(Test Bank) Competing for Advantage

Hoskisson,Hitt,Ireland,Harrison, 3

Business

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Author(s): Hoskisson, Hitt, Ireland, Harrison

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Chapter 1 - Introduction to Strategic Management TRUE/FALSE 1. A sustained or sustainable competitive advantage occurs when a firm has implemen ted a value -creating strategy that current competitors currently do not have, even if they are able to duplicate that strategy in the near future. ANS: F PTS: 1 DIF: med REF: p. 2 OBJ: 1 NOT: knowledge 2. Average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. ANS: F PTS: 1 DIF: med REF: p. 3 OBJ: 1 NOT: knowledge 3. The strategic management process requires the making of only a single decision about the overall strategy of a firm . ANS: F PTS: 1 DIF: med REF: p. 3 OBJ: 6 NOT: comprehension 4. Organizations must choose between the Industrial Organization Model and the Reso urce-Based Model when it sets out on the strategic management process. ANS: F PTS: 1 DIF: med REF: p. 3 OBJ: 6 NOT: comprehension 5. Businesses that have become uncompetitive because of an inability to make necessary changes for continued success are e ven more common than businesses that fail. ANS: T PTS: 1 DIF: med REF: p. 4 OBJ: 1 NOT: knowledge 6. In a hypercompetitive market, firms often aggressively challenge their competitors in hopes of improving their competitive position and ultimately their performance. ANS: T PTS: 1 DIF: med REF: p. 5 OBJ: 1 NOT: knowledge 7. E-culture is the unique organizational environment created by Internet -based firms. ANS: F PTS: 1 DIF: med REF: p. 7 OBJ: 1 NOT: knowledge 8. Information or intelligence does not help the organization compete unless it is transformed into usable knowledge and diffused rapidly throughout the firm. ANS: T PTS: 1 DIF: med REF: p. 7 OBJ: 1 NOT: comprehension 9. The I/O (Industrial Organization) model assumes that a firm’s unique resources and capabilities are its main source of above -average returns. ANS: F PTS: 1 DIF: hard REF: p. 11 OBJ: 2 NOT: comprehension 10. The I/O model suggests that above -average returns are earned when firms impleme nt the strategy dictated by the characteristics of the general, industry, and competitive environments. ANS: T PTS: 1 DIF: hard REF: p. 13 (Figure 1.2) OBJ: 2 NOT: comprehension 11. The resource -based model assumes that firms may form a competitive advantage by having resources that are rare or costly to imitate. ANS: T PTS: 1 DIF: med REF: p. 14 OBJ: 3 NOT: comprehension 12. Resources are considered rare when they allow firms to exploit opportunities in the external environment. ANS: F PTS: 1 DIF: med REF: p. 16 OBJ: 3 NOT: knowledge 13. The I/O (Industrial Organization) model argues that core competencies are the basis of a firm’s competitive advantage. ANS: F PTS: 1 DIF: med REF: p. 14 OBJ: 2 NOT: comprehension 14. Customers, suppliers, unions, and local governments are examples of capital market stakeholders. ANS: F PTS: 1 DIF: hard REF: p. 17 OBJ: 4 NOT: knowledge 15. Employees, managers, and non -managers are examples of organizational stakeholders. ANS: T PTS: 1 DIF: hard REF: p. 17 OBJ: 4 NOT: knowledge 16. An organization’s “dream” is its strategic mission created by organizational strategists. ANS: F PTS: 1 DIF: hard REF: p. 21 OBJ: 6 NOT: knowledge 17. A stakeholder approach to strategic management is highly pertinent to a central problem management is facing today - a general lack of trust of corporations and their managers. ANS: T PTS: 1 DIF: med REF: p. 18 OBJ: 4 NOT: comprehension 18. Strategic thinking ignores the past and only focuses on value creation in the future. ANS: F PTS: 1 DIF: med REF: p. 21 OBJ: 5 NOT: knowledge 19. Firms must provide enough flexibility in their strategic management process to allow for the incorporation of new ideas with high potential. ANS: T PTS: 1 DIF: med REF: p. 21 OBJ: 5 NOT: comprehension 20. The strategic management process is an informal approach to helping firms respond effectively to the competitive environment. ANS: F PTS: 1 DIF: hard REF: p. 22 OBJ: 6 NOT: comprehension 21. Corporate -level strategy is concerned with how a diversified firm competes in each industry in which it is a ctive. ANS: F PTS: 1 DIF: med REF: p. 23 OBJ: 6 NOT: knowledge 22. An organization’s willingness to tolerate or encourage unethical behavior is a reflection of its core values. ANS: T PTS: 1 DIF: med REF: p. 24 OBJ: 6 NOT: comprehension 23. Effective strategic leadership is essential to both strategic thinking and strategic flexibility. ANS: T PTS: 1 DIF: easy REF: p. 8 OBJ: 5 NOT: knowledge MULTIPLE CHOICE 1. What has a firm achieved when it successfully formulates and implements a value -creating strategy? a. Value creation b. A permanently sustainable competitive advantage c. Substantial returns d. Average returns ANS: A PTS: 1 DIF: med REF: p. 3 OBJ: 1 NOT: comprehension 2. The strategic management process is: a. a set of activities that is guaranteed to prevent organizational failure. b. a process concerned with a firm’s resources, capabilities, and competencies, but not the conditions in its external environment. c. a set of activities that to date have not been used successfully in the not -for-profit sector. d. a dynamic process involving the full set of commitments, decisions, and actions related to the firm. ANS: D PTS: 1 DIF: hard REF: p. 3 OBJ: 6 NOT: comprehension 3. Two of the primary drivers of the new competitive landscape are: a. slow technological changes and increased inflation. b. emergence of a global economy and rapid technological change. c. increased competition and decreasing tariffs. d. increased availability of capital and increased competition. ANS: B PTS: 1 DIF: med REF: p. 4 OBJ: 1 NOT: knowledge 4. Which of the following is a characteristic of the global economy? a. The spread of economic innovations around the world b. The free movement of goods, services, people, skills, and ideas across geographic borders c. The increased use of artificial constraints, such as tariffs d. The ability of a firm to be first to mark et its products in a developing country ANS: B PTS: 1 DIF: med REF: p. 4 OBJ: 1 NOT: comprehension 5. In the new competitive landscape, firms will attain competitive success by: a. continuing current corporate strategies. b. meeting, or exceeding, global standards. c. avoiding challenges that change their capabilities. d. committing more resources to in ternational products. ANS: B PTS: 1 DIF: med REF: p. 7 OBJ: 1 NOT: knowledge 6. A set of capabilities used to respond to various demands and opportunities exist ing in a dynamic and uncertain competitive environment is: a. strategic flexibility. b. disruptive technology. c. information, intelligence and expertise. d. performance standards. ANS: A PTS: 1 DIF: hard REF: p. 8 OBJ: 1 NOT: comprehension 7. An aspect of global competition is that it has increased performance standards in many dimensions. These dimensions do NOT include: a. production cost. c. social responsibility. b. quality of product. d. decreased production time. ANS: C PTS: 1 DIF: med REF: p. 6 OBJ: 1 NOT: knowledge 8. The advent of inexpensive digital cameras able to compete with film cameras is an example of ____. a. disruptive technology c. perpetual innovation b. global competition d. hypercompetition ANS: A PTS: 1 DIF: med REF: p. 7 OBJ: 1 NOT: comprehension 9. To achieve greater strategic flexibility, firms must: a. hire additional personnel. b. adapt quickly to changes in their competitive landscape. c. report net losses for a period of three years. d. acquire competing firms. ANS: B PTS: 1 DIF: hard REF: p. 8 OBJ: 1 NOT: comprehension 10. Which of the following is NOT an assumption of th e Industrial Organization, or I/O, model? a. Organizational decision makers are rational and committed to acting in the firm’s best interests. b. Resources to implement strategies are not highly mobile across firms. c. The external environment is assumed to impose pressures and constraints that determine the strategies that result in superior performance. d. Firms in given industries, or given ind ustry segments, are assumed to control similar strategically relevant resources. ANS: B PTS: 1 DIF: hard REF: p. 12 OBJ: 2 NOT: comprehension 11. When utilizing the Industrial Organization, or I/O, model the key to success for a firm is: a. proper utilization of the firm’s human resources. b. selecting the most attractive industry in which to compete. c. identifying the firm’s key competitive adva ntage. d. developing the firm’s unique resources and capabilities. ANS: B PTS: 1 DIF: med REF: p. 12 OBJ: 2 NOT: comprehension 12. The Industrial Organization, or I/O model, argues that: a. the characteristics of the general, industry, and competitor environments dictate successful organizational strategy. b. the firm’s internal resources and capabilities represent the foundation for development of a value -creating strategy. c. intern ationalization in certain industries will lead to globalization. d. firms should seek to maximize their returns by organizing their organizational structure in a manner consistent with the most efficient producers in any given industry. ANS: A PTS: 1 DIF: med REF: p. 11 OBJ: 2 NOT: knowledge 13. Research into the causes of firm profitability suggests a reciprocal relationship between ____ and ____ affects firm performance. a. employee training, capital resources b. the number of competitors, product innovation c. the board of directors, corporate managers d. the environment, firm strategy ANS: D PTS: 1 DIF: hard REF: p. 11 OBJ: 2 NOT: comprehension 14. Which of the following is NOT an assumption of the resource -based model? a. Each firm is a unique collection of resources and capabilities. b. All firms possess the same strategically relevant resources. c. Resources are not highly mobile across firms. d. Firms acquire different re sources and capabilities over time. ANS: B PTS: 1 DIF: med REF: p. 14 OBJ: 3 NOT: comprehension 15. The I/O model and the resource -based view of the firm suggest conditions that firms should study in order to: a. compete in domestic but not international markets. b. examine strategic outputs achieved mainly in the last 5 -year period. c. engage in different sets of competitive dynamics. d. develop the most effective strategy. ANS: D PTS: 1 DIF: hard REF: p. 14 OBJ: 3 NOT: comprehension 16. The resource -based view of the firm: a. suggests that resources, as compared to capabilities, are more closely linked with sustainable competitive advantage. b. argues that the industry environment has a stronger influence on firms’ ability to implement strategies successfully than does the comp etitor environment. c. calls for firms to focus on their homogeneous skills to compete against their rivals. d. assumes that resources may not be mobile across firms. ANS: D PTS: 1 DIF: hard REF: p. 14 OBJ: 3 NOT: comprehension 17. The resource -based model of the firm argues that: a. all resources have the potential to be the basis of sustained competitive advantage. b. resources are not a source of potential competitive advantage. c. the key to competitive success is the structure of the industry in which the firm competes. d. resources that are valuable, rare, costly to imitate, and non -substitutable form the basis of a firm’s core competencies. ANS: D PTS: 1 DIF: hard REF: p. 16 OBJ: 3 NOT: comprehension 18. Which of the following is NOT a criterion that must be met in order for resources and capabilities to become a competitive advantage under the resource -based model? a. The resources and capabilities possessed by competitors are common. b. The resources an d capabilities are costly to imitate when firms cannot obtain them. c. The resources and capabilities have no structural equivalents. d. The resources and capabilities are valuable if they can be used to exploit opportunities. ANS: A PTS: 1 DIF: hard REF: p. 16 OBJ: 3 NOT: comprehension 19. To have the potential to become sources of competitive advantage, resources and capabilities must be valuable, ____, and ____. a. common, easy to imitate. b. easy to imitate, difficult to implement. c. rare, costly to imitate. d. easy to implement, costly to imitate. ANS: C PTS: 1 DIF: med REF: p. 16 OBJ: 3 NOT: comprehension 20. Strategic intent seeks to ensure that: a. the goals of the firm are realistic. b. the goals of the firm are non -specific in order to allow creativity. c. only top -level managers are committed to the goals of the organization. d. all of the organization’s employees are focused on achieving the firm’s goals. ANS: D PTS: 1 DIF: med REF: p. 21 OBJ: 5 NOT: knowledge 21. ____ has been effectively formed when employees believe fervently in their company’s product and are totally focused on their firm’s ability to outcompete its competitors. a. A culture of success c. An organizational mission b. Competitive vision d. Strategic intent ANS: D PTS: 1 DIF: med REF: p. 21 OBJ: 5 NOT: knowledge 22. Strategic intent is primarily: a. internally focused. c. industry focused. b. externally focused. d. chief executive officer focused. ANS: A PTS: 1 DIF: med REF: p. 21 OBJ: 5 NOT: comprehension 23. Product market stakeholders include the firm’s customers, and the principal concern of this stakeholder group is: a. maximizing the firm’s return on investment. b. providing a stimulating career environment for employees. c. to obtain reliable products at the lowest possible price. d. increasing the profitability of the firm. ANS: C PTS: 1 DIF: med REF: p. 18 OBJ: 4 NOT: comprehension 24. Stakeholders’ interests may conflict, and the organization must prioritize its stakeholders because it cannot satisfy them all. The ____ is the most critical criterion in prioritizing stakeholders a. Power of each stakehold er b. Urgency of satisfying each stakeholder c. Importance of each stakeholder to the firm d. Influence of each stakeholder ANS: A PTS: 1 DIF: med REF: p. 20 OBJ: 4 NOT: knowledge 25. Generally speaking, product market stakeholders are satisfied when: a. a firm’s profit margin yields the lowest return to capital market stakeholders that is acceptable to them. b. a firm’s profit margin yields an above -average return to its capital marke t stakeholders. c. the interests of the firm’s organizational stakeholders have been maximized. d. a firm grounds its operations in the principles of the resource -based view of the firm rather than the principles of the I/O model. ANS: A PTS: 1 DIF: hard REF: p. 18 OBJ: 4 NOT: comprehension 26. Organizational stakeholders are usually satisfied whe n: a. their return on investment has been maximized. b. customers pay the highest sustainable price for the goods and services they receive. c. companies are willing to be longer -term employers. d. companies are growing and helping individuals develop their skills. ANS: D PTS: 1 DIF: med REF: p. 18 OBJ: 4 NOT: evaluation 27. The strategic management process is intended to be a rational approach to help a firm: a. analyze its position in the marketplace. b. understand its rivals’ competitive moves. c. design an extensive mission statement. d. respond effectively to the chall enges of the competitive environment. ANS: D PTS: 1 DIF: med REF: p. 22 OBJ: 6 NOT: comprehension 28. In a diversified firm, corporate -level strategy is concerned with: a. operating each individual business. b. determining how each functional department of the firm will operate. c. determining in which businesses to compete and how resources will be allocated between businesses. d. maximizing product distribution over rivals. ANS: C PTS: 1 DIF: med REF: p. 23 OBJ: 6 NOT: comprehension 29. A business -level strategy describes: a. the businesses in which the company intends to compete. b. all policies and procedures used in functional departments. c. the firm’s actions to exploit its competitive advantage over rivals. d. a firm’s resources, intent, and mission. ANS: C PTS: 1 DIF: med REF: p. 23 OBJ: 6 NOT: comprehension 30. Caterpillar’s performance during the recent economic recession is an example of: a. the benefits of globalization. b. advantages enabled by technological advances. c. potential opportunities related to economic volatility. d. threats existing in the competitive environment. ANS: C PTS: 1 DIF: med REF: p. 6 OBJ: 1 NOT: application ESSAY 1. Define value creation and above -average returns. ANS: Value creation is achieved when firms develop and successfully implement a value -creating strategy. Above -average returns are returns in excess of what investors expect to earn from other investments with similar risk levels. PTS: 1 REF: p. 2|p. 3 OBJ: 1 2. What is the 21st century competitive landscape? ANS: The pace of change i n the 21st century is relentless and increasing. Even determining the boundaries of an industry has become challenging. Conventional sources of competitive advantage, such as economics of scale, are not as effective as they once were. Hypercompetition is c haracteristic of the 21st century competitive landscape. It results from the dynamics of strategic maneuvering among global and innovative competitors. The primary drivers of hypercompetition are the emergence of a global economy and rapid technological ch ange. PTS: 1 REF: p. 3|p. 8 OBJ: 1 3. Describe the Industrial Organization, or I/O, model of strategy. ANS: The I/O model is grounded in the economics discipline and argues that the external environment is the primary determinant of firm success. The model has four underlying assumptions. First, the external environment is assumed to impose pressures and constra ints that determine the strategies that would result in superior performance. Second, most firms competing within a particular industry, or in a certain segment of the industry, are assumed to control similar strategically relevant resources and pursue sim ilar strategies in light of those resources. Third, resources used to implement strategies are mobile across firms, which results in resource differences between firms being short lived. Fourth, organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests as shown by their profit maximizing behaviors. The challenge for firms within the I/O model is to find the best industries in which to compete. PTS: 1 REF: p. 11|p. 14 OBJ: 2 4. Describe and discuss the resource -based model of the firm. ANS: The resource -based model of the firm focuses on the internal resources and capabilities of the firm as a source of competitive advantage. The model assumes that each firm is a collection of unique resources and capa bilities. Resources are not highly mobile across firms. All firms within a particular industry may not possess the same strategically relevant resources and capabilities. The resource -based model suggests that core competencies are the basis for a firm’s v alue creation and its ability to earn above -average returns. PTS: 1 REF: p. 14|p. 17 OBJ: 3 5. Describe and discuss strategic intent and strategic mission. ANS: Strategic intent is the leveraging of a firm’ s internal resources, capabilities, and core competencies to accomplish the firm’s goals in the competitive environment. Strategic intent exists when all employees of the organization are committed to the pursuit of a specific (and significant) performance criterion. Based on its internal strategic intent, the firm then develops its externally oriented strategic mission. The strategic mission is a statement of a firm’s unique purpose and the scope of its operations in product and market terms. The mission p rovides the general description of the products a firm intends to produce and the market(s) it will serve. The mission should establish the firm’s individuality and be inspiring and relevant to all stakeholders. PTS: 1 REF: p. 21|p. 23 OBJ: 5 6. Describ e an organization’s various stakeholders and their different interests. ANS: Stakeholders are the individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforceable claims on a firm’s performance. There are three principal types of stakeholders. First, there are the capital market stakeholders . These stakeholders include the shareholders and the major suppliers of capital to the firm. They are most interested in the return on capital and profitability of the firm. The second group of stakeholders is the product market stakeholders . This group includes customers, suppliers, host communities, and unions representing workers. The customers seek a reliable product at the lowest possible price. The suppliers seek assured customers willing to pay the highest sustainable price. Host communities want companies willing to be long-term employers and providers of tax revenues. Union officials want secure jobs with good working conditions for the workers they represent. T he final group of stakeholders is the organizational stakeholders . This group includes the employees (both managerial and non-managerial). These stakeholders expect a firm to provide a dynamic, stimulating, and rewarding work environment. PTS: 1 REF: p. 17|p. 20 OBJ: 5 7. Explain the strategic management process. ANS: The strategic management process calls for a rational and disciplined approach to the development of competitive advantage. In the strategic management process, the firm studies its i nternal and external environments to identify marketplace threats and opportunities. It determines how to use its core competencies to pursue its desired strategic outcomes. With this knowledge, the firm forms its strategic intent and strategic mission, ul timately achieving (if successful) value creation and above -average returns. PTS: 1 REF: p. 22|p. 24 OBJ: 6 8. Discuss Michael Porter’s contributions to the I/O model of above -average returns. ANS: Michael Porter’s five forces model suggests that an i ndustry’s profitability is a function of interactions among suppliers, buyers, competitive rivalry, product substitutes, and potential entrants to the industry. The model reinforces the importance of economic theory, offers an analytical approach that was previously lacking in the field of strategy, describes the forces that determine the nature and level of competition and profit potential in an industry, and suggests how an organization can use the analysis to establish a competitive advantage. PTS: 1 REF: p. 12 OBJ: 2 Chapter 2 - Strategic Leadership TRUE/FALSE 1. Different approaches to leadership by CEOs such as Jack Welch and Sam Walton dem onstrate the profound influence strategic leaders can have on an organization. ANS: T PTS: 1 DIF: med REF: p. 34 OBJ: 1 NOT: application 2. Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create s trategic change as necessary. ANS: T PTS: 1 DIF: med REF: p. 35 OBJ: 1 NOT: knowledge 3. Strategic leadership entails the set of assumptions, premises, and accepted wisdom that bounds or frames a manager’s understanding of the firm. ANS: F PTS: 1 DIF: med REF: p. 35 OBJ: 1 NOT: knowledge 4. Effective strategic leaders are willing to make candid, courageous, yet pragmatic, decisions —decisions based mostly on the leader’s seasoned intuition. ANS: F PTS: 1 DIF: med REF: p. 37 OBJ: 2 NOT: comprehens ion 5. A manager’s decision discretion is influenced by his or her own characteristics, environmental sources external to the firm, and characteristics of the Board of Directors. ANS: F PTS: 1 DIF: hard REF: p. 37 OBJ: 2 NOT: comprehension 6. Firm s ize, firm age, tolerance for ambiguity, and commitment to strategic outcomes are all examples of characteristics of the organization that may affect managerial discretion. ANS: F PTS: 1 DIF: hard REF: p. 37 OBJ: 2 NOT: comprehension 7. External environmental factors that may affect managerial discretion include industry structure, rate of market growth, and degree of product differentiation. ANS: T PTS: 1 DIF: hard REF: p. 37 OBJ: 2 NOT: comprehension 8. In addition to determining ne w strategic initiatives, top -level managers also develop the appropriate organizational structure and reward systems of a firm. ANS: T PTS: 1 DIF: med REF: p. 40 OBJ: 3 NOT: knowledge 9. The more heterogeneous and the larger the top management team, the easier it is to implement strategy effectively. ANS: F PTS: 1 DIF: hard REF: p. 42 OBJ: 3 NOT: comprehension 10. The more homogeneous a top management team, the more likely those managers will be innovative and willing to pursue strategic change. ANS : F PTS: 1 DIF: med REF: p. 41 OBJ: 3 NOT: comprehension 11. Heterogeneous top management teams are more likely to change their firm’s strategies when necessary and to support innovation. ANS: T PTS: 1 DIF: med REF: p. 41 OBJ: 3 NOT: comprehension 12. It is very uncommon for a CEO to appoint a number of outside board members. ANS: F PTS: 1 DIF: med REF: p. 42 OBJ: 4 NOT: comprehension 13. The experience that results from long tenure in a firm is known to extend the breadth of an executive’s knowledge base. ANS: F PTS: 1 DIF: med REF: p. 44 OBJ: 4 NOT: comprehension 14. Selection of an insider as a new CEO indicates a firm’s desire to encourage innovation and strategic change. ANS: F PTS: 1 DIF: med REF: p. 46 OBJ: 4 NOT: comprehension 15. When a new CEO is selected from outside the firm, a change of strategy is likely, especially if the top management team is homogenous and highly cohesive. ANS: F PTS: 1 DIF: hard REF: p. 46 OBJ: 4 NOT: comprehension 16. An organization leader’s new vision must take into account the current and core competencies of the firm. ANS: T PTS: 1 DIF: med REF: p. 50 OBJ: 5 NOT: comprehension 17. Neither hiring temporary workers nor star players is sufficient for developing an effective organizational team. ANS: T PTS: 1 DIF: hard REF: p. 51 OBJ: 6 NOT: comprehensive 18. The training of future strategic leaders yields a competitive advantage for a firm, in part because knowledge and skills are necessary for successful execu tion of strategy. ANS: T PTS: 1 DIF: med REF: p. 51 OBJ: 6 NOT: comprehension 19. Competitive aggressiveness, proactiveness, risk aversion, innovativeness, and au tonomy are the five dimensions characterizing a firm’s entrepreneurial orientation. ANS: F PTS: 1 DIF: hard REF: p. 52 OBJ: 6 NOT: comprehension 20. Corporate cultures emerge in organizations, but their development is so subtle that top managers cannot influence their formation. ANS: F PTS: 1 DIF: med REF: p. 52 OBJ: 6 NOT: comprehension 21. Money motivates, social capital inspires. ANS: T PTS: 1 DIF: med REF: p. 55 OBJ: 8 NOT: comprehension 22. An emphasis on strategic controls encourages manag ers to focus on more short -term goals and efficient operations. ANS: F PTS: 1 DIF: med REF: p. 58 OBJ: 9 NOT: comprehension MULTIPLE CHOICE 1. Effective strategic leadership entails the ability to articulate clear ____ and ____. a. employee attitudes, corporate culture b. strategic change, performance trends c. goals, objectives d. strategic intent, motivate followers ANS: D PTS: 1 DIF: hard REF: p. 36 OBJ: 1 NOT: comprehension 2. The ability to manage ____ may be the most important skill a strategic leader must have. a. human capital c. responses to competitors’ actions b. capital resources d. investment strategies ANS: A PTS: 1 DIF: med REF: p. 50 OBJ: 1 NOT: comprehension 3. Some researchers argue that a firm’ s long -term competitiveness depends on the: a. ability of managers to maintain a constant managerial frame. b. ability of managers to challenge their managerial frames on a continual basis. c. ability of managers to fend off change. d. abilities of lowe r-level management teams. ANS: B PTS: 1 DIF: med REF: p. 40 OBJ: 1 NOT: comprehension 4. Which of the following is NOT a factor that determines the amount of a manager’s decision discretion? a. Characteristics of the manager b. Characteristics of the organization c. Cohesiveness of the Board of Directors d. External environmental sources ANS: C PTS: 1 DIF: med REF: p. 37 OBJ: 2 NOT: comprehension 5. All of the following are external environmental sources that affect managerial discretion EXCEPT : a. industry structure. b. corporate culture. c. market growth rate. d. potential for product differentiation. ANS: B PTS: 1 DIF: med REF: p. 37 OBJ: 2 NOT: knowledge 6. All of the following are characteristics of the organization that affect managerial discretion EXCEPT : a. size of the company. b. availability of resources. c. corporate culture. d. degree of managerial self -confidence. ANS: D PTS: 1 DIF: med REF: p. 37 OBJ: 2 NOT: knowledge 7. A characteristic of the manager that may affect managerial discretion is his/her: a. interpersonal skills. c. tolerance for ambiguity. b. commitment to the firm. d. aspiration levels. ANS: A PTS: 1 DIF: med REF: p. 37 OBJ: 2 NOT: knowledge 8. The larger the top management team: a. the more difficult it is for the team to implement strategies. b. the more likely it is that the team will be homogeneous. c. the less innovative the team’s decisions are. d. the higher quality the team’s decisions are. ANS: A PTS: 1 DIF: med REF: p. 42 OBJ: 3 NOT: knowledge 9. A heterogeneous top management team is composed of individuals with: a. different functional backgrounds, experience, and education. b. similar experiences and similar education. c. a high level of education. d. a similar level of technical training. ANS: A PTS: 1 DIF: med REF: p. 40 OBJ: 3 NOT: knowledge 10. Which of the following is NOT associated with heterogeneous top management teams? a. Innovation b. Identification of environmental changes c. Diminished debate d. Strategic change ANS: C PTS: 1 DIF: hard REF: p. 41 OBJ: 3 NOT: comprehension 11. The more involved a board of directors is in shaping the firm’s strategic direction: a. the lower is the corporation’s performance. b. the higher is the corporation’s performance. c. the more likely it is that the firm’s top management team is homogenous in its makeup. d. the more difficult it becomes to make executive decisions. ANS: B PTS: 1 DIF: med REF: p. 42 OBJ: 3 NOT: comprehension 12. A CEO obtains power from all of the following EXCEPT : a. the fact that many of the outside directors are appointed by the CEO. b. the CEO is also the chairman of the board. c. the tenure of the top management team is shorter than that of the board. d. the fact that inside board members report to the CEO. ANS: C PTS: 1 DIF: hard REF: p. 42 OBJ: 4 NOT: comprehension 13. Which of the following is NOT related to a CEO’s having long tenure in his or her position? a. more effective strategic control b. greater influence on organizational decisions c. more limited perspective d. high level of innovation ANS: D PTS: 1 DIF: hard REF: p. 42 OBJ: 4 NOT: comprehension 14. An external labor market is: a. the opportunities for managerial positions within a firm. b. a collection of career opportunities for managers in organizations outside of the one for which they currently work. c. the relationship between the CEO and its subordinates. d. influential in the building of a homogenous top management team. ANS: B PTS: 1 DIF: med REF: p. 44 OBJ: 4 NOT: knowledge 15. Which of the following is NOT a benefit to the firm using the intern al labor market to select a new CEO? a. Internal hiring results in a higher turnover rate of existing personnel. b. Insiders are familiar with the firm’s products. c. Insider hiring reflects a desire for continuity. d. Insiders are more familiar with a firm’s operating procedures. ANS: A PTS: 1 DIF: med REF: p. 45 OBJ: 4 NOT: comprehension 16. A CEO’ s commitment to the status quo is influenced strongly by: a. educational training. b. the prestige of the university from which the CEO earned his or her degree. c. long tenure with one firm. d. the breadth of knowledge of the top management team. ANS: C PTS: 1 DIF: med REF: p. 45 OBJ: 4 NOT: comprehension 17. Which of the following is NOT likely to encourage change in a firm’s strategy? a. A new CEO from outside the firm b. A homogeneous top management team c. A top management team with managers from different functional backgrounds d. A new CEO from outside the industry ANS: B PTS: 1 DIF: hard REF: p. 45 (Figure 2.2) OBJ: 4 NOT: comprehension 18. A new CEO selected from outside the firm: a. will successfully guide the company to higher profits. b. has a narrower perspective of the firm and its competitive environment. c. usually encourages innovation and strategic change. d. will not be inclined to change the strategic direction of the fir m. ANS: C PTS: 1 DIF: med REF: p. 45 OBJ: 4 NOT: comprehension 19. When the top management team is homogeneous and a new CEO is selected from inside the firm, it is: a. unlikely for the current strategy to change. b. likely that product innovation will continue. c. likely there will be a change in strategy. d. unlikely the new CEO will have a long tenure. ANS: A PTS: 1 DIF: med REF: p. 45 (Figure 2.2) OBJ: 4 NOT: comprehension 20. If a firm is to have an adequate number of highly qualified managers, it must tap the following highly qualified labor pool: a. Former employees. b. College interns. c. Foreign-born but U.S. -trained applicants. d. Women. ANS: D PTS: 1 DIF: med REF: p. 45 OBJ: 4 NOT: knowledge 21. Which of the following is NOT an action of effective strategic leadership? a. Establishing ethical practices b. Fostering an effective corporate culture c. Developing human capital d. De-emphasizing core competencies ANS: D PTS: 1 DIF: med REF: p. 48 OBJ: 5 NOT: comprehension 22. Determining the strategic direction for the firm refers to: a. developing a short -term vision of the firm’s strategic intent. b. developing a tactical strategic response. c. developing a long -term vision of the firm’s strategic intent. d. the top manage ment team’s heterogeneous status. ANS: C PTS: 1 DIF: med REF: p. 54 OBJ: 5 NOT: knowledge 23. It is clear that large firms: a. develop core competencies in a single functional area when implementing strategy. b. exploit core competencies across different organizational units when implementing strategy. c. have an identifiable brand name in order to create a competitive advantage during the implementation stage. d. make a number of acquisitions in order to develop and exploit core competencies within the organization. ANS: B PTS: 1 DIF: med REF: p. 52 OBJ: 5 NOT: comprehension 24. Human capital refers to the: a. number of employees employed by a firm. b. resources available to the Human Resources department. c. number of individuals comprising the top management team. d. knowledge and skills of the firm’s work force. ANS: D PTS: 1 DIF: med REF: p. 50 OBJ: 5 NOT: knowledge 25. Much of the development of U.S. industry can be attributed to: a. the educational level of its workforce. b. its emphasis on innovation. c. the effectiveness of its human capital. d. the country’s financial markets. ANS: C PTS: 1 DIF: med REF: p. 50 OBJ: 6 NOT: knowledge 26. The effective development and management of the firm’s ____ may be the primary determinant of its sustainable competitive advantage. a. capital base b. human capital c. technology d. competitive edge ANS: B PTS: 1 DIF: med REF: p. 51 OBJ: 6 NOT: knowledge 27. The process of transferring host -country or third -country national managers into the domestic market of the multinational firm is known as: a. expatriation. b. repatriation. c. inpatriation. d. reverse patriation. ANS: C PTS: 1 DIF: hard REF: p. 51 OBJ: 6 NOT: knowledge 28. Many companies are now requiring ____ for top management positions. a. development of a successful advertising campaign b. MBAs from prestigious schools c. specialized knowledge in a functional area d. global competency ANS: D PTS: 1 DIF: med REF: p. 51 OBJ: 6 NOT: comprehension 29. Which of the following will lead to the probability that a manager will be a successful strategic leader? a. Appointing many outside board members b. Increasing the firm’s sales c. Increased expenditures on capital equipment d. Training and development programs ANS: D PTS: 1 DIF: med REF: p. 51 OBJ: 6 NOT: comprehension 30. The benefits of training and development programs include all of the following EXCEPT : a. establishing independent core values. b. promoting the firm’s strategic vision. c. providing a systematic view of the organization. d. building knowledge and skills. ANS: A PTS: 1 DIF: hard REF: p. 51 OBJ: 6 NOT: comprehension 31. Which of the following is a source of competitive advantage at General Electric? a. The firm’s Internet strategy b. The firm’s emphasis on technology management c. The firm’s system of training and development of future leaders d. The firm’s strategic o rientation ANS: C PTS: 1 DIF: hard REF: p. 51 OBJ: 6 NOT: application 32. To successfully implement a firm’s strategy, employees must be viewed as: a. a cost to be minimized. b. expendable. c. a resource to be maximized. d. part of the organization that must be restructured. ANS: C PTS: 1 DIF: med REF: p. 50 OBJ: 6 NOT: comprehension 33. Which of the following statements is true regarding effective organizational cultures? a. Once a corporate culture is developed, strategic leaders can focus on other activities. b. It is not possible to develop a corporate culture into a core competency. c. A central task of strategic leaders is to change the corporate culture on an annual ba sis after analyzing the changes occurring in the competitive environment. d. Organizational culture can be a source of competitive advantage because it influences employee behavior and the firm’s conduct in the marketplace. ANS: D PTS: 1 DIF: med REF: p. 52 OBJ: 6 NOT: comprehension 34. If a firm is a market leader, rather than a market follower, it can be characterized as being ____. a. proactive c. strategic b. aggressive d. risk-taking ANS: A PTS: 1 DIF: med REF: p. 52 OBJ: 6 NOT: knowledge 35. The concept of employee autonomy is highly related to the concept of ____. a. cohesiveness c. charisma b. loyalty d. empowerment ANS: D PTS: 1 DIF: med REF: p. 52 OBJ: 7 NOT: comprehension 36. Which of the following is NOT one of the five dimensions thought to characterize a firm’s entrepreneurial orientation? a. Autonomy c. Risk taking b. Reactivity d. Innovativeness ANS: B PTS: 1 DIF: hard REF: p. 52 OBJ: 6 NOT: knowledge 37. A firm that has the ability to be a market leader rather than a follower is said to be: a. innovative. b. a risk taker. c. proactive. d. competitively aggressive. ANS: C PTS: 1 DIF: med REF: p. 52 OBJ: 6 NOT: knowledge 38. Competitive aggressiveness describes a firm’s: a. tendency to engage in new ideas and creative processes. b. tendency to allow employees to take actions free of organizational constraints. c. ability to be a leader in the marketplace. d. propensity to t ake actions that allow it to outperform rivals consistently and substantially. ANS: D PTS: 1 DIF: med REF: p. 52 OBJ: 6 NOT: knowledge 39. Shaping and reinforcing a new firm culture requires all of the following EXCEPT : a. effective communication. b. effective performance appraisals. c. the firing of non -performing employees. d. an appropriate reward system. ANS: C PTS: 1 DIF: med REF: p. 52 OBJ: 7 NOT: comprehension 40. One catalyst for critical changes in the organizational culture is: a. the selection of top managers from outside the corporation. b. change in the industry structure. c. new competition from foreign firms. d. decreasing industry profits. ANS: A PTS: 1 DIF: med REF: p. 53 OBJ: 7 NOT: comprehension 41. The Enron scandal is a good example of ____. a. managerial opportunism b. failure to implement the balanced scorecard c. poor implementation of corporate culture d. failure to adhere to the counsel of staff attorneys ANS: A PTS: 1 DIF: med REF: p. 56 OBJ: 8 NOT: application 42. When organizations are reported to engage in unethical practices: a. poor financial controls will usually be to blame. b. the value in the stock market tends to drop sharply. c. the Justice Department oversees the reorganization of the firm. d. they become takeover targets. ANS: B PTS: 1 DIF: hard REF: p. 56 OBJ: 8 NOT: comprehension 43. The ____ is a framework firms can use to verify that they have established both strate gic and financial controls. a. managerial model c. balanced scorecard b. holistic control system d. dual oversight system ANS: C PTS: 1 DIF: med REF: p. 59 OBJ: 9 NOT: knowledge 44. ____ provide information about the results of past actions, but do not communicate the drivers of the firm’s future performance. a. Financial controls c. Policies and procedures b. Accounting information systems d. Strategic feedback systems ANS: A PTS: 1 DIF: med REF: p. 59 OBJ: 9 NOT: knowledge 45. Which of the following is NOT one of the four perspectives in the balanced scorecard framework? a. entrepreneurial c. customer b. financial d. learning and growth ANS: A PTS: 1 DIF: med REF: p. 59 OBJ: 9 NOT: knowledge 46. In the balanced scorecard framework ____ controls are used to assess the organization’s performance relative to learning and growth. a. developmental c. holistic b. strategic d. financial ANS: B PTS: 1 DIF: med REF: p. 59 OBJ: 9 NOT: knowledge 47. Criteria for reevaluating internal business processes using the balanced scorecard include all of the following EXCEPT ____. a. improvements in innovative ability b. asset utilization improvements c. increases in employee morale d. changes in employee turnover ANS: A PTS: 1 DIF: med REF: p. 59 OBJ: 9 NOT: knowledge 48. Most corporate restructuring is designed to ____. a. refocus the firm on its core businesses b. reduce costs, especially labor costs c. simultaneously stimulate centralization and decentralization. d. generate rapid growth ANS: A PTS: 1 DIF: med REF: p. 59 OBJ: 9 NOT: comprehension 49. Ethical practices within a firm tend to increase: a. as its top managers gain experience. b. the effectiveness of strategic implementation processes. c. the market performance of the firm. d. as the firm becomes more international in its operations. ANS: B PTS: 1 DIF: med REF: p. 56 OBJ: 8 NOT: comprehension 50. Managerial opportunism occurs when managers: a. have opportunities in the external labor market. b. have opportunities in the internal labor market. c. take actions that are in their own best interests but not in the firm’s best interests. d. take actions that are in their own best interests and also in the firm’s best interests. ANS: C PTS: 1 DIF: med REF: p. 56 OBJ: 8 NOT: knowledge 51. In the text, unethical practices are compared to ____. a. a terminal illness c. corporate schizophrenia b. broken promises d. a contagious disease ANS: D PTS: 1 DIF: med REF: p. 56 OBJ: 8 NOT: knowledge 52. The practices associated with an ethical culture have become institutionalized in the firm if they: a. are integrated to form a written code of ethics. b. are mentioned in the firm’s mission statement. c. are first embraced by the CEO of the company. d. become the set of behaviors and actions accepted by most of the firm’s employees and stakeholders. ANS: D PTS: 1 DIF: med REF: p. 57 OBJ: 8 NOT: comprehension 53. Actions that effective strategic leaders can take to develop an ethical organizational culture include all of the following EXCEPT : a. communicating goals that describe the firm’s ethical standards. b. using reward systems that recognize acts of courage. c. relying on the fundamental goodness of individuals. d. creating a work environment where individuals are treated with dignity. ANS: C PTS: 1 DIF: med REF: p. 57 OBJ: 8 NOT: comprehension 54. Organizational controls provide: a. the parameters within which strategies are to be implemented. b. goals and objectives that must be achieved. c. information on action steps to be taken to implement the corporate strategy. d. mana gers with guidelines on how to treat employees. ANS: A PTS: 1 DIF: med REF: p. 58 OBJ: 9 NOT: knowledge 55. Financial controls focus on: a. the strategic actions of the firm. b. the long -term performance of the firm. c. short -term financial outcomes. d. the risk taking ability of the top management team. ANS: C PTS: 1 DIF: med REF: p. 58 OBJ: 9 NOT: knowledge 56. Strategic controls focus on the: a. short -term performance of the firm. b. outcomes of strategic actions. c. long-term goals of the firm. d. content of strategic actions. ANS: D PTS: 1 DIF: med REF: p. 58 OBJ: 9 NOT: knowledge 57. An emphasis on ____ produces short -term and risk -averse managerial decisions. a. strategic controls c. financial controls b. corporate culture d. balanced organizational controls ANS: C PTS: 1 DIF: med REF: p. 58 OBJ: 9 NOT: comprehension ESSAY 1. What is strategic leadership and how important are top -level managers as an organizational resource? ANS: Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change. The six key com ponents of strategic leadership are: determining a strategic direction, exploiting and maintaining core competencies, developing human capital, sustaining an effective organizational culture, emphasizing ethical practices, and establishing balanced organiz ational control systems. The CEO has primary responsibility for strategic leadership, which is shared with the board of directors, the top management team and divisional general managers. Strategic leaders have complex, substantial decision -making responsi bilities that cannot be delegated. Strategies cannot be formulated and implemented to achieve above -average returns without effective strategic leaders. PTS: 1 REF: p. 35|p. 36 OBJ: 1 2. Define top management teams and explain the effect of top management team characteristics on the effectiveness of a firm’s strategy. ANS: The top management team is defined as the key managers in the organization who are responsible for selecting and imp lementing the firm’s strategy or strategies. Typically, the top management team includes all officers of the firm (defined by the title of vice president or above) and/or those who serve as a member of the board of directors. Team characteristics have been shown to affect the strategy of the organization. A heterogeneous top management team is composed of individuals with varied functional backgrounds, experiences, and education. A homogeneous team’s members are similar to one another. A heterogeneous team is more likely to formulate an effective strategy because of its varied expertise and knowledge. Additionally, heterogeneous top management teams have been shown to positively affect performance. In particular, heterogeneous teams positively affect innovat ion and strategic change in firms. PTS: 1 REF: p. 40|p. 42 OBJ: 3 3. Discuss how the managerial labor market (CEO succession) and the top management team composition interact to affect strategy. ANS: Internal labor markets represent the opportunities for managerial positions (including the position of CEO) within a firm. The external labor market is the collection of career opportunities for managers in firms outside of the one for which they currently work. CEOs may be selected from internal or extern al candidates. Internal CEO selection is preferred by employees, and external CEO succession is considered a sign that the board of directors wants change. Internal CEOs are less likely to seek change in the firm’s strategy than external CEOs. It is import ant to note that the CEOs selection from the internal or external labor market and the top management team’s composition interact and affect the likelihood of strategic change. If a firm hires a new internal CEO and has a homogeneous top management team, i t is unlikely that the firm’s strategy will change. If the firm employs a new internal CEO but has a heterogeneous top management team, it will maintain a stable strategy but will pursue it with innovation. If the top management team is homogeneous but an external CEO is chosen, the situation will be ambiguous. Finally, if the top management team is heterogeneous and an external CEO is chosen, strategic change is likely. PTS: 1 REF: p. 44|p. 46 (Figure 2.2) OBJ: 3 4. Describe the importance of core compe tencies in the pursuit of value creation and above -average returns. ANS: Core competencies are the resources and capabilities that serve as a source of c ompetitive advantage over rivals. Typically, core competencies refer to an organization’s functional skills. Strategic leaders must verify that their firm exploits its core competencies in the implementation of its strategies. In large, related diversified firms, core competencies are exploited effectively when they are shared across organizational units. PTS: 1 REF: p. 47 OBJ: 5 5. Define human capital and its importance to the firm’s efforts if these are to be successful. ANS: Human capital represents the knowledge and skills of the firm’s entire workforce. Effective strategic leaders view human capital as a resource to be maximized rather than as a cost to be minimized. As a result, the use of programs designed to train current and future leaders are needed if these leaders are to have the skills necessary to develop the remaining human capital of the firm. Programs that gain outstanding results in the training of future leaders can become a competitive advantage for a firm. PTS: 1 REF: p. 50|p. 51 OBJ: 6 6. Define organizational culture and discuss the ways in which a firm’s culture can be changed. ANS: Organizational culture is the set of ideologies, symbols, and core values that is shared throughout the organization and t hat influences the way the firm conducts its business. It is more difficult to change a firm’s culture than to sustain it. But effective strategic leadership recognizes when a change in a firm’s culture is often necessary. Incremental changes to the firm’s culture are typically used to implement strategies. Sometimes radical changes are used to support strategies that differ from the firm’s historical pattern. Shaping and reinforcing change in an organization’s culture require: communication and problem sol ving, selection processes that find people with the right values, effective performance appraisals, and appropriate reward systems. Change occurs when it is actively supported by the CEO, other top managers, and middle management. Selecting top managers fr om outside the corporation can also be a catalyst for change in a firm’s culture. PTS: 1 REF: p. 52|p. 53 OBJ: 8 7. Describe what strategic leaders can do to establish and emphasize ethical practices. ANS: Ethical practices should be institutionalized within the organization. That is, ethical practices should become the set of behavior commitments and actions accepted by the firm’s employees and other stakeholders. Strategic leaders can shape ethical practices in a firm by: (1) establishing and communicating specific goals to describe the firm’s ethical standards (e.g., developing and disseminating a code of conduct), (2) continuously revising and updating the code of conduct, based on inputs from people throughout the firm and from other stakeholders (e.g., customers and suppliers), (3) disseminating the code of conduct to all stakeholders to inform them of the firm’s ethical standards and practices, (4) developing and implementing methods and procedures to use in achieving the firm’s ethical standards (e.g., use of internal auditing practices that are consistent with the standards), (5) creating and using explicit rewa rd systems that recognize acts of courage (e.g., rewarding those who use proper channels and procedures to report observed wrongdoing), and (6) creating a work environment in which all people are treated with dignity. PTS: 1 REF: p. 55|p. 57 OBJ: 8 8. Describe organizational controls and discuss their use and importance. ANS: Controls are the formal, information -based procedures used by managers to mainta in or alter patterns in organizational activities. Controls provide the parameters within which strategies are to be implemented and corrective actions when adjustments are required. There are two main types of controls: financial and strategic. Financial controls focus on short -term financial outcomes. Strategic controls focus on the content of strategic actions. Financial controls give feedback about the outcomes of past actions. Strategic controls communicate the drivers of the firm’s future performance. The balanced scorecard approach allows firms to verify that they have established both strategic and financial controls. PTS: 1 REF: p. 58|p. 60 OBJ: 9