Chapter 1 Above-average returns are returns in excess of what an investor expects to earn from other investments with a similar

amount of risk. Average returns are returns equal to those an investor expects to earn from other investments with a similar amount of risk. A capability is the capacity for a set of resources to perform a task or an activity in an integrative manner. A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate. Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals. A global economy is one in which goods, services, people, skills, and ideas move freely across geographic borders. A mission specifies the business or businesses in which the firm intends to compete and the customers it intends to serve. Organizational culture refers to the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business. A profit pool entails the total profits earned in an industry at all points along the value chain. Resources are inputs into a firm's production process, such as capital equipment, the skills of individual employees, patents, finances, and talented managers. Risk is an investor's uncertainty about the economic gains or losses that will result from a particular investment. 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. Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. Strategic flexibility is a set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain

competitive environment. Strategic leaders are people located in different parts of the firm using the strategic management process to help the firm reach its vision and mission. The strategic management process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. 1. When a firm successfully formulates and implements a valuecreating strategy, it creates: strategic competitiveness. 2. Above-average returns are: d. profits greater than an investor expects to earn from other investments with a similar level of risk. 3. Apple has reemerged as a significant player in the computer industry, a regeneration attributed mainly to: c. the development of capabilities in innovation. 4. One effect of globalization is: d. increased product quality. 5. The rate of technological diffusion is increasing. Other than the Internet, which of the following was fastest in penetrating 25 percent of homes in the United States market? c. personal computer 6. A central premise of the industrial organization (I/O) model is that: a. the key factor in success is choosing the correct industry in which to compete. 7. Firms competing under the resource-based view of the firm: c. emphasize that it is difficult to develop and sustain a competitive advantage based on resources alone. 8. A firm's mission: a. is a statement of a firm's business in which it intends to compete and the customers which it intends to serve.

9. Capital market stakeholders include all of the following EXCEPT: c. former employees. 10. A profit pool is: b. the total profits earned in an industry along all points of the value chain. Chapter 2 Competitor intelligence is the set of data and information the firm gathers to better understand and better anticipate competitors' objectives, strategies, assumptions, and capabilities. Complementors are the network of companies that sell complementary goods or services or are compatible with the focal firm's own product or service. The demographic segment is concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution. The economic environment refers to the nature and direction of the economy in which a firm competes or may compete. The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. The global segment includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets. An industry is a group of firms producing products that are close substitutes. The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors. An opportunity is a condition in the general environment that, if exploited, helps a company achieve strategic competitiveness. The political/legal segment is the arena in which organizations

and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations. The sociocultural segment is concerned with a society's attitudes and cultural values. A strategic group is a set of firms emphasizing similar strategic dimensions to use a similar strategy. The technological segment includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials. A threat is a condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness. 1. Wal-Mart is the nation's largest employer and second-largest company by revenue. What does this suggest about the industry's structure? Wal-Mart can exert considerable pressure as a buyer. 2. An environment, which is composed of elements in the broader society that can influence an industry and the firms within it, is the ________ environment. d. general 3. The general environment consists of each of the following factors EXCEPT: c. substitute products. 4. The analysis process includes each of the following activities EXCEPT: b. deciphering. 5. An analysis of the economic segment of the external environment would NOT include: d. the power of banks to increase service charges on checking accounts. 6. An industry is best described as consisting of: d. a group of firms producing products that are close substitutes. 7. Which of the following is NOT an entry barrier to an industry? d. bargaining power of buyers 8. When firms compete aggressively trying to attract competitors' customers from rivals, it is an indication of: b. slow industry growth.

9. Firms within strategic groups: b. have similar strategies. 10. Competitor intelligence could ethically come from all the following EXCEPT: d. wiretapping Chapter 3 Costly-to-imitate capabilities are capabilities that other firms cannot easily develop. A global mind-set is the ability to study an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context. Intangible resources include assets that are rooted deeply in the firm's history and have accumulated over time. Non-substitutable capabilities are capabilities that do not have strategic equivalents. Outsourcing is the purchase of a value-creating activity from an external supplier. Primary activities are involved with a product's physical creation, its sale and distribution to buyers, and its service after the sale. Rare capabilities are capabilities that few, if any, competitors possess. Support activities provide the assistance necessary for the primary activities to take place. Tangible resources are assets that can be seen and quantified. Valuable capabilities allow the firm to exploit opportunities or neutralize threats in its external environment. Value is measured by a product's performance characteristics and by its attributes for which customers are willing to pay. 1. The criticism of 3M's reduced spending on research and development best reflects concerns over which of the following? b. A reduction in the firm's capability for innovation. 2. Which of the following does not affect the sustainability of a

competitive advantage? d. The durability of the capability over rival technologies. 3. Three conditions characterize difficult managerial decisions concerning resources, capabilities, and core competencies. What are those conditions? b. uncertainty, complexity, and intraorganizational conflicts 4. Which of the following organizational characteristics are most numerous? a. resources 5. Which of the following can be accurately viewed as a firm's ability to take action? c. core competencies 6. Within a firm, capabilities: d. are often developed in specific functional areas. 7. A capability that another firm cannot easily develop would be classified as: a. costly to imitate. 8. Firms that achieve competitive parity can expect to: b. earn an average level of average returns. 9. Which of the following would be classified as a value chain support activity? d. The recruiting, hiring, and training of personnel. 10. Ultimately, the cause of all core rigidities can be traced to what? c. Strategic myopia and managerial inflexibility. Chapter 4
A business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.

The cost leadership strategy is an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors. The differentiation strategy is an integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them. The focus strategy is an integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment.

The integrated cost leadership/differentiation strategy involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation. Market segmentation is a process used to cluster people with similar needs into individual and identifiable groups. Total quality management (TQM) is a managerial innovation that emphasizes an organization's total commitment to the customer and to continuous improvement of every process through the use of datadriven, problem-solving approaches based on empowerment of employee groups and teams.

1. Business-level strategies detail commitments and actions taken to provide value to customers and gain competitive advantage by exploiting core competencies: in specific product markets. 2. Using Internet technology and e-commerce to increase information volume, Amazon has built a cost effective capability around information exchanges with its customers. This represents which of the three dimensions of service? Richness 3. In order to meet and exceed customer expectations, firms must: continuously improve, innovate, and upgrade their core competencies. 4. Value creating strategies satisfy customer needs through: core competencies. 5. A company using a business strategy with a narrow scope: seeks to limit the group of customer segments served. 6. An effective cost leader seeks to continually improve levels of efficiency to enhance profit margins. Which of the following elements of industry structure does this affect most directly? Potential entrants 7. A service that is effectively differentiated from that offered by rivals has qualities that are: perceived by the customer to add value for which they are willing to pay a premium. 8. Which of the following is NOT a common risk associated with the differentiation strategy? Suppliers of raw materials erode a firm's profit margin with price increases. 9. Focus strategies: face different types of risks than industrywide strategies. 10. The business strategy that benefits the most from

investments in TQM is: integrated costleadership/differentiation.