Strategic Management and Competitive Advantage: Concepts and Cases Sixth Edition Jay B. Barney William S. Hesterly Test Bank for Strategic Management and Competitive Advantage B y: Ram Subramanian 1 Strategic Management and Competitive Advantage, 6e (Barney) Chapter 1 What is Strategy and the Strategic Management Process? 1) A firm's ________ is defined as its theory about how to gain competitive advantages. A) objective B) mission C) vision D) strategy Answer: D Diff: 1 Page Ref: 4 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 2) A sequential set of analyses and choices that can increase the likelihood that a firm will choose a strategy that generates competitive advantages is the A) organizational change process. B) strategic management process. C) mission statement process. D) goal setting process. Answer: B Diff: 2 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 3) A firm's ________ is its long-term purpose that defines both what it aspires to be in the long run and what it wants to avoid in the meantime. A) mission B) strategy C) objective D) goal Answer: A Diff: 1 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 4) The strategic management process begins when a firm A) determines its objectives. B) defines its mission. C) makes a strategic choice. D) implements its strategy. Answer: B Diff: 2 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 2 5) Firms whose mission is central to all they do are known as ________ firms. A) missionary B) emergent C) parity D) visionary Answer: D Diff: 2 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 6) From 1926 to 1995, visionary firms earned ________ returns compared to firms that were not visionary firms. A) substantially lower B) substantially higher C) marginally lower D) equivalent Answer: B Diff: 2 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 7) The mission statements of visionary firms A) suggest that profit maximizing, while an important corporate objective, is not their primary reason for existence. B) suggest that profit maximizing is neither an important corporate objective nor their primary reason for existence. C) suggest that profit maximizing is their primary reason for existence. D) suggest that value maximizing is their primary reason of existence. Answer: A Diff: 2 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 8) Which of the following statements regarding firm mission is accurate? A) While some firms have used their missions to develop strategies that create significant competitive advantages, firm missions can hurt a firm's performance as well. B) Virtually all firms have used missions to develop strategies that create significant competitive advantages, while very few firms have used missions that can hurt their performance. C) It is very rare for firms to be able to use their missions to develop strategies that create significant competitive advantages, and most firm missions actually hurt their performance. D) Missions tend to have very little impact on a firm's ability to create significant competitive advantages. Answer: A Diff: 3 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 3 9) ________ are specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission. A) Strategies B) Missions C) Competitive advantages D) Objectives Answer: D Diff: 1 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 10) High quality objectives are those that are A) tightly connected to elements of a firm's mission and are relatively easy to measure and track over time. B) difficult to measure and track over time. C) non-existent. D) not quantitative. Answer: A Diff: 2 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 11) By conducting a(n) ________, a firm identifies the critical threats and opportunities in its competitive environment. A) internal analysis B) competitive analysis C) external analysis D) strategic choice Answer: C Diff: 1 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 12) ________ helps a firm understand which of its resources and capabilities are likely to be sources of competitive advantage. A) Competitive analysis B) Internal analysis C) Strategic choice D) External analysis Answer: B Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 4 13) Actions firms take to gain competitive advantages in a single market or industry are known as A) business level strategies. B) corporate level strategies. C) diversification strategies. D) strategy implementation. Answer: A Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 14) Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously are known as A) corporate level strategies. B) diversification strategies. C) business level strategies. D) strategic alliance strategies. Answer: A Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 15) ________ occurs when a firm adopts organizational policies and practices that are consistent with its strategy. A) Strategy formulation B) Strategic choice C) Strategy implementation D) Strategic control Answer: C Diff: 1 Page Ref: 8 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 16) Green Frog is an environmentally friendly firm in the cosmetics industry that has decided to undertake a strategic planning project. It wants to ensure that it performs the process correctly and so intends to start the process with the first step of the strategic planning process, which is A) defining its mission. B) setting objectives. C) measuring performance. D) defining its business level strategy. Answer: A Diff: 1 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Application of Knowledge 5 17) Green Frog is an environmentally friendly firm in the cosmetics industry. Even though Green Frog is environmentally friendly, the strategic planning team had decided that financial performance is one of the company's top priorities. Which of the following is the best example of an objective the company might use to help it achieve its goal of superior financial performance? A) increasing profitability B) growing market share annually C) improving product quality every quarter D) growth in earnings per share averaging 15% or better annually for the next five years Answer: D Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Application of Knowledge 18) Green Frog is an environmentally friendly firm in the cosmetics industry. If during the strategic planning process Green Frog tried to determine the critical threats and opportunities in its competitive environment, it would be performing a(n) A) internal analysis. B) external analysis. C) WACC analysis. D) economic analysis. Answer: B Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Application of Knowledge 19) Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog undertook an analysis to help it understand which of its resources and capabilities are likely to be sources of competitive advantage and which are less likely to sources of such advantages it would be performing a(n) A) internal analysis. B) external analysis. C) WACC analysis. D) economic analysis. Answer: A Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Application of Knowledge 6 20) Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog were considering expanding beyond the cosmetics industry into pharmaceuticals in order to gain competitive advantages by operating in multiple markets and industries, this would be an example of which type of strategy? A) business level strategy B) cost leadership strategy C) product differentiation strategy D) corporate level strategy Answer: D Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Application of Knowledge 21) One of the central questions that all strategic managers must address, regardless of the industry they work in, is "How is the industry likely to evolve?" Answer: TRUE Diff: 1 Page Ref: 4 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 22) There is complete consensus among strategic managers and academic researchers about what a "strategy" is. Answer: FALSE Diff: 1 Page Ref: 4 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 23) For the purposes of this book, a firm's strategy is defined as its theory about how to gain competitive advantages. Answer: TRUE Diff: 1 Page Ref: 4 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 24) A "good strategy" does not necessarily have to generate a competitive advantage. Answer: FALSE Diff: 2 Page Ref: 4 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 7 25) The greater the extent to which a firm's assumptions and hypotheses accurately describe how the competition in the industry is likely to evolve, and how that evolution can be exploited to earn a profit, the more likely it is that a firm will gain a competitive advantage from implementing its strategies. Answer: TRUE Diff: 1 Page Ref: 4 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 26) It is usually possible to know for sure that a firm is choosing the right strategy. Answer: FALSE Diff: 2 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 27) The strategic management process is a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy that generates competitive advantages. Answer: TRUE Diff: 1 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 28) The second step in the strategic management process is the definition of a firm's mission. Answer: FALSE Diff: 1 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 29) A firm's mission defines both what it wants to be in the long run and what it wants to avoid in the meantime. Answer: TRUE Diff: 1 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 30) Mission statements often contain so many common elements that even if a firm's mission statement does not influence behavior throughout an organization, it is likely to have a significant impact on a firm's actions. Answer: FALSE Diff: 2 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 8 31) Firms whose mission statement is central to all they do are known as missionary firms. Answer: FALSE Diff: 1 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 32) Visionary firms earn substantially higher returns than average firms because they acknowledge that profit maximizing is their primary reason for existence. Answer: FALSE Diff: 3 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 33) Mission statements that are very inwardly focused and are defined only with reference to the personal values and priorities of its founders and top managers can hurt a firm's performance. Answer: TRUE Diff: 2 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 34) Objectives are the specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission. Answer: TRUE Diff: 1 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 35) High quality objectives are tightly connected to the elements of a firm's mission but tend to be relatively difficult to measure and track over time. Answer: FALSE Diff: 3 Page Ref: 6 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 36) By conducting an external analysis, a firm identifies the critical threats and opportunities in the industry's competitive environment. Answer: TRUE Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 37) Corporate level strategies are actions firms take to gain competitive advantages in a single market or industry. Answer: FALSE Diff: 1 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 9 38) Business level strategies are actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously. Answer: FALSE Diff: 1 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 39) Strategy implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy. Answer: TRUE Diff: 1 Page Ref: 8 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 40) Define the term "strategy," discuss the set of assumptions and hypotheses that a strategy is based on and discuss what makes a good strategy. Answer: A firm's strategy is defined as its theory about how to gain competitive advantages. This theory is based on a set of assumptions and hypotheses about how competition in this industry is likely to evolve and how that evolution can be exploited to earn a profit. To the extent that these assumptions and hypotheses accurately describe how competition in this industry actually evolves, the more likely it is that a firm will gain a competitive advantage from implementing its strategies. Thus, a "good strategy" is a strategy that actually generates such advantages. Diff: 2 Page Ref: 4 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 41) Define the term "mission" and discuss how a firm's mission can both positively and negatively impact a firm's performance. Answer: A firm's mission is its long-term purpose and it defines both what a firm aspires to be in the long run and what it wants to avoid in the meantime. If a mission statement does not influence firm behavior, it is unlikely to have an impact on a firm's actions. However, visionary firms, or firms whose mission is central to all they do, tend to earn substantially higher returns than average over the long run even though their mission statements suggest that profit maximization is not their primary reason for existence. However, missions that are inwardly focused and defined only with reference to the personal values and priorities of their founders or top managers, independent of whether or not those values and priorities are consistent with the economic realities facing a firm, are not likely to be a source of competitive advantage. Diff: 2 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 10 42) What are objectives, what role do they play in the strategic management process and what differentiates high quality objectives from low quality objectives? Answer: Objectives are specific measurable targets a firm can use to evaluate the extent to which it is realizing its mission. High quality objectives are tightly connected to elements of a firm's mission and are relatively easy to measure and track over time. Low quality objectives either do not exist or are not connected to elements of a firm's mission, are not quantitative, or are difficult to measure or are difficult to track over time. Diff: 2 Page Ref: 5 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 43) Differentiate between business level and corporate level strategies and give examples of each. Answer: Business level strategies are actions firms take to gain competitive advantages in a single market or industry. The two most common business level strategies are cost leadership, such as Wal-Mart, and product differentiation, such as Tiffany's. Corporate level strategies are actions firms take to gain competitive advantages in multiple markets or industries simultaneously. Common corporate level strategies include vertical integration strategies, diversification strategies, strategic alliance strategies and merger and acquisition strategies. Diff: 2 Page Ref: 7 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 44) Define strategy implementation and discuss three specific organizational policies and practices that are particularly important in implementing a strategy. Answer: Strategy implementation occurs when a firm adopts organizational policies and practices that are consistent with its strategy. Three specific organizational policies and practices are particularly important in implementing a strategy: a firm's formal organizational structure, its formal and informal management control systems, and employee compensation policies. Diff: 2 Page Ref: 8 Learning Obj.: 1.1: Define Strategy and Describe the Strategic Management Process. AACSB: Analytical Thinking 45) When a firm is able to create more economic value than rival firms it is said to have a(n) A) comparative advantage. B) competitive advantage. C) residual advantage. D) economic advantage. Answer: B Diff: 2 Page Ref: 8 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 11 46) The difference between what customers are willing to pay for a firm's products or services and the full economic cost of these products or services is the A) value proposition. B) cost advantage. C) economic value. D) competitive advantage. Answer: C Diff: 1 Page Ref: 8 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 47) If TechnoGeek and VarsityBlue compete in the same market for the same customer and TechnoGeek generates $900 of economic value each time it sells a product or service while VarsityBlue generates $400 of economic value each time it sells a product or service, TechnoGeek has a(n) ________ of $500. A) perceived benefit B) economic value C) cost advantage D) competitive advantage Answer: D Diff: 3 Page Ref: 8 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Application of Knowledge 48) A competitive advantage that lasts a very short period of time is known as a ________ competitive advantage. A) temporary B) sustained C) transient D) perpetual Answer: A Diff: 1 Page Ref: 9 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 12 49) Firms that generate less economic value than their rivals experience a competitive A) advantage. B) parity. C) disadvantage. D) perceived benefit. Answer: C Diff: 2 Page Ref: 9 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 50) In many ways, the difference between traditional economics research and strategic management research is that the former attempts to explain why ________, while the latter attempts to explain ________. A) competitive advantages should not persist; when they can B) competitive advantages should persist; when they can C) competitive advantages should persist; why they should not D) competitive parity should not persist; why they should Answer: A Diff: 3 Page Ref: 10 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 51) One of the first scholars to examine the longevity of competitive advantage was A) Dennis Mueller. B) Geoffrey Waring. C) Peter Roberts. D) Rich Houston. Answer: A Diff: 3 Page Ref: 10 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 52) The ultimate objective of the strategic management process is to enable a firm to choose and implement a strategy that leads to a competitive advantage. Answer: TRUE Diff: 1 Page Ref: 8 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 13 53) The size of a firm's competitive advantage is the sum of the economic value a firm is able to create and the economic value rivals are able to create. Answer: FALSE Diff: 2 Page Ref: 8 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 54) A sustained competitive advantage is virtually permanent. Answer: FALSE Diff: 2 Page Ref: 9 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 55) Waring found that firms that operate in industries that are informationally complex, require customers to know a great deal in order to use the industry's products, require a great deal of R & D, and have significant economies of scale are more likely to have sustained competitive advantage than those firms in industries without those characteristics. Answer: TRUE Diff: 3 Page Ref: 10 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 56) Discuss a firm's competitive advantage. Identify when a firm has a competitive advantage and distinguish between a temporary competitive advantage and a sustainable competitive advantage. Answer: In general, a firm has a competitive advantage when it is able to generate more economic value than rival firms. A temporary competitive advantage is a competitive advantage that lasts a very short period of time while a sustained competitive advantage lasts much longer. Diff: 2 Page Ref: 8 Learning Obj.: 1.2: Define Competitive Advantage and Explain its Relationship to Economic Value Creation. AACSB: Analytical Thinking 57) The center of Osterwalder and Pigneur's business model canvas is the A) parity point. B) value proposition. C) competitive advantage. D) strategy box. Answer: B Diff: 1 Page Ref: 12 Learning Obj.: 1.3: Describe Two Different Approaches to Measuring Competitive Advantage. AACSB: Analytical Thinking 14 58) The two types of measures of competitive advantage include A) accounting measures and strategic measures. B) strategic measures and economic measures. C) accounting measures and economic measures. D) qualitative measures and quantitative measures. Answer: C Diff: 2 Page Ref: 11 Learning Obj.: 1.3: Describe Two Different Approaches to Measuring Competitive Advantage. AACSB: Analytical Thinking 59) A firm's ________ is a measure of its competitive advantage calculated using information from a firm's published profit and loss and balance sheet statements. A) economic performance B) accounting performance C) strategic performance D) sustainable performance Answer: B Diff: 2 Page Ref: 11 Learning Obj.: 1.3: Describe Two Different Approaches to Measuring Competitive Advantage. AACSB: Analytical Thinking 60) ________ are ratios with some measure of profit in the numerator and some measure of firms' size or assets in the denominator. A) Liquidity ratios B) Leverage ratios C) Activity ratios D) Profitability ratios Answer: D Diff: 1 Page Ref: 14 Learning Obj.: 1.3: Describe Two Different Approaches to Measuring Competitive Advantage. AACSB: Analytical Thinking 61) Ratios that focus on the level of a firm's financial flexibility, including its ability to obtain more debt, are known as A) leverage ratios. B) liquidity ratios. C) activity ratios. D) profitability ratios. Answer: A Diff: 1 Page Ref: 14 Learning Obj.: 1.3: Describe Two Different Approaches to Measuring Competitive Advantage. AACSB: Analytical Thinking