Sm Exam - 2015-12-14

The core of a firm's business environment is determined by its relationships with customers, competitors, and suppliers. These three groups play a crucial role in shaping the success and growth of a business. Customers provide the demand for the firm's products or services, while competitors drive the need for innovation and differentiation. Suppliers, on the other hand, are essential for the procurement of necessary resources. By maintaining strong relationships with these key stakeholders, a firm can effectively navigate its business environment and ensure long-term sustainability and profitability.

Reputation in the context of an organization's resources can provide a competitive advantage because it is difficult to copy. Unlike tangible resources that can be replicated or imitated, reputation is built over time through consistent delivery of quality products or services, positive customer experiences, and strong relationships with stakeholders. This intangible asset cannot be easily replicated by competitors, making it a valuable and sustainable advantage for the organization. Additionally, a strong reputation can enhance customer loyalty, attract new customers through positive word-of-mouth, and differentiate the organization from its competitors.

The correct answer is option 1. Corporate culture refers to the attitudes and values that managers wish to encourage, while organizational culture refers to the attitudes and values that exist in the informal organizational setting. These two terms are not used interchangeably and have distinct meanings.

The given answer is true because it acknowledges that Porter's 5 forces model, like any other model, has its limitations and may not provide answers to all possible questions. Models are simplifications of reality and cannot capture every aspect of a complex situation. Therefore, it is important to recognize that while the model may be useful in analyzing competitive forces in an industry, it may not be able to address all the nuances and complexities of a specific situation.

Diversification refers to the strategy of investing in a variety of assets to reduce risk and increase potential returns. The benefits of diversification include growth, as it allows investors to tap into different industries and sectors that have the potential for growth. Additionally, diversification helps in reducing risk by spreading investments across different assets, which minimizes the impact of any single investment's performance. Lastly, diversification can lead to value creation as it allows investors to take advantage of different market opportunities and optimize their portfolio returns.

The correct answer is that an industry life cycle may never enter the decline phase in industries supplying basic essential products or services. This is because industries that provide essential products or services will always have a demand, even if the market becomes saturated or competition increases. These industries are less likely to decline because they cater to fundamental needs and are considered essential for consumers.

The different stages of the industry life cycles are characterized by the evolution of the industry growth rate over time. This means that the industry growth rate will change and vary as the industry progresses through different stages such as introduction, growth, maturity, and decline. The growth rate may start off slow and then accelerate during the growth stage, and eventually slow down or decline in the maturity and decline stages. This evolution of the growth rate is a key factor in understanding the dynamics and trends of an industry over time.

The "better off" test is the most important one of Michael Porter's 3 tests of whether a proposed diversification will create value. This test assesses whether the diversification will result in the company being better off in terms of competitive advantage, profitability, and overall performance. It focuses on the potential benefits and advantages that the diversification can bring to the company. The other two tests, the "attractiveness" test and the "cost of entry" test, are also important but the "better off" test is considered the most crucial as it directly evaluates the value creation potential of the diversification.

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All of the options listed - financial control, research and development, and marketing - are typically viewed as functional areas of firm activity. Financial control involves managing and monitoring the financial aspects of a company, such as budgeting, accounting, and financial reporting. Research and development focuses on creating and improving products or services through innovation and technological advancements. Marketing involves activities aimed at promoting and selling products or services, including market research, advertising, and sales. Therefore, all three options are considered functional areas within a firm.

The correct answer is that all three of the above concepts are relevant. The scope of a firm's activities can be analyzed by considering economies of scope, transaction costs, and corporate costs. Economies of scope refer to the cost advantages that a firm can achieve by producing a variety of products or services. Transaction costs are the costs associated with conducting business transactions, such as negotiating and monitoring contracts. Corporate costs include the overhead expenses that a firm incurs, such as administrative and managerial costs. Considering all three concepts is important in understanding the scope of a firm's activities.

The correct answer explains that the geographical scope of a firm refers to the regions of the world where the firm is present, while the vertical scope refers to the stages of the industry value chain that the firm performs itself. This means that the firm's geographical scope is about its global presence, while its vertical scope is about the specific activities it undertakes within the industry value chain. The answer clarifies the distinction between these two concepts.

The correct answer suggests that a firm considering diversifying into another industry should be able to see a way to make superior profits in that industry. This means that the firm should have a clear understanding of how they can outperform competitors and generate higher profits in the new industry. This is an important factor to consider before entering a new industry, as it indicates the potential for success and profitability.

Stakeholder analysis is a useful tool for identifying, understanding, and prioritizing the needs of key stakeholders. This process involves identifying all individuals or groups that have an interest in or are affected by a project or organization. By conducting a stakeholder analysis, the organization can gain insights into the expectations, concerns, and interests of these stakeholders. This information can then be used to prioritize their needs and develop strategies to effectively engage and manage their involvement in the project or organization.

The correct answer is "determine how the firm will deploy its resources to satisfy its long term goals, given the conditions in the competitive environment." This answer accurately reflects the fundamental role of strategy, which is to plan and allocate resources in order to achieve long-term goals while considering the competitive landscape. It emphasizes the importance of aligning the firm's resources with its long-term objectives and adapting to the conditions in the competitive environment.

A strategic fit refers to the alignment between a firm's strategy and both its internal and external environment. When a firm's strategy is consistent with its internal capabilities and resources, as well as the external market conditions and customer needs, it achieves a strategic fit. This ensures that the firm is well-positioned to effectively compete in the market and achieve its goals. Therefore, the correct answer is a strategic fit.

The statement suggests that there is no universally accepted definition of what constitutes an "industry." This implies that different people or organizations may have different interpretations or criteria for categorizing an industry. Therefore, the statement is true as it acknowledges the lack of a single absolute definition for the term "industry."

The statement is false because key success factors are not solely defined by the market and customers. While the market and customers play a significant role in determining success factors, the company itself also has an important role in identifying and shaping these factors. The company's internal capabilities, resources, and strategies also contribute to defining key success factors. Therefore, it is not accurate to say that they are solely defined by the market and customers.

To gain the advantage from economies of scope, a company needs to be able to spread costs and resources across multiple activities. This can be achieved by either performing the additional activity internally or by licensing the necessary resources. This allows the company to benefit from cost savings and efficiencies that come from sharing resources and capabilities across different business areas.

Industry attractiveness refers to the overall profitability of the industry. This means that the term "industry attractiveness" in Porter's five forces framework is used to assess how profitable and financially rewarding the industry is for all the firms operating within it. It does not specifically refer to the appeal of the industry to a particular firm, the potential for one firm to dominate the industry, or the extent to which the industry draws in new entrants.

Change in an industry is the result of both external forces and the incumbents competitive strategies. External forces refer to factors such as technology advancements, shifts in consumer preferences, and overall economic growth that can significantly impact an industry. On the other hand, incumbents' competitive strategies, such as innovation, pricing, and marketing tactics, also play a crucial role in driving change within the industry. Therefore, change in an industry is a combination of external forces and the actions taken by the existing players to stay competitive and adapt to the changing environment.

The profits earned by firms in an industry are determined by multiple factors. These factors include the value of the product for customers, which indicates the demand and willingness to pay for the product. The intensity of competition also plays a role, as high competition can drive down prices and reduce profit margins. Additionally, the relative bargaining power of producers, suppliers, and buyers can impact profits. If producers have more bargaining power, they can negotiate better prices and terms, leading to higher profits. Therefore, the combination of these factors influences the profits earned by firms in an industry.

When valuing a firm's tangible resources, it is important to understand their potential for creating a competitive advantage. This means that we need to assess how these resources can give the firm an edge over its competitors and contribute to its long-term success. Simply relying on the historic cost book value or updating the assets to current cost does not provide insight into their strategic value. Additionally, while professional accountants may be involved in the valuation process, their role is not the main focus when considering the potential for competitive advantage.

The three characteristics of resources and capabilities that determine the sustainability of the competitive advantage they offer are durability, transferability, and replicability. Durability refers to the ability of the resource or capability to withstand competition and remain valuable over time. Transferability refers to the ability to transfer or apply the resource or capability to different contexts or markets. Replicability refers to the ease with which competitors can imitate or replicate the resource or capability. These three factors are crucial in determining the long-term advantage that a company can derive from its resources and capabilities.

A team-based organizational structure is characterized by a flat hierarchy, meaning that there are fewer levels of management and decision-making authority is distributed among team members. It also involves little formalization, meaning that there are fewer rigid rules and procedures, allowing for more flexibility and adaptability. Additionally, self-directed work teams are a key feature of this structure, where teams have autonomy and responsibility for their own work and decision-making. Therefore, all of the given options - flat hierarchy, little formalization, and self-directed work teams - are characteristics of a team-based organizational structure.

The explanation for the given correct answer is that in order to stop rivals from acquiring a core resource or capability, firms must make that resource or capability immobile. This means that the firm needs to make it difficult for rivals to replicate or access the resource or capability. This can be achieved through various means such as securing patents or copyrights, creating barriers to entry, or establishing exclusive partnerships or contracts. By making the resource or capability immobile, the firm can maintain a competitive advantage and prevent rivals from easily obtaining the same advantage.

The correct answer is "success in achieving long-term goals". This is because strategy is the plan or approach that an organization uses to achieve its long-term objectives. The ultimate measure of success in strategy is the ability to accomplish these goals over a sustained period of time. Therefore, being better than rivals, satisfying in achieving long-term goals, and being an excellent "corporate citizen" are all important aspects of strategy, but they are ultimately means to the end of achieving long-term success.

The answer provided suggests that the two basic questions in corporate and business strategy are related to where and how to compete. This implies that organizations need to determine the markets or industries in which they will compete (where) and the strategies or approaches they will use to gain a competitive advantage (how). This understanding helps organizations identify the best arenas and structures to compete in and determine the timing and location of their competitive activities.

A mission statement is a basic statement of the organization's purpose. It serves as a concise declaration of why the company exists and what it aims to achieve. It provides clarity and direction to both internal and external stakeholders by outlining the fundamental reason for the organization's existence. A well-crafted mission statement helps guide decision-making, shapes the company's culture, and serves as a foundation for setting goals and strategies.

PEST is a framework used to categorize key elements of an organization's external environment. PEST stands for Political, Economic, Social, and Technological factors. It helps organizations analyze and understand the external factors that can impact their business operations and strategies. By considering these factors, organizations can identify opportunities and threats in the market and make informed decisions to adapt and succeed in their environment.

The GE/McKinsey Matrix is a tool used to analyze the attractiveness of different industries. It considers various factors to determine industry attractiveness, such as market growth rate, international potential, and the cyclical nature of the industry. However, relative market share is NOT a factor to be included in industry attractiveness according to this matrix.

The decline phase of the industry life cycle is caused by the emergence of a radically better substitute product, representing a new industry. This means that when a new product comes into the market that is significantly better than the existing products, consumers tend to switch to the new product, leading to a decline in demand for the older products. As a result, the industry that produces the older products starts to decline as it becomes less profitable and less competitive. This is a common pattern seen in many industries where technological advancements or innovation play a significant role.

A new industry life cycle begins when new knowledge manifests itself in the guise of a sufficiently radical product innovation. This means that when there is a breakthrough in knowledge that leads to the development of a highly innovative product, it can create a new industry. This innovation disrupts the existing market and creates a gap that needs to be filled. This is the starting point for a new industry to emerge and grow. The other options, such as a large gap in the market, the death of another industry, or the presence of sufficient entrepreneurs, may be factors that contribute to the success of the new industry, but they are not the direct cause for its beginning.

Distinctive or core competences enable a firm to earn higher profits or greater market share than its competitors in the same industry. These competences are unique to the firm and set it apart from others in the industry. They give the firm a competitive advantage and allow it to attract more customers and generate more revenue. By leveraging these competences effectively, the firm can achieve higher profitability and market dominance in its industry.

Firms that have succeeded in the long run have developed complex, multi-layered sources of competitive advantage. This means that they have not relied on a single strategy or advantage, but have instead built a combination of factors that set them apart from their competitors. These sources of competitive advantage could include things like unique technology, strong brand reputation, efficient supply chains, or exclusive partnerships. By having multiple layers of advantage, these firms are able to adapt to changing market conditions and maintain their success over time.

When a firm moves to own more stages of the value chain, either upstream or downstream of its core activity, it becomes more vertically integrated. This means that the firm is expanding its operations to include more aspects of the production process, either by acquiring suppliers or distributors (upstream) or by acquiring retail or distribution channels (downstream). By doing so, the firm can have more control over its supply chain, reduce costs, improve efficiency, and gain a competitive advantage in the market.

Dynamic capabilities refer to an organization's ability to adapt and change in response to the rapidly changing business environment. In today's fast-paced and competitive market, dynamism is crucial for success. It allows companies to quickly seize new opportunities, respond to emerging trends, and stay ahead of their competitors. By being flexible and agile, organizations with dynamic capabilities can effectively navigate uncertainty and drive innovation. This ability to adapt and evolve is highly valuable as it enables businesses to stay relevant, create new value-added products or services, and ultimately achieve long-term success.

Strategy formulation and implementation are highly interdependent because they are closely connected and rely on each other for success. Strategy formulation involves developing a plan and making decisions about the goals and objectives of an organization, while implementation involves putting that plan into action. Without a well-formulated strategy, implementation may lack direction and purpose. Similarly, without effective implementation, even the best strategy may fail to achieve its intended outcomes. Therefore, strategy formulation and implementation are intertwined and mutually reliant on each other for achieving organizational goals.

Corporate strategy and business strategy concern the scope of the firm's activities and how the firm competes in its chosen areas respectively. Corporate strategy focuses on the overall direction and scope of the entire organization, including decisions such as diversification, acquisitions, and resource allocation. Business strategy, on the other hand, is concerned with how a specific business unit or division competes within its industry, including decisions on market positioning, competitive advantage, and value creation. While both strategies are related to achieving long-term objectives, they operate at different levels within the organization.

A network organizational structure is characterized by coordination through bilateral and multilateral adjustment. This means that in a network structure, coordination and integration are achieved through collaboration and communication between different units or individuals. This structure allows for flexibility and adaptability as decisions and adjustments are made through mutual agreement and cooperation rather than relying solely on central directives. This promotes a more decentralized and collaborative approach to decision-making and problem-solving within the organization.