Business : Firm’s theory of how to gain competitive advantage

Subject: Business    / General Business
Question
1) A firm’s theory of how to gain competitive advantage in a single business or industry is known
as __________.
A.
value chain
B.
business strategy
C.
vertical integration
D.
backward vertical integration
E.
corporate strategy
2) A firm’s level of __________ is simply the number of steps in the value chain that a firm
accomplishes within its boundaries.
A.
corporate strategy
B.
forward vertical integration
C.
vertical integration
D.
backward vertical integration
E.
value chain
3) Which one of the following statements is NOT a true representation of the concept of
vertical integration?
A.
Firms that are more vertically integrated accomplish more stages of the value chain than less vertically
integrated ones.
B.
A firm engages in forward vertical integration when it incorporates more stages of the value chain.
C.
A firm’s level of vertical integration is simply the number of steps in the value chain. D.
Firms that are more vertically integrated accomplish fewer stages of the value chain within their
boundaries than firms that are more vertically integrated.
E.
4) A firm engages in backward vertical integration when it incorporates more stages of the value
chain.
Opportunism exists when a firm __________.
A.
gets a lower level of quality
B.
is unfairly exploited
C.
gets service on time
D.
follows a competitive advantage strategy
E.
is demanded a higher price than what was agreed
5) The threat of opportunism can be controlled by all of the following means EXCEPT __________.
A.
bring an exchange within the boundary of a firm
B.
bring an exchange closer to the ultimate suppliers
C.
rely on the market to manage the exchange
D.
vertically integrate into the exchange
E.
bring an exchange closer to the ultimate consumer 6) Which of the following statements is NOT true?
A.
A transaction-specific investment is any investment in an exchange that has significantly more value in
the current exchange than it does in alternative exchanges.
B.
If the cost of vertical integration is greater than the cost of opportunism, then firms should not vertically
integrate into an exchange.
C.
Firms should bring market exchanges within their boundaries only when the cost of vertical integration is
less than the cost of opportunism.
D.
A transaction-specific investment is any investment in an exchange that is more valuable in that particular
exchange than in alternative exchanges.
E.
The threat opportunism is lowest when a party to an exchange has made transaction-specific
investments. 7) An approach to vertical integration decisions focuses on a firm’s capabilities and its ability to
generate sustained competitive advantages. Implications of this approach include all of the
following applications EXCEPT __________.
A.
this perspective can lead to vertical integration that conflict with other decisions
B.
the approach suggests that firms should not vertically integrate into business activities where they
possess the resources necessary to gain competitive advantages
C.
firms should vertically integrate into those business activities where they possess valuable, rare,
and costly-to-imitate resources and capabilities
D.
if the business activities do not possess the resources necessary to gain competitive advantages, then it
would not be a source of profits
E.
the approach allows firms to appropriate at least some of the profits that using the capabilities to exploit
environmental opportunity will create 8) Which of the following statements is NOT true in relation to vertical integration and flexibility?
A.
Vertical integrating is less flexible.
B.
Flexibility refers to how costly it is for a firm to alter its strategic and organizational decisions.
C.
Flexibility is not always valuable.
D.
Flexibility is high when the cost of changing strategic choices is high.
E.
Flexibility is high when the cost of changing strategic choices is low.
9) Is vertical integration or no vertical integration less flexible?
A.
Vertical integration is more flexible than no vertical integration because undoing vertically integrating
decisions cannot be undone.
B.
Vertical integration is equally flexible than no vertical integration.
C.
Vertically integrating is more flexible because the firm has committed its organization structure,
management controls, and its compensation policies to vertically integrated ways.
D.
Vertically integrating is less flexible than not vertically integrating.
E.
Vertically integrating is more flexible than not vertically integrating.
10) Which one of the following statements is NOT true regarding vertically integrated firms or nonvertically integrated firm?
A.
If a vertically integrated firm decides to get out of a particular business, it will have to alter its supply
relationships and hurt customers.
B.
If a vertically integrated firm decides to get out of a particular business, it will have to change its internal
reporting structure. C.
If a non-vertically integrated firm decides to get out of business, it will have to alter its supply
relationships.
D.
If a vertically integrated firm decides to get out of a particular business, it will have to sell or close its
factories.
E.
The cost of exiting a non-vertically integrated business is generally much lower.
11) Which one of the following statements is a TRUE representation about flexibility and
vertical integration?
A.
If an exchange turns out not to be valuable, it is usually less costly for firms that have vertically integrated
into an exchange to exit compared to those that have not vertically integrated.
B.
A flexibility-based approach to vertical integration suggests that rather than vertically integrating into a
business activity whose value is highly uncertain, firms should vertically integrate to form a strategic
alliance.
C.
More vertical integration is better than less vertical integration.
D.
Vertically integrating into an exchange is more flexible than not vertically integrating into an exchange.
E.
Flexibility is not always valuable.
12) A flexibility-based approach suggests that rather than vertically integrating into a highly uncertain
business activity, firms should instead form a strategic alliance. All of the following statements
support this suggestion EXCEPT __________.
A.
if an uncertain exchange turns out to be very valuable, then maintaining an alliance can give a firm
access to scant upside potential
B.
a strategic alliance is more flexible than vertical integration
C.
if an uncertain investment turns out not to be valuable, parties to this alliance know the maximum amount
they can lose
D.
the downside risks associated with investing in a strategic alliance are known and fixed E.
the downside risks associated with investing in a strategic alliance is equal to the cost of creating and
maintaining the alliance
13) When applying opportunism-based explanations of vertical integration, and actual or
potential transaction-specific investments, all of the following statements are relevant
EXCEPT __________.
A.
when the call-center approach to providing customer service was first developed in the 1980s, it required
substantial levels of transaction-specific investment
B.
during developmental stages of call-center employee training was rather simple but very time consuming
and represented little transaction-specific investments on the part of call-center employees
C.
to provide service in call centers during their developmental stages, call-center employees would have to
be fully aware of all the problems likely to emerge with the use of a firm’s products
D.
high levels of investments suggest the need for vertical integration; low levels of investments suggest
vertically integrating is not necessary
E.
when call centers were first developed, a great deal of special-purpose equipment had to be purchased,
which can be considered as specific investment
14) What is the reason why the level of specific investment required by call center works is much
lower resulting vertical integration unnecessary?
A.
High levels of investments
B.
Development of information technology
C.
A great deal of special-purpose equipment purchase
D.
Less transaction-specific investment
E.
Complex and time-consuming training 15) Which of the following statements related to capabilities and managing call centers based on
opportunism is NOT true?
A.
With the development of information technology, how well a firm operates its call centers is a source of
competitive advantage.
B.
Currently, firms are getting out of the call-center management business to focus on sustained competitive
advantage.
C.
Currently, the ability to manage a call center is neither rare nor costly to imitate.
D.
In capability-based approaches, first consideration should be on valuable, rare, and costly-to-imitate
resources and capabilities.
E.
Currently, firms are getting out of the call-center management business, outsourcing this business to lowcost specialist firms.
16) Which of the following statements related to flexibility and managing call centers based on
opportunism is NOT true?
A.
Opportunism logic suggests starting with a search for transaction-specific investments.
B.
Flexibility logic suggests starting by looking for sources of uncertainty in an exchange.
C.
Flexibility logic focuses on sources of uncertainty in an exchange.
D.
Flexibility logic suggests starting with a search for valuable, rare, and costly-to-imitate resources and
capabilities.
E.
Capabilities logic suggests starting with a search for costly-to-imitate resources.
17) How can a firm, like call centers, have flexibility?
A.
By using technological solutions to solve complex problems
B.
By identifying superior solutions C.
By providing customer service through call centers
D.
By vertical integrating into call-center management
E.
By maintaining relationships with several different call-center companies
18) Which one of the following statements does NOT relate accurately to the integration of different
theories of vertical integration?
A.
All three explanations of vertical integration theories are complementary in nature.
B.
It is easier to apply one of the approaches to evaluate a firm’s vertical integration.
C.
There is a contradiction between the opportunism and capabilities explanations.
D.
All three explanations of vertical integration theories lead to different conclusions about vertical
integration.
E.
Three different explanations about how vertical integration can create value is confusing.
19) The three explanations of vertical integration theories contradict; however, they can be used
effectively as mentioned in the following statements EXCEPT __________.
A.
if opportunism-based explanations suggest vertical integration because of high transaction-specific
investments, the capabilities-based explanations cautions about the cost of developing resources and
capabilities
B.
if opportunism-based explanations suggest that vertical integration is necessary because of
high transaction-specific investments, flexibility concerns caution about the risks that committing to
vertical integration imply
C.
applying three explanations can create ethical dilemmas for a firm
D.
having multiple explanations can highlight trade-offs that a firm is making E.
the three explanations of vertical integration has several advantages
20) In order for vertical integration to be a source of sustained competitive advantage, a firm should
have all of the following attributes EXCEPT __________.
A.
it must be rare
B.
it must be less flexible
C.
it must be costly to imitate
D.
it should be valuable
E.
it must be organized to implement vertical integration correctly
21) A firm’s vertical integration strategy is rare or creates value if all of the listed conditions exist
EXCEPT __________.
A.
when few competing firms are able to create value
B.
when it is one of a large number of competing firms that is able to vertically integrate efficiently
C.
when it is one of a small number of firms that has a non-vertically integrated approach to managing an
exchange
D.
when it is one of a small number of competing firms that is able to vertically integrate efficiently
E.
when most of the firm’s competitors are not able to create value through vertical integration
22) For rare transaction-specific investment to have vertical integration, it should have __________.
A.
flexibility
B.
valuable and rare capabilities C.
developed unusual skills and capabilities
D.
some uncertainty it can resolve
E.
made a substantial investment in new technology or a new approach to doing business
23) Firms can gain competitive advantages through their decisions to vertically dis-integrate in the
following ways EXCEPT __________.
A.
when a particular exchange is costly to imitate
B.
whenever a firm is among the first in its industry to conclude that the level of specific investment is no
longer rare
C.
whenever the level of uncertainty about the value of an exchange has increased
D.
whenever a firm is among the first in its industry to conclude that the level of specific investment is no
longer high
E.
through the decision to outsource an activity
24) Which one of the following statements is NOT true in relation to resolving functional conflicts in a
vertically integrated firm?
A.
Conflicts can arise between functional mangers and accountants.
B.
Conflicts can arise between finance managers and human resource managers.
C.
Conflicts among functional managers in a U-form organization are both expected and normal.
D.
Conflicts can arise between manufacturing and sales managers.
E.
The task facing the CEO is to manage conflict resolution in a way that facilitates strategy formulation.
25) Creation of flexibility in a firm depends on employees being willing to engage in activities and,
therefore, the recommendations for compensation includes __________. A.
stock grants for corporate or group performance
B.
cash bonuses for individual performance
C.
stock options for individual, corporate, or group performance
D.
stock grants for individual performance
E.
cash bonuses for corporate or group performance