Understanding Business Strategy Concepts Plus 3rd Edition by R. Duane Ireland – Test Bank

Complete Test Bank With Answers

 

 

Sample Questions Posted Below

 

Chapter 5 – Business-Level Strategy

TRUE/FALSE

1. 2. 3. 4. 5. 6. 7. 8. A business-level strategy is a “big picture,” highly-generalized action plan that will move an

organization toward achievement of its general vision.

ANS: F PTS: 1 REF: Page 98 OBJ: Learning Objective 1

KEY: Knowledge

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

A generic business strategy is one that can be used in all industries and by all types of firms.

ANS: T PTS: 1 REF: Page 99 OBJ: Learning Objective 1

KEY: Knowledge

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

Wal-Mart has not adjusted its business model since the mid 1990s.

ANS: F PTS: 1 REF: Page 99 OBJ: Learning Objective 1

KEY: Knowledge

Systems Skills

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Competitive scope describes the breadth of the target market the organization wishes to serve.

ANS: T KEY: Knowledge

PTS: 1 REF: Page 99-100 OBJ: Learning Objective 2

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

In general, firms with a standardized product should narrowly segment their market.

ANS: F PTS: 1 REF: Page 100 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

Typically, the customers of organizations using the cost-leadership strategy are not highly loyal.

ANS: T PTS: 1 REF: Page 101 OBJ: Learning Objective 4

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

A firm following a cost leadership strategy would invest heavily in product R&D.

ANS: F PTS: 1 REF: Page 101 OBJ: Learning Objective 3

KEY: Application

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

An action plan the firm develops to produce goods or services to serve the needs of a specific market

segment is called a focus strategy.

ANS: T PTS: 1 REF: Page 109 OBJ: Learning Objective 29. 10. 11. 12. 13. 14. 15. KEY: Knowledge

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

The integrated cost leadership/differentiation strategy must target a narrow market.

ANS: F PTS: 1 REF: Page 112 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

Of the three organizational structures, only the simple structure and the functional structure can be

used to implement business-level strategies.

ANS: T PTS: 1 REF: Page 112 OBJ: Learning Objective 5

KEY: Knowledge

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

The dominant function in the structure for the cost-leadership strategy is Accounting.

ANS: F PTS: 1 REF: Page 114 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Reflective Thinking| Management: Strategy | Dierdorff & Rubin: Strategic & Systems

Skills

JetBlue’s early success can be attributed to the solid execution of the cost leadership strategy

ANS: T PTS: 1 REF: Page 119 OBJ: Learning Objective 3

KEY: Application

& Innovation

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Managing Strategy

One of the benefits of the functional structure is that its elements are the same across different

business-level strategies.

ANS: F PTS: 1 REF: Page 113 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &

Innovation

A factor contributing to the poor performance of some large, diversified firms is their unwillingness to

use a single, corporate-wide business-level strategy for each of their business units.

ANS: F PTS: 1 REF: Page 115 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

The key to implementing the integrated cost leadership/differentiation strategy is flexibility.

ANS: T PTS: 1 REF: Page 112 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &

InformationMULTIPLE CHOICE

1. A ____ strategy describes how it will compete in the marketplace on a day-by-day basis.

a. corporate c. competitive

b. limited d. business

ANS: D PTS: 1 REF: Page 98 OBJ: Learning Objective 1

KEY: Comprehension

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Managing Strategy

& Innovation

2. Wal-Mart’s history shows that

a. b. d. business-level strategy is constantly subject to change.

business-level strategy can remain unchanged for a long time.

c. business-level strategy is overrated.

corporate-level strategy is more important than business-level strategy.

3. 4. 5. 6. ANS: A PTS: 1 REF: Page 99 OBJ: Learning Objective 1

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Managing Strategy

& Innovation

In general, customers are satisfied when the firm’s product

a. b. c. is produced according to any corporate code of ethics.

costs less than similar products offered by competing firms.

is unique in the marketplace.

d. creates value for them.

ANS: D PTS: 1 REF: Page 98 OBJ: Learning Objective 1

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

The five business level strategies include all except

a. cost leadership.

b. differentiation.

c. focused integration.

d. integrated cost leadership/differentiation.

ANS: C KEY: Knowledge

Systems Skills

PTS: 1 REF: Page 99-100 OBJ: Learning Objective 2

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Ralph Lauren produces products that are

a. too expensive.

b. differentiated.

c. standardized.

d. appealing to a very small niche market.

ANS: B PTS: 1 REF: Page 104 OBJ: Learning Objective 2

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

The two dimensions of business level strategy are7. 8. 9. 10. 11. a. supply and demand.

b. c. d. competitive scope and cost leadership.

narrow or broad target market.

competitive advantage and competitive scope.

ANS: D PTS: 1 REF: Page 99 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

The business-level strategy that focuses on a narrow competitive scope and product uniqueness is

a. integrated cost leadership/differentiation.

b. focused cost leadership.

c. differentiation

d. focused differentiation.

ANS: D PTS: 1 REF: Page 111 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

The market for a cost leadership strategy is

a. the industry’s average customer.

b. low income consumers.

c. d. the segment of consumers who desire high quality at a low cost.

consumers who are being poorly served by competing organizations.

ANS: A PTS: 1 REF: Page 101 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

Economies of scale would be most important for an organization with a/an ____ strategy.

a. differentiation c. cost leadership

b. integration d. market segmentation

ANS: C PTS: 1 REF: Page 101 OBJ: Learning Objective 3

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &

Innovation

Which of the following is most typical of a value-creating activity associated with the differentiation

strategy compared with the cost leadership strategy?

a. frequent evaluation processes to monitor suppliers’ performance

b. intense and effective training programs to improve worker efficiency and effectiveness

c. easy-to-use manufacturing technologies.

d. extensive personal relationships with buyers and suppliers

ANS: D PTS: 1 REF: Page 106 OBJ: Learning Objective 3

KEY: Comprehension

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Managing Strategy

& Innovation

A cost leader can maintain its power by all of the following except

a. b. c. continually increasing its level of efficiency.

negotiating tough short-term contracts with suppliers.

maintaining lower prices than its competitors.12. 13. 14. 15. 16. d. selling to a large number of buyers.

ANS: B PTS: 1 REF: Page 103 OBJ: Learning Objective 3

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &

Innovation

Which of the following statements is true?

a. b. The customers of firms using the cost-leadership strategy prefer low quality products..

Firms using the cost-leadership strategy musts focus exclusively on the price of the

product.

c. d. Cost-leaders tend to be oblivious to competitors’ product innovations.

Firms using the cost-leadership strategy usually target their products at the largest market

segment possible.

ANS: D PTS: 1 REF: Page 101 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &

Innovation

The word or term that is most descriptive of the products offered by an organization using the

differentiation strategy is

a. uniqueness. c. luxuriousness.

b. value for the money. d. high-technology.

ANS: A PTS: 1 REF: Page 104 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

As a cost leader, Wal-Mart is able to defeat its rivals largely because its competitors

a. b. c. d. cannot meet the quality of Wal-Mart’s products.

cannot invest in operational efficiency because of low profit margins.

are committed to using expensive unionized labor.

have not generated the customer loyalty Wal-Mart has developed.

ANS: B PTS: 1 REF: Page 102 OBJ: Learning Objective 3

KEY: Application

& Innovation

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Managing Strategy

Which of the following companies uses the integrated cost-leadership/differentiation strategy to serve

a broad target market?

a. Anon c. Boeing

b. McDonald’s d. Ritz-Carlton

ANS: B PTS: 1 REF: Page 112 OBJ: Learning Objective 3

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

Nouvelle Home Designs is a group of highly skilled architects, interior designers, and interior

decorators who design and furnish custom homes for clients who wish to “make an architectural

statement” with their homes while being sensitive to the ecology of the location in which the house is

built. Nouvelle is using the

a. integrated cost-leadership/differentiation strategy.17. 18. 19. 20. b. broad differentiation strategy.

c. focused differentiation strategy.

d. focused cost-leadership strategy.

ANS: C PTS: 1 REF: Page 111 OBJ: Learning Objective 3

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

A high-priced women’s leather goods maker uses an easily recognizable gold star-motif which

ornaments the embossed leather used to make the products. This manufacturer has a policy of never

having “sales” on its merchandise or selling its products through discount retailers. This company’s

products are easily recognizable by persons familiar with the brand. This company would be very

careful to

a. b. d. advertise the durability of its products.

maintain average to lower-than average costs of raw materials.

c. monitor for counterfeit products.

monitor prices of leather goods sold by mass merchandisers.

ANS: C PTS: 1 REF: Page 109 OBJ: Learning Objective 4

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

Live Easy, Inc., specializes in dietary supplements that address the specific needs of women over the

age of sixty, such as bone loss and joint pain. The premium-priced supplements are sold by mail and

advertised in upscale magazines such as Town and Country, Art and Antiques, and Architectural

Digest. Live Easy has a/an ____ business-level strategy.

a. focused differentiation.

b. cost leadership.

c. integrated cost leadership/differentiation.

d. value-creating

ANS: A PTS: 1 REF: Page 111 OBJ: Learning Objective 3

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

Which of the following is not an example of a potential narrow market segment?

a. women who practice yoga

b. residents of coastal California with incomes over $100,000

c. CPAs with tax practices

d. people who have landline telephones

ANS: D PTS: 1 REF: Page 109-111

OBJ: Learning Objective 3 KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

There are many places where customers can buy decorative objects for their home. Which of the

following companies most likely follows a focused cost leadership strategy?

a. b. c. d. K-Mart with its Martha Stewart collection

T J Maxx the discount retailer

Land’s End (catalog and Internet retailer) with its At Home collection

the White Elephant, a local second-hand and consignment shop21. 22. 23. 24. 25. ANS: D PTS: 1 REF: Page 109 OBJ: Learning Objective 3

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

If purchasers of Rolex watches decide that their main objective is a watch that keeps accurate time,

then Rolex will experience which risk of focus strategies?

a. b. c. d. A competitor is outfocusing Rolex.

A company that serves the broad market is targeting Rolex’s market.

Rolex’s target customer has changed to be more like the customer in the broad market.

Rolex has neglected a key aspect of its value chain.

ANS: C PTS: 1 REF: Page 111 OBJ: Learning Objective 4

KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

Allowing for targeting a narrower market, the value chain for an organization using the focused

differentiation strategy ____ the value chain for an organization using the differentiation strategy.

a. is similar to

b. c. d. varies in the operations function compared with

varies in the procurement function compared with

varies in the inbound and outbound logistics functions compared with

ANS: A PTS: 1 REF: Page 111 OBJ: Learning Objective 3

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

The most difficult business strategy to implement is the ____ strategy.

a. integrated cost leadership/differentiation

b. focused differentiation

c. focused cost leadership

d. cost leadership

ANS: A PTS: 1 REF: Page 114 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

The main risk of using the integrated cost leadership/differentiation strategy is

a. b. c. d. if the firm fails to produce somewhat differentiated products at low costs.

if the firm’s products are too differentiated for the mass market.

if the firm’s products are too expensive for the target market.

if competitors are able to imitate its strategy.

ANS: A PTS: 1 REF: Page 112 OBJ: Learning Objective 4

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

Aaron Household Movers is a small company with five trucks and 15 permanent employees. Aaron

Blanco, the owner, has expanded the operation from the original one truck and two employees. The

____ structure would be most appropriate for this firm.

a. functional c. simple

b. entrepreneurial d. multidivisional

ANS: C PTS: 1 REF: Page 112 OBJ: Learning Objective 526. 27. 28. 29. 30. 31. KEY: Application

& Innovation

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Managing Strategy

The main drawback of the functional structure is that

a. b. c. d. the structure is easily overwhelmed if the firm grows rapidly.

the formality and bureaucracy involved reduce efficiency and effectiveness.

it is more expensive to operate than the simple structure.

it is sometimes difficult to communicate across functions.

ANS: D PTS: 1 REF: Page 112 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

In an organization using the cost leadership strategy, the functional structure should emphasize the

____ function.

a. marketing c. accounting

b. operations d. personnel

ANS: B PTS: 1 REF: Page 113 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

In an organization using the differentiation strategy, which of the following functions is most likely to

be more important than the others?

a. operations c. accounting

b. marketing d. personnel

ANS: B PTS: 1 REF: Page 113 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

Krispy Kreme’s current business strategy can best be described as

a. very focused. c. moderately successful.

b. very successful. d. unsuccessful.

ANS: D PTS: 1 REF: Page 118-119

OBJ: Learning Objective 5 KEY: Application

MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Strategic &

Systems Skills

The key factor that the organization structure of a firm using the integrated cost

leadership/differentiation strategy must provide is

a. efficiency c. accountability

b. innovation d. flexibility

ANS: D PTS: 1 REF: Page 112 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

Which of the following statements is true?

a. b. c. After a firm reaches a certain size, it needs multiple business-level strategies.

Diversified firms need multiple business- level strategies.

The simple structure is being replaced by the functional structure because of its inability to

cope with the complexity of the modern economic environment.d. Once an organization develops the right structure, this structure will keep the organization

“on course” indefinitely.

ANS: B PTS: 1 REF: Page 116 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &

Innovation

ESSAY

1. What are the two key dimensions of the organization’s business level strategy? And what combinations

of these dimensions lead to the five types of business level strategies?

2. 3. ANS:

The two key dimensions of the organization’s business level strategy are competitive advantage (which

can be cost or uniqueness) and competitive scope (which can be broad or narrow). A combination of

cost and broad target lead to the cost leadership strategy. A combination of cost and narrow target lead

to the focused cost leadership strategy. A combination of uniqueness and broad market lead to the

differentiation strategy. A combination of uniqueness and narrow target lead to the focused

differentiation strategy. And the combination of all these dimensions and levels lead to the integrated

cost leadership/differentiation strategy.

PTS: 1 REF: Page 99-100 OBJ: Learning Objective 2

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

Describe the similarities and differences between the cost-leadership strategy and the focused cost-

leadership strategy; and between the differentiation strategy and the focused differentiation strategy.

ANS:

Focus strategies target a narrower segment of the market than do the basic cost leadership or

differentiation strategies. See Figure 5.1. The similarities between the focus strategies and their

broader counterparts are evidenced by the fact that the value chains for the focus strategies and the

broader strategies are identical. See Figures 5.2 and 5.3

PTS: 1 REF: Page 100-106

OBJ: Learning Objective 2 | Learning Objective 3 KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

How do the recommended functional structures vary between the cost leadership strategy and the

differentiation strategy?

ANS:

The cost leadership strategy needs a functional structure with highly centralized authority in the

corporate staff. Jobs are highly specialized and organized into homogenous subgroups. Highly

formalized rules and procedures are established. The most important function in the structure is

operations. All these aspects of the structure contribute toward efficiency.

The differentiation strategy needs a functional structure that has decentralized authority, less

specialized jobs, and fewer formal rules and processes. The most important functions are R&D and

marketing. All of these aspects of the structure contribute toward communication among employees,

innovation, and close interaction with the customer.4. PTS: 1 REF: Page 113 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills

What special implementation needs does a integrated cost leadership/differentiation strategy have for

the organization?

ANS:

Implementing the integrated cost leadership/differentiation strategy requires a structure in which a)

decisions are partly centralized and partly decentralized, b) jobs are semi-specialized, and c) both

formal rules and produced and informal behavior is needed. The organization needs to be flexible and

have the ability to change. This strategy requires the firm to be both efficient and innovative, and the

organizational structure must make this possible.

PTS: 1 REF: Page 114 OBJ: Learning Objective 5

KEY: Comprehension

MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &

Innovation