Strategy, Business Models, and Competitive Advantage (Answers)

Essentials of Strategic Management, Strategy, Business Models, and Competitive Advantage 1) Managers in all types of businesses must develop a clear answer for which of the following questions? A) Where are we now? B) Where do we want to go from here? C) What is the set of actions that we need to take to outperform the company's competitors and achieve superior profitability? D) When will we know we are there? E) What moves and approaches do we need to gain an advantage in the marketplace? Answer: C Explanation: A company's strategy is the set of actions that its managers need to take to outperform the company's competitors and achieve superior profitability. 2) A company's strategy consists of A) actions to develop a more appealing business model than rivals. B) plans involving alignment of organizational activities and strategic objectives. C) offensive and defensive moves to generate revenues and increase profit margins. D) competitive moves and approaches that managers have developed to grow the business, attract and please customers, conduct operations, and achieve targeted objectives. E) its strategic vision, its strategic objectives, and its strategic intent. Answer: D Explanation: A strategy stands a chance of succeeding only when it is predicated on actions, business approaches, and competitive moves aimed at appealing to buyers in ways that set a company apart from rivals. 3) The competitive moves and business approaches a company's management is using to grow the business, compete successfully, attract and please customers, conduct operations, respond to changing economic and market conditions, and achieve organizational objectives is referred to as its A) strategy. B) moves to imitate key rivals. C) strategic mission. D) business model. E) strategic vision. Answer: A Explanation: A strategy is predicated on actions, business approaches, and competitive moves aimed at appealing to buyers in ways that set a company apart from rivals. Simply trying to mimic the strategies of the industry's successful companies never works. 4) The essence of strategy is A) developing lasting success that can support growth and secure the company's future over the long term. B) recreating a business model with regularity. C) matching rival businesses' products and quality dimensions in the marketplace. D) building profits for short-term success. E) realigning the market to provoke change in rival companies. Answer: A Explanation: Strategy at its essence is about setting a company apart from its rivals and staking out a market position that is not crowded with strong competitors. A company aims at doing what rivals cannot or do not do. 5) A company's strategy has a chance of succeeding only when it is predicated on A) building revenues, controlling costs, and generating an attractive profit. B) actions, business approaches, and competitive moves aimed at appealing to buyers and setting the company apart from rivals. C) management's concepts of "where we have been," "where we are headed," and "where we need to go." D) the approval of a business model by a company's board of directors that spells out how to outcompete its rivals and make the company profitable. E) educated choices that management has made regarding which financial and operating plans to pursue. Answer: B Explanation: Strategy spells out why the company matters in the marketplace by defining its approach to creating superior value for customers and how capabilities and resources will be employed to deliver the desired value to customers. In effect, the crafting of a strategy represents a managerial commitment to pursuing an array of choices about how to compete. 6) Which of the following is not something a company's strategy is concerned with? A) Management's choices about how to attract and please customers B) Management's choices about how quickly and closely to copy the strategies being used by successful rival companies C) Management's choices about how to grow the business D) Management's choices about how to outcompete rivals E) Management's action plan for conducting operations and improving the company's strategic and financial performance Answer: B Explanation: Simply trying to mimic the strategies of the industry's successful companies never works. Rather, every company's strategy needs to have some distinctive element that draws in customers and produces a competitive edge. 7) Which of the following is not an element of a company's business strategy? A) Actions to respond to changing market conditions or other external factors B) Actions to strengthen competitiveness via strategic alliances and collaborative partnerships C) Actions to strengthen internal capabilities and competitively valuable resources D) Actions to manage the functional areas of the business E) Actions to revise the company's financial and strategic performance targets Answer: E Explanation: A company's strategy focuses on how to achieve (not raise) the company's performance targets. 8) Which of the following is an issue not likely to be addressed by a company's business strategy? A) Actions to respond to changing economic and market conditions B) Actions to supplement the company's resources and capabilities through alliances and joint ventures C) Reactions to offensive moves by rival sellers D) Actions and approaches used in managing the functional areas of the business E) Actions and approaches to mimic rivals' moves in the marketplace Answer: E Explanation: The evolving nature of a company's strategy means the typical company strategy is a blend of (1) proactive moves to improve the company's financial performance and secure a competitive edge, and (2) adaptive reactions to unanticipated developments and fresh market conditions. 9) The most important aspect(s) of a company's business strategy A) are the actions and moves in the marketplace that managers take to gain a sustainable competitive advantage. B) is figuring out how to maximize profits and shareholder value. C) concerns how to improve the efficiency of its business model. D) deals with how management plans to maximize profits while, at the same time, operating in a socially responsible manner. E) is figuring out how to become the industry's low-cost provider. Answer: A Explanation: A sustainable competitive advantage allows a company to attract sufficiently large numbers of buyers who have a lasting preference for its products or services over those offered by rivals, despite the efforts of competitors to offset that appeal and overcome the company's advantage. 10) A creative, distinctive strategy that delivers a sustainable, competitive advantage is important because A) without a proven strategy, a company is likely to fall into bankruptcy. B) without a competitive advantage, a company cannot have a profitable business model. C) a strategy that yields a competitive advantage over rivals is a company's most reliable means of achieving above-average profitability and financial performance. D) a competitive advantage is what enables a company to achieve its strategic objectives. E) how a company goes about trying to please customers and outcompete rivals is what enables senior managers to choose an appropriate strategic vision for the company. Answer: C Explanation: The bigger and more durable the competitive advantage, the better a company's prospects for winning in the marketplace and earning superior long-term profits relative to its rivals. 11) A company's business model A) specifies the goals of above-average profitability and outstanding financial performance. B) is unrelated to its customer value proposition and profit formula. C) has nothing to do with whether it can execute its customer value proposition profitably. D) is management's blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit. E) specifies exactly how it intends to outcompete its rivals to achieve its strategic vision. Answer: D Explanation: A company's business model is management's blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit. A business model consists of two elements: (1) its customer value proposition and (2) its profit formula. 12) A company's business model consists of its A) mission statement and its SWOT analysis. B) customer value proposition and its vision statement. C) operating and financial plans. D) profit formula and strategic vision. E) profit formula and customer value proposition. Answer: E Explanation: A company's business model sets forth how its strategy and operating approaches will create value for customers, while at the same time generating ample revenues to cover costs and realizing a profit. The two elements of a company's business model are its (1) customer value proposition and (2) profit formula. 13) A company achieves sustainable competitive advantage when A) it has a profitable business model. B) a sufficiently large number of buyers have a lasting preference for its products or services as compared to the offerings of competitors. C) it is able to maximize shareholder wealth. D) it is consistently able to achieve both its strategic and financial objectives. E) its strategy and its business model are well matched and in sync. Answer: B Explanation: A company achieves sustainable competitive advantage when an attractively large number of buyers develop a durable preference for its products or services over the offerings of competitors, despite the efforts of competitors to overcome or erode its advantage. 14) A creative, distinctive strategy that sets a company apart from its rivals and that gives it a sustainable competitive advantage A) is a reliable indicator that the company has a profitable business model. B) is a company's most reliable ticket to above-average profitability. C) signals that the company has a bold, ambitious strategic intent that places the achievement of strategic objectives ahead of the achievement of financial objectives. D) is the best indicator that the company's strategy and business model are well matched and properly synchronized. E) allows a company's managers to ignore competitors' responses to any moves that the company might make. Answer: C Explanation: A creative, distinctive strategy is a company's most reliable ticket for developing a sustainable competitive advantage and earning above-average profits. 15) Which of the following is not included in proven approaches to winning a sustainable competitive advantage? A) Developing a low-cost-based advantage B) Creating a broad differentiation-based advantage C) Focusing on a narrow market niche within an industry D) Developing a best-cost provider strategy E) Crafting a broad-cost provider strategy Answer: E Explanation: All of the above except for "broad-cost provider" constitute four out of the five of the most frequently used and dependable strategic approaches for setting a company apart from its rivals and winning a sustainable competitive advantage. 16) Which of the following is a not a frequently used strategic approach to setting a company apart from rivals and achieving a sustainable competitive advantage? A) Striving to be the industry's low-cost provider, thereby aiming for a cost-based competitive advantage B) Outcompeting rivals on the basis of such differentiating features as higher quality, wider product selection, added performance, better service, more attractive styling, or technological superiority C) Pursuing a best-cost strategy, giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes, while beating their price expectations D) Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of serving the special needs and tastes of buyers comprising the niche E) Copying rivals on their competitive moves Answer: E Explanation: Answers A, B, C, and D are four out of five of the most frequently used and dependable strategic approaches to setting a company apart from rivals and winning a sustainable competitive advantage. While clever rivals can nearly always copy the attributes of a popular product or service, it is substantially more difficult for rivals to match the know-how and specialized capabilities a company has developed and perfected over a long period. 17) Which of the following is not a frequently used strategic approach to setting a company apart from rivals and achieving a sustainable competitive advantage? A) Aiming for a cost-based competitive advantage B) Outcompeting rivals on the basis of such differentiating features as higher quality, wider product selection, added performance, better service, or more attractive styling C) Simply trying to mimic the successful strategies of rivals D) Focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of satisfying the needs and tastes of buyers comprising the niche E) Developing expertise and resources that give the company competitive capabilities that rivals cannot easily imitate or trump with capabilities of their own Answer: C Explanation: Simply trying to mimic the strategies of the industry's successful companies never works. Rather, every company's strategy needs to have some distinctive element that draws in customers and produces a competitive edge. 18) Allset Motors, a manufacturer of self-driving delivery trucks, is working on developing its next-generation vehicles. It has decided on a strategy of focusing on a narrow buyer segment and outcompeting its rivals by offering buyers customized vehicles at a lower cost than its rivals. What basic strategic approach has Allset Motors decided upon? A) True-cost B) Low-cost C) Focused low-cost D) Best-cost E) Broad differentiation Answer: D Explanation: A best-cost provider strategy like Allset Motors' involves concentrating on a narrow buyer segment and outcompeting rivals by offering buyers more value for their money and by providing customized attributes that meet their specialized needs and tastes better than its rivals' products but at a lower cost. 19) Amy's Drive-Thru, a fast food facility near a college campus, offers healthy, sustainably grown vegetarian and vegan fast-food at higher prices than its competitors in the market and has a drive-through and indoor-seated, casual-dining operation. What strategy is Amy's Drive-Thru using to gain a competitive advantage? A) A best-cost provider strategy B) A low-cost provider strategy C) A focused low-cost provider strategy D) A broad differentiation strategy E) A focused differentiation strategy Answer: E Explanation: Amy's Drive-Thru focuses on healthy fast food for nonmeat eaters. It caters to drive-through and casual-dining customers seeking healthy alternatives and generates profits by offering products and services that rivals do not or cannot provide, and by focusing on a narrow customer base. 20) Rainbow Resorts Inc. has multiple tropical resorts in various locations. In a crowded market that caters to all kinds of consumers, this resort caters mainly to LGBTQ customers with a guaranteed hassle-free holiday experience at a premium price. What strategy is Rainbow using to gain competitive advantage? A) A low-cost provider strategy B) A broad differentiation strategy C) A focused low-cost strategy D) A focused differentiation strategy E) A best-cost provider strategy Answer: D Explanation: Rainbow Resorts caters to LGBTQ customers, focusing on a narrow customer base and providing a unique holidaying experience. It has adopted a focused differentiation strategy concentrating on a narrow customer segment and outcompeting rivals by offering customers attributes that meet their specialized needs and tastes better than rivals' offerings. 21) Different companies across different industries adopt any one of the five generic strategies to gain competitive advantage. Which of the following businesses is most likely to use a low-cost provider strategy? A) A fashion clothing line uses sought-after designers and natural fabrics B) A mortgage company specializes in lending money for second homes C) An online retailer delivers organic groceries overnight D) A baby products retailer sells unassembled baby furniture produced in China E) A dairy products manufacturer uses exotic substitutes to produce lactose-free dairy products Answer: D Explanation: The baby products retailer selling unassembled parts made in China is most likely to have the lowest costs and to pursue a low-cost provider strategy. The other companies are more likely to pursue focused differentiation or best-cost strategies. 22) A company achieves a sustainable competitive advantage when A) its distinctive product offering is trumped by rivals' products. B) it pursues a best-cost provider strategy. C) competitors erode or imitate its efforts to attain a competitive advantage. D) an attractively large number of buyers develop a durable preference for its rivals' offerings of products or services. E) it develops capabilities proven difficult for competitors to imitate or best. Answer: E Explanation: Competitively valuable company resources and capabilities that are difficult for competitors to imitate or best are said to allow a company to build and sustain a competitive advantage. 23) Which of the following is not one of the basic reasons that a company's strategy evolves over time? A) An ongoing need to abandon those strategy features that are no longer working well B) The proactive efforts of company managers to improve the company's financial performance and secure a competitive advantage C) The need on the part of company managers to make no adjustments to the company's business model D) The need to respond to the actions and competitive moves of rival firms E) The need to keep strategy in step with changing industry and competitive conditions Answer: C Explanation: Regardless of whether a company's strategy changes gradually or swiftly, the important point is that the task of crafting strategy is not a one-time event but is always a work in progress. 24) A company's strategy is a "work in progress" and evolves over time because of the A) ongoing need of company managers to react and respond to changing industry and competitive conditions. B) ongoing need to imitate the new strategic moves of the industry leaders. C) need to make regular adjustments in the company's strategic vision. D) importance of developing a fresh strategic plan every year. E) frequent need to modify key elements of the company's business model. Answer: A Explanation: A company's strategy tends to evolve over time because of changing circumstances and ongoing management efforts to improve the company's strategy. 25) Changing circumstances and ongoing managerial efforts to improve the strategy A) account for why a company's strategy evolves over time. B) explain why a company's strategic vision undergoes almost constant change. C) make it very difficult for a company to have concrete strategic objectives. D) make it very hard to know what a company's strategy really is. E) are only necessary when rivals are gaining market share. Answer: A Explanation: A company's strategy tends to evolve over time because of changing circumstances and ongoing management efforts to improve the company's strategy. 26) It is normal for a company's strategy to end up being A) left unchanged from management's original planned set of actions and business approaches since making on-the-spot changes is too risky. B) a combination of defensive moves to protect the company's market share and offensive initiatives to set the company's product offering apart from its rivals. C) like the strategies of other industry members since all companies are confronting much the same market conditions and competitive pressures. D) a blend of deliberate planned actions to improve the company's competitiveness and financial performance and as-needed unplanned reactions to unanticipated developments and fresh market conditions. E) a mirror image of its business model, so as to avoid impairing company profitability. Answer: D Explanation: The biggest portion of a company's current strategy flows from ongoing actions that have proven themselves in the marketplace and newly launched initiatives aimed at building a larger lead over rivals and further boosting financial performance. This part of management's action plan for running the company is its proactive, deliberate strategy. 27) Crafting a strategy involves A) blending deliberate, planned initiatives with emergent, unplanned reactive responses to changing circumstances, while abandoning planned strategy elements that have failed in the marketplace. B) developing a five-year strategic plan and then fine-tuning it during the remainder of the plan period. C) trying to imitate as much of the market leader's strategy as possible so as not to end up at a competitive disadvantage. D) doing everything possible (in the way of price, quality, service, warranties, advertising, and so on) to make sure the company's product and/or service is very clearly differentiated from the product and or service offerings of its rivals. E) All of these accurately characterize the managerial process of crafting a company's strategy. Answer: A Explanation: A company's realized strategy is a combination of both deliberate planned elements and unplanned emergent elements. Some components of a company's deliberate strategy will fail in the marketplace and become abandoned strategy elements. 28) A company is unlikely to develop an emergent strategy due to A) strategic moves by rival firms. B) unexpected shifts in customer preferences. C) fast-changing technological developments. D) new market opportunities. E) rivals' value chain deficiencies. Answer: E Explanation: Novel strategic moves on the part of rival firms, unexpected shifts in customer preferences, fast-changing technological developments, and new market opportunities call for unplanned, reactive adjustments that form the company's emergent strategy. Rivals' value chain deficiencies generally result in planned strategies. 29) Which of the following statements about a company's realized strategy is true? A) A company's realized strategy is mostly hidden to outside view and is deliberately kept under wraps by top-level managers. B) A company's realized strategy is typically planned well in advance and usually deviates little from the planned set of actions. C) A company's realized strategy generally changes very little over time unless a newly appointed CEO decides to take the company in a new direction with a new strategy. D) A company's realized strategy is typically a blend of deliberate and/or planned initiatives and emergent and/or unplanned reactive strategy elements. E) A company's realized strategy is developed mostly on the fly because of the constant efforts of managers to keep rival companies at a disadvantage. Answer: D Explanation: As shown in Figure 1.1, a company's realized strategy tends to be a combination of both deliberate planned elements and unplanned, emergent elements. 30) A company's realized business strategy is made up of A) deliberate and/or planned initiatives that have proven themselves in the marketplace and newly launched initiatives aimed at further boosting performance. B) emergent and/or reactive adjustments to unanticipated strategic moves by rivals, unexpected changes in customer preferences, and new market opportunities. C) tactical plans to imitate the key elements of the strategies employed by rivals. D) both deliberate and/or planned initiatives that have proven themselves in the marketplace and newly launched initiatives aimed at further boosting performance and emergent and/or reactive adjustments to unanticipated strategic moves by rivals, unexpected changes in customer preferences, and new market opportunities. E) choices among low-cost provider and differentiation strategies. Answer: D Explanation: A company's realized strategy is a combination of both deliberate planned elements and unplanned emergent elements. Some components of a company's deliberate strategy will fail in the marketplace and become abandoned strategy elements.