be among competitors decrease.
depicted on two dimensions; competitive 27. An advantages of internal development is that
advantage and product life cycle. firms do not have to combine activities across the
10. With a focus strategy, creating a niche by value chains of many companies and merge
differentiating one’s product or service often company cultures.
allows small firms to compete successfully with 28. The experience curve concept suggest that
the market leaders. production cost tend to decrease as production
11. An important idea behind the “profit pool” increases regardless of where an industry is at in
concept is that there is always a strong its life cycle.
relationship between the generation of revenues 29. A disadvantage of firms that successfully
and the capturing of profits. integrate overall cost leadership and
12. Knowledge workers are more loyal to their differentiation strategies is that they are relatively
companies than traditional workers. easy for competitors to imitate.
13. In today’s economy, reliance on the three 30. The most effective method of improving a firm’s
traditional financial statements: income retention of top talent is to intensify its hiring
statement, balance sheet, and statement of cash efforts.
flow, has increased. 31. Similar businesses working together or the
14. Firms that compete on overall cost leadership are affiliation of a business with a strong parent can
vulnerable if all rivals share a common input or strengthen a firm’s bargaining position relative to
raw material that contributes a significant suppliers and customers.
amount to total costs. 32. A firm that incorporates more processes toward
15. One potential pitfall of a differentiation strategy the original source of raw materials is an example
is that a brand’s identification in the marketplace of forward integration.
may become diluted through excessive product 33. Vertical integration should be undertaken when
line extensions. demand for the organization’s products is very
16. A golden parachute is a prearranged contract with unstable.
managers specifying that in the event of a hostile 34. Restructuring requires the corporate office to find
takeover, the target firm’s managers will be paid either poorly performing firms with unrealized
a significant severance package. potential or firms in industries on the threshold of
17. Companies have found that referrals from their significant, positive change.
own employees are generally an ineffective 35. An advantage of mergers and acquisitions is that
approach to recruiting top talent. they can enable a firm to rapidly enter new
18. Market power refers to cost savings from product markets.
leveraging core competencies or sharing 36. A potential pitfall of a focus strategy is that
activities among the businesses in a corporation. focusers can become too focused to satisfy buyer
needs.
37. The decline stage of the industry life cycle stage
is inevitably followed by death.
38. Social capital is based on the network of
relationships within a firm, not in the skills and
abilities of an individual employee.
39. The market life cycle should be used as a short-
run forecasting device because it provides a
conceptual framework for understanding what
changes typically occur.
40. Sharing activities across business units can
provide two primary benefits: cost savings and
revenue enhancements.
41. A newly acquired business must always have
products that are similar to the existing
businesses’ products to benefit from the
corporation’s core competence.
42. Concentrating solely on one form of competitive
advantage generally leads to the highest possible
level of profitability.
43. The importance of human capital has decreased
in recent years. For this reason, many firms have
placed greater attention on attracting, but not on
developing or retaining, talent.
44. Mass customization enables manufacturers to be
more responsive to customer demands for high
quality products.
45. A publishing company that purchases a chain of
bookstores to sell its books is an example of
unrelated diversification.
46. The potential advantages of strategic alliance and
joint ventures include entering new markets as
well as developing and diffusing new
technologies.
47. Technical skills are a necessary and sufficient
condition for hiring an employee.
48. Market transactions do not involve transaction
cost.
49. A successful differentiation strategy increases
rivalry since buyers become mor price-sensitive.
50. The two principal means by which firms achieve
synergy through market power are: pooled
negotiating power and corporate parenting.
51. A successful differentiation strategy lowers entry
barriers because of customer loyalty and the
firm’s ability to provide uniqueness in its
products and services.
1. Human Capital Includes 8. According to the text, intellectual capital is the
a. An individual’s capabilities, knowledge, difference between the market value and the
and skills book value of a firm. Intellectual capital can be
b. The relationships between people increased by
c. The output from assembly line a. Increasing retention of below average
employees workers
d. An improved product b. Attracting and retaining knowledgeable
workers
2. In social network analysis _____ stress(es) the c. Decreasing labor costs
importance of ties connecting heterogeneous d. Increasing the turnover of employees
people-helping to ensure a wide range of
diversity in information and perspective. 9. Many companies use referrals by current
a. Closure employees as a source for new hiring and even
b. Redundancy monetarily reward them for the following
c. Bridging Relationships reasons:
d. Social Supports a. It is less expensive than the fees paid to
headhunters
3. ___ can be defined as the “network of b. Current employees are normally very
relationships that individuals have throughout careful in recommending someone
the organization” because their credibility is on the line
a. Human Capital c. It is a good test of employee loyalty
b. Social Capital d. A and B above
c. Intellectual Capital
d. Tacit Knowledge 10. Changes in our economy have forced firms to be
more concerned with protecting their
4. Tacit knowledge… a. Knowledge workers
a. Is the same as explicit knowledge b. Social capital
b. Is found mostly at the lower levels of the c. Intellectual capital
organization d. All of the above
c. Can be codified but not reproduced
d. Can be accessed only with the consent of
the employees because it is in the minds
of the employees

5. Developing human capital is essential to

maintaining a competitive advantage in today’s
knowledge economy. Efforts and initiatives to
develop human capital should be directed
a. At top managers
b. At human resource departments
c. At the employees themselves
d. Throughout the firm at all levels

6. As the competitive environment changes,

strategic management must focus on different
aspects of the organization. Recently, strategic
management has moved from focusing on
a. Intangible resources to tangible
resources
b. Tangible resources to intangible
resources
c. Working capital to fixed capital
d. Fixed capital to working capital

7. In a 360-degree evaluation and feedback

system, _____ rate a person’s skill and
performance.
a. Superiors
b. Direct reports
c. Colleagues
d. All of the above
Chapter 7 : International Strategy Currency Risk – potential threat to a firm’s
operations in a country due to fluctuations in the
Globalization – a term that has two meanings (1) local currency’s exchange rate.
the increase in international exchange, including
trade in goods and services as well as exchange of Management Risk – potential threat to a firm’s
money, ideas, and information; (2) the growing operations in a country due to the problems that
similarity of laws, rules, norms, values, and ideas managers have making decisions in the context of
across countries. foreign markets.

Diamond of national advantage – a framework for Outsourcing – using other firms to perform value-
explaining why countries foster successful creating activities that were previously performed
multinational corporations; consists of four factors – in-house.
factor endowments; demand conditions; related and
supporting industries; and firm strategy, structure, Offshoring – shifting a value-creating activity from
and rivalry. a domestic location to a foreign location.

• Factor Endowments (national advantage) – a International Strategy – a strategy based on firms’

nation’s position in factors of production. diffusion and adaptation of the parent companies’
• Demand Conditions (national advantage) – knowledge and expertise to foreign markets; used in
the nature of home-market demand for the industries where the pressures for both local
industry’s product or service. adaptation and lowering costs are low.
• Related and supporting industries (national
advantage) – the presence, absence, and Global Strategy – a strategy based on firms’
quality in the nation of supplier industries centralization and control by the corporate office,
and other related industries that supply with the primary emphasis on controlling costs;
services, support, or technology to firms in used in industries where the pressure for local
the industry value chain. adaptation is low and the pressure for lowering
• Firm strategy, structure, and rivalry (national costs is high.
advantage) – the conditions in the nation
governing how companies are created, Multidomestic strategy – a strategy based on firms’
organized, and managed, as well as the differentiating their products and services to adapt
nature of domestic rivalry. to local markets; used in industries where the
pressure for local adaptation is high and the
Multinational Firms – firms that manage operations pressure for lowering costs is low.
in more than one country.
Transnational Strategy – a strategy based on firms’
Arbitrage Opportunities – an opportunity to profit optimizing the trade-offs associated with efficiency,
by buying and selling the same good in different local adaptation, and learning; used in industries
markets. where the pressures for both local adaptation and
lowering costs are high.
Reverse Innovation – new products developed by
developed-country multinational firms for emerging
markets that have adequate functionality at a low Regionalization – increasing international exchange
cost. of goods, services, money, people, ideas, and
information; and the increasing similarity of culture,
Political Risk – potential threat to a firm’s laws, rules, and norms within a region such as
operations in a country due to ineffectiveness of the Europe, North America, or Asia.
domestic political system. Trading Blocs – groups of countries agreeing to
increase trade between them by lowering trade
Rule of law – a characteristic of legal systems barriers.
whereby behavior is governed by rules that are
uniformly enforced. Exporting – producing goods in one country to sell
to residents of another country.

Economic Risk – potential threat to a firm’s Licensing – a contractual arrangement in which a

operations in a country due to economic policies company receives a royalty of fee in exchange for
and conditions, including property rights laws and the right to use its trademark, patent, trade secret, or
enforcement of those laws. other valuable intellectual; property.

Counterfeiting – selling of trademarked goods Franchising – a contractual arrangement in which a

without the consent of the trademark holder. company receives a royalty or fee in exchange for
the right to use its intellectual property; franchising
usually involves a longer time period that licensing Competitive Dynamics – intense rivalry, involving
and includes other factors, such as monitoring of actions and responses, among similar competitors
operations, training, and advertising. vying for the same customers in a marketplace.

Wholly owned subsidiary – a business in which a New Competitive Action – acts that might provoke
multinational company owns 100 percent of the competitors to react, such as new market entry,
stock. price cutting, imitating successful products, and
expanding production capacity.
Chapter 8 : Entrepreneurial Strategy and
Competitive Dynamics Threat Analysis – a firm’s awareness of its closest
competitors and the kinds of competitive actions
Entrepreneurship – the creation of new value by an they might be planning.
existing organization or new venture that involves
the assumption of risk. Market Commonality – the extent to which
competitors are vying for the same customers in the
Opportunity recognition – the process of same markets.
discovering and evaluating changes in the business
environment, such as a new technology, Resource Similarity – the extent to which rivals
sociocultural trends, or shifts in consumer demand, draw from the same types of strategic resources.
that can be exploited.
Strategic Actions – major commitments of
Angel Investors – private individuals who provide distinctive and specific resources to strategic
equity investments for seed capital during the early initiatives.
stages of a new venture.
Tactical Actions – refinements or extensions of
Venture Capitalists – companies organized to place strategies usually involving minor resource
their investors’ funds in lucrative business commitments.
opportunities.
Market Sependence – degree of concentration of a
Crowdfunding – funding a venture by pooling small firm’s business in a particular industry.
investments from a large number of investors; often
raised on the Internet. Forbearance – a firm’s choice of not reacting to a
rival’s new competitive action.
Entrepreneurial leadership – leadership appropriate
for new ventures that requires courage, belief in Co-opetition – a firm’s strategy of both cooperating
one’s convictions, and the energy to work hard even and competing with rival firms.
in difficult circumstances; and that embodies vision,
dedication and drive, and commitment to Chapter 9 : Strategic Control and Corporate
excellence. Governance

Entrepreneurial Strategy – a strategy that enables a Strategic Control – the process of monitoring and
skilled and dedicated entrepreneur, with a viable correcting a firm’s strategy and performance.
opportunity and access to sufficient resources, to
successfully launch a new venture. Traditional Approach to Strategic Control – a
sequential method of organizational control in
Pioneering New Entry – a firm’s entry into an which (1) strategies are formulated and top
industry with a radical new product or highly management sets goals, (2) strategies are
innovative service that changes the way business is implemented, and (3) performance is measured
conducted. against the predetermined goal set.

Imitative New Entry – a firm’s entry into an Informational Control – a method of organizational
industry with products or services that capitalize on control in which a firm gathers and analyzes
proven market successes and that usually have a information from the internal and external
strong marketing orientation. environment in order to obtain the best fit between
the organization’s goals and strategies and the
Adaptive New Entry – a firm’s entry into an strategic environment.
industry by offering a product or service that is
somewhat new and sufficiently different to create Behavioral Control – a method of organizational
value for customers by capitalizing on current control in which a firm influences the actions of
market trends. employees through culture, rewards, and
boundaries.
Organizational Culture – a system of shared values Business Group – a set of firms that, though legally
and beliefs that shape a company’s people, independent, are bound together by a constellation
organizational structures, and control systems to of formal and informal ties and are accustomed to
produce behavioral norms. taking coordinated action.

Reward System – policies that specify who gets

rewarded and why.

Boundaries and Constraints – rules that specify

behaviors that are acceptable and unacceptable.

Corporate Governance – the relationship among

various participants in determining the direction and
performance of corporations. The primary
participants are (1) the shareholders, (2) the
management, and (3) the board of directors.

Corporation – a mechanism created to allow

different parties to contribute capital, expertise, and
labor for the maximum benefit of each party.

Agency Theory – a theory of the relationship

between principals and their agents, with emphasis
on two problems: (1) the conflicting goals of
principals and agents, along with the difficulty of
principals to monitor the agents, and (2) the
different attitudes and preferences toward risk of
principals and agents.

Board of Directors – a group that has a fiduciary

duty to ensure that the company is run consistently
with the long-term interests of the owners, or
shareholders, of a corporation and that acts as an
intermediary between the shareholders and
management.

Shareholder Activism – actions by large

shareholders to protect their interests when they feel
that managerial actions of a corporation diverge
from shareholder value maximization.

External Governance Control Mechanisms –

methods that ensure that managerial actions lead to
shareholder value maximization and do not harm
other stakeholder groups that are outside the control
of the corporate governance system

Market for Corporate Control – an external control

mechanism in which shareholders dissatisfied with
a firm’s management sell their shares.

Takeover Constraint – the risk to management of

the firm being acquired by a hostile raider.

Principal–Principal Conflicts – conflicts between

two classes of principals—controlling shareholders
and minority shareholders—within the context of a
corporate governance system.

Expropriation of Minority Shareholders – activities

that enrich the controlling shareholders at the
expense of the minority shareholders.