Strategic Management of Technological Innovation 6th Edition Melissa Schilling – Test Bank

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Sample Questions Posted Below

 

Strategic Management of Technological Innovation, 6e (Schilling)

Chapter 5 Timing of Entry

1) Early leaders are firms that are the first to enter a market.

Answer: FALSE

Difficulty: 1 Easy

Topic: Overview

Accessibility: Keyboard Navigation

2) Early followers enter the market only after a product begins to penetrate the mass market.

Answer: FALSE

Difficulty: 1 Easy

Topic: Overview

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3) The initial cost of a good itself can be a switching cost.

Answer: TRUE

Difficulty: 1 Easy

Topic: First-Mover Advantages

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4) Firms that enter the market early can preemptively capture scarce resources such as key

locations, government permits, patents, access to distribution channels, and relationships with

suppliers.

Answer: TRUE

Difficulty: 1 Easy

Topic: First-Mover Advantages

Accessibility: Keyboard Navigation

5) Late entrants typically bear the bulk of the research and development expenses for their

product or service technologies.

Answer: FALSE

Difficulty: 1 Easy

Topic: First-Mover Disadvantages

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6) First movers typically invest more in exploratory research than late entrants.

Answer: TRUE

Difficulty: 1 Easy

Topic: First-Mover Disadvantages

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1

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.7) All pioneers face customer uncertainty.

Answer: FALSE

Difficulty: 1 Easy

Topic: Factors Influencing Optimal Timing of Entry

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8) Other things being equal, less customer uncertainty favors earlier timing of entry.

Answer: TRUE

Difficulty: 1 Easy

Topic: Factors Influencing Optimal Timing of Entry

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9) When a market is characterized by mature enabling technologies, a firm should enter the

market late.

Answer: FALSE

Difficulty: 1 Easy

Topic: Factors Influencing Optimal Timing of Entry

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10) All innovations require complementary goods, and none of them can utilize existing

complementary goods.

Answer: FALSE

Difficulty: 1 Easy

Topic: Factors Influencing Optimal Timing of Entry

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11) In industries that have increasing returns to adoption due to network externalities, allowing

competitors to get a head start in building an installed base is the safest strategy.

Answer: FALSE

Difficulty: 1 Easy

Topic: Factors Influencing Optimal Timing of Entry

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12) Many start-up firms fail because new innovations tend to be adopted very slowly at first.

Answer: TRUE

Difficulty: 1 Easy

Topic: Factors Influencing Optimal Timing of Entry

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2

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.13) Other things being equal, an entrant with a strong reputation can attract adoptions earlier than

entrants without strong reputations.

Answer: TRUE

Difficulty: 1 Easy

Topic: Factors Influencing Optimal Timing of Entry

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14) A firm intending to refine an earlier entrant’s technology should avoid fast-cycle

development processes.

Answer: FALSE

Difficulty: 1 Easy

Topic: Strategies to Improve Timing Options

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15) A disadvantage of using parallel development processes is that it greatly lengthens the new

product development time.

Answer: FALSE

Difficulty: 1 Easy

Topic: Strategies to Improve Timing Options

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16) The first entrants to sell in a new product or service category are referred to as ________.

A) pioneers

B) early leaders

C) early followers

D) laggards

Answer: A

Difficulty: 1 Easy

Topic: Overview

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17) Doven Inc. pioneered software development in the 1970s and introduced its range of office

tools well ahead of its competitors. According to the classification scheme of entrants, Doven

would be classified as a(n) ________.

A) first mover

B) early follower

C) early leader

D) laggard

Answer: A

Difficulty: 2 Medium

Topic: Overview

Accessibility: Keyboard Navigation

3

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.18) Magnitude Inc. was the first company to introduce a video gaming console in the market.

However, consumers were uncertain about the product, and its high costs discouraged consumers

from purchasing it. Eventually, Magnitude withdrew the product from the market. A few years

later, Mantel Corp. and Adventura Inc. came up with their respective gaming consoles and

successfully established their products. In this scenario, Mantel and Adventura would be

considered:

A) pioneers.

B) early followers.

C) laggards.

D) late movers.

Answer: B

Difficulty: 3 Hard

Topic: Overview

Accessibility: Keyboard Navigation

19) Marine Systems was the first company to develop an inventory management software

specifically for hotels and restaurants. Soon after Marine Systems launched its product, Unicorn

Systems developed a similar software. The software developed by Unicorn Systems

outperformed the one developed by Marine Systems, and it eventually became the market leader.

In this scenario, Unicorn Systems is an example of a(n) ________.

A) first pioneer

B) late mover

C) early follower

D) eccentric laggard

Answer: C

Difficulty: 3 Hard

Topic: Overview

Accessibility: Keyboard Navigation

20) If aspects that customers have come to expect in a technology are difficult for competitors to

imitate, being the technology leader will:

A) result in an inability to preemptively capture scarce assets.

B) yield sustained monopoly rents.

C) result in lower bargaining power over suppliers.

D) mean negligible research and development costs.

Answer: B

Difficulty: 2 Medium

Topic: First-Mover Advantages

Accessibility: Keyboard Navigation

4

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.21) Alpen Inc. is a manufacturing firm that holds the patent for a new food processor that is

considerably safer and more efficient than the others available in the market. Being the only firm

that manufactures this product, Alpen charges a very high price for it. Based on the information

provided in the scenario, which of the following statements is most likely to be true?

A) As Alpen is the technology leader in the food processor manufacturing sector, the firm will

yield sustained monopoly rents.

B) Since Alpen has developed and invested in the new invention, which is the food processor,

the firm will have no other option but to invest in new complementary goods if it wants to sell its

products.

C) Alpen will lose business and ultimately fail because of incumbent inertia.

D) Since there are several food processor manufacturing firms in the market, Alpen will lose to

its existing competitors and will seldom be able to make any profits.

Answer: A

Difficulty: 3 Hard

Topic: First-Mover Advantages

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22) Jupiter Inc., a software firm, is starting to face competition from the new entrant in its

market, Coral Inc. Jupiter wants to prevent its existing customers from switching to Coral’s

newly developed software. Which of the following measures should Jupiter adopt to achieve its

objective?

A) Ensuring that customers find its software simpler and more convenient to use than that of

Coral’s

B) Keeping the initial cost of its software higher than that of Coral’s

C) Keeping the prices of the complements required for its software higher than those set by Coral

D) Ensuring that fewer complementary products are available for its products than those for the

products of Coral

Answer: A

Difficulty: 3 Hard

Topic: First-Mover Advantages

Accessibility: Keyboard Navigation

5

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.23) Which of the following statements is true of first movers in comparison with early followers

and late entrants?

A) Cost of developing necessary production processes and complementary goods is lower for

first movers.

B) First movers are in a better position to exploit buyer switching costs and also to reap

increasing returns advantages.

C) First movers, being incumbents, have greater ability than later entrants to respond to changes

in the industry environment and adopt newer production processes.

D) First movers fail to capture scarce resources such as key locations, government permits,

access to distribution channels, and relationships with suppliers.

Answer: B

Difficulty: 2 Medium

Topic: First-Mover Advantages

Accessibility: Keyboard Navigation

24) The tendency of existing firms to be slow to respond to changes in the industry environment

due to their large size, established routines, or prior strategic commitments to existing suppliers

and customers is known as:

A) monopolization.

B) path dependency.

C) incumbent inertia.

D) technology trajectory.

Answer: C

Difficulty: 1 Easy

Topic: First-Mover Disadvantages

Accessibility: Keyboard Navigation

25) Fashion Fair Corp., the first mover in the “all-year discount” stores market, lost its market

share to a late entrant, Brand Fair Inc. Brand Fair operates online discount stores, which is cost-

efficient when compared to investing in a brick-and-mortar store. Fashion Fair has been unable

to replicate the online store business model because of its existing contracts with suppliers and

heavy investment in retail stores. This ultimately leads to the failure of the business. Which of

the following can be attributed to Fashion Fair’s failure?

A) Incumbent inertia

B) Use of tacit resources

C) Free-rider effect

D) Presence of low exit barriers

Answer: A

Difficulty: 3 Hard

Topic: First-Mover Disadvantages

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6

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.26) When Fun Bun Inc., an international fast-food chain, set up operations in China, it had to

teach farmers how to grow a particular variety of potatoes, and bakers had to be taught how to

make hamburger buns. This is an example of:

A) corporate social responsibility.

B) an undeveloped supply channel.

C) incumbent inertia.

D) monopoly rents.

Answer: B

Difficulty: 3 Hard

Topic: First-Mover Disadvantages

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27) Which of the following is an advantage of being a late entrant into a market?

A) Late entrants are the first to capture scarce resources.

B) Late entrants often do not have to invest in exploratory research.

C) Late entrants often are most likely to capitalize on monopoly rents.

D) Late entrants are unaffected by switching costs.

Answer: B

Difficulty: 2 Medium

Topic: First-Mover Disadvantages

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28) Component technologies that are necessary for the performance or desirability of a given

innovation are referred to as ________.

A) architectural technologies

B) diffused technologies

C) primary technologies

D) enabling technologies

Answer: D

Difficulty: 1 Easy

Topic: First-Mover Disadvantages

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.29) Pioneer Athletics Inc. wants to provide better landing mats for gymnasts. It therefore asks its

foam suppliers to use a new innovative process to manufacture higher quality, durable foam in its

mats. This new process used to develop the foam represents a(n) ________ for Pioneer Athletics.

A) network externality

B) preemption rent

C) enabling technology

D) incumbent rent

Answer: C

Difficulty: 3 Hard

Topic: First-Mover Disadvantages

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30) Which of the following statements is true of a firm entering a market too early?

A) Distribution channels required for the firm’s products will be well established prior to its

entry.

B) Enabling technologies and complements available to the firm will be immature.

C) The firm’s competitors would have already captured controlling shares of the market.

D) The firm will not be able to reap the advantages of monopoly rent.

Answer: B

Difficulty: 2 Medium

Topic: First-Mover Disadvantages

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31) Which of the following statements is true of customer preferences?

A) The importance of technological features to customers stays constant over time.

B) Customers can differ from producers in their understanding of a new technology.

C) All pioneers of new-to-the-world technologies face customer uncertainty.

D) Other things being equal, more customer uncertainty favors earlier timing of entry.

Answer: B

Difficulty: 2 Medium

Topic: Factors Influencing Optimal Timing of Entry

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.32) Zach has invented a device, which when plugged to household appliances, such as

televisions, vacuum cleaners, sound systems, and mixer grinders, will operate them using solar

power. The device also works as a battery and converts solar power into energy that can be used

during the night. This device needs to be plugged into a port in the household appliances. Since

not all appliances have this feature, Zach is of the opinion that he should delay his entry into the

market. Which of the following statements supports Zach’s decision?

A) The product works without the need for complementary goods. Hence, the more he delays his

entry into the market, the better the competition is for his product.

B) The entry barriers are low for this product in the market and hence it makes sense for Zach to

delay his entry.

C) Less mature enabling technologies may favor waiting for enabling technologies to be further

developed.

D) Since all pioneers face customer uncertainty, it is wise for Zach to delay his entry into the

market as much as possible.

Answer: C

Difficulty: 3 Hard

Topic: Factors Influencing Optimal Timing of Entry

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33) In which of the following circumstances can a firm confidently enter the market at any time?

A) When the enabling technologies are less mature

B) When the product requires new complementary goods

C) When there is high customer uncertainty

D) When the product to be manufactured and sold is inimitable

Answer: D

Difficulty: 2 Medium

Topic: Factors Influencing Optimal Timing of Entry

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34) Which of the following is a reason attributed to the failure of start-up firms?

A) New innovations typically tend to be adopted very slowly at first.

B) Decisions such as producing inimitable goods pressurize start-up firms to enter the market

early in order to avoid competition.

C) All innovations by start-up firms require new complementary goods.

D) All start-up firms will have to wait a considerable amount of time for the enabling

technologies to develop.

Answer: A

Difficulty: 2 Medium

Topic: Factors Influencing Optimal Timing of Entry

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.35) ________ require multiple stages of a new product development process to occur

simultaneously.

A) Incumbent development processes

B) Parallel development processes

C) Monopoly development processes

D) Slow-cycle development processes

Answer: B

Difficulty: 1 Easy

Topic: Strategies to Improve Timing Options

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36) Why were other keyboards that claimed to be more efficient not able to replace the

QWERTY keyboard? Explain how this illustrates the need to consider switching costs when

introducing new technologies.

Answer: The QWERTY keyboard was initially introduced to slow down typing and prevent key

jamming on mechanical keyboards. Since so many people had already learned to use this

keyboard, they were unwilling to learn how to type on other keyboards even though key

jamming was no longer an issue. This illustrates that if buyers face high switching costs, the firm

that captures customers early may be able to keep those customers even if technologies with a

superior value proposition are introduced later.

Difficulty: 2 Medium

Topic: First-Mover Advantages

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37) Loren has invented a product that detects water leakages caused by broken pipes and sends

out an alarm similar to a smoke alarm. However, Loren doesn’t have sufficient finances to invest

in this new product. Therefore, he borrows money from his friends to enter the market and

begins to experience some success. The product is not patentable because it is too similar to

other existing technologies. Major corporations have seen his success and have now entered the

market with competing products. What will be the probable destiny of Loren’s company?

Answer: Since Loren does not have significant resources and the returns will probably be slow,

he may not last very long in this new industry. His lack of funds means that he will have very

little to invest in product enhancements, while his competitors would be able to improve the

product. For example, one company might attach a dialing system to the alarm that notifies a

neighbor, a plumber, or the police department in case the owner is not at home. The larger

companies can outspend Loren in advertising as well.

Difficulty: 3 Hard

Topic: First-Mover Disadvantages

Accessibility: Keyboard Navigation

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No reproduction or distribution without the prior written onsent of McGraw-Hill Education.38) SmartShoe Inc. is the market leader in the gliding shoe market and enjoys an excellent

reputation. It is the pioneer of this new market and currently holds 40 percent market share.

Now, SmartShoe wants to introduce a new range of orthopedic shoes. Discuss how its reputation

might affect the new product’s acceptance among distributors and consumers.

Answer: SmartShoe’s excellent reputation will give the new product high credibility and will

increase the likelihood of its acceptance into the market. The fact that it has such a strong track

record will increase the likelihood that it will be able to line up distributors to carry its new range

of orthopedic shoes. Consumers are also more likely to trust this entry because of satisfaction

with past products of the company. All of this will mean earlier adoption of the product than any

other company could expect.

Difficulty: 3 Hard

Topic: Factors Influencing Optimal Timing of Entry

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39) How do enabling technologies influence a firm’s entry into the market?

Answer: Many innovations rely on crucial enabling technologies to ensure their performance. A

high-definition television set is of little value if networks are incapable of broadcasting in high

definition; cellular phones or portable stereos would have little value if small and long-lasting

batteries were unavailable. A developer must identify which enabling technologies will affect the

performance of the new innovation and assess the degree to which those technologies are mature

enough (or will be mature enough) to deliver the desired performance. More mature enabling

technologies allow earlier entry; less mature enabling technologies may favor waiting for

enabling technologies to be further developed.

Difficulty: 2 Medium

Topic: Factors Influencing Optimal Timing of Entry

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40) What assumptions underlie the use of timing of entry strategies into the market for new

products?

Answer: It is assumed that timing of entry is a matter of choice for the firm. However, implicit

in this assumption is a corollary assumption that the firm is capable of producing the technology

at any point in the time horizon under consideration. For this to be true, the firm must possess the

core capabilities required to produce the technology to consumer expectations, or be able to

develop them quickly. Also, to be able to take advantage of timing strategies for entry, the firm

must have a fast-cycle development process in place and the financial resources to develop,

produce, and market the product.

Difficulty: 2 Medium

Topic: Strategies to Improve Timing Options

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