Week 9 Review

Which of the following fundamental insights was provided by Porter’s five forces framework from the completion of the Alta Velocidad Española (AVE)?

• A strong threat of substitutes decreases the rivalry among existing competitors.

• Any of the five forces on its own, if sufficiently strong, can extract industry profitability.

• All of the five forces must work together to have a meaningful impact.

• Competition must be defined more narrowly to remain confined to the industry’s closest competitors.

Adverse selection in a public stock company occurs when

• information asymmetry increases the likelihood of selecting inferior alternatives.

• a firm’s work tasks, incentives, and employment contracts minimize opportunism by agents.

• a principal is not aware of the context from which information from an agent is derived.

• an agent manipulates information to benefit stockholders.

Kate is the CEO of a firm. She has an opportunity to increase the competitive advantage of her company but is not sure if accepting the opportunity is ethical. Which of the following questions would help her decide if accepting the opportunity is ethical?

• What are the chances that her decision to accept will make her rich?

• How much profit would be made if she decided to accept the opportunity?

• How would the media report her decision to accept the opportunity if it were to become public?

• How long lasting would the competitive advantage be if she decided to accept the opportunity?

General Electric’s board has only one inside director, John Flannery, GE’s CEO, who also acts as chairperson of the board. This is known as duality. Which of the following statements represents the best argument for this duality in GE?

• A CEO is likely to be more responsible because they are setting their own performance targets.

• The CEO might be able to influence the board through setting the meeting agendas.

• The CEO possesses invaluable inside information that can help them lead the board effectively.

• Any CEO will suggest board appointees who will function as strategic allies.

Lawrence decided to copy the competition to gain a competitive advantage for his company. After a year, he realized his company failed to gain such an advantage. Lawrence most likely failed because of the ________ effect.

• Green Pawn

• grandiose

• globalization

• Red Queen

Earth Mother Leisure Wear had a mission to become the leading producer of environmentally friendly leggings, an emerging and in-demand category in the apparel industry. Its strategy involved leveraging a network of organic cotton farmers and suppliers of environmentally responsible synthetic materials to create a product that is durable, attractive, affordable, and 100% recyclable. However, because it did not upgrade its outdated production facilities, Earth Mother Leisure Wear could not assemble its products at a low-enough cost to offer the leggings at a price that was attractive to customers. Earth Mother Leisure Wear's strategy failed because

• it failed to consider the competitive challenge.

• it was not backed up with strategic commitments.

• managers did not live by the company’s core values.

• the company did not stake out a unique strategy position.

Given the structure of the automobile industry, entering the auto manufacturing industry seemed risky. Yet Tesla Motors joined the fray. Rather than attempting to compete head-on with internal combustion engines, Tesla Motors entered the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?

• capital requirements

• CSV

• economies of scale

• customer switching cost

Limozine Inc. is a car service firm that provides high-end transportation in a major metropolitan area. It has several competitors that each offer similar services, and based on its current structure, it cannot match or beat those competitors on price. Because of long-term contracts and an increase in the cost of gasoline, it is not possible to reduce expenditures at this time. Which of these strategies should Limozine pursue instead?

• Create a strategic group through mergers.

• Delve into a different industry entirely

• Pursue a differentiated strategy.

• Close the business until the cost of gas decreases.

Which of the following statements is true about strategic groups?

• It is not possible to have two different strategic groups within the same industry.

• Rivalry within the same strategic group always is lower than rivalry between different strategic groups.

• Profitability varies between different strategic groups.

• Companies within the same strategic group are always complementors to each other.

In recent years a growing number of U.S. consumers have become more health conscious about what they eat. According to the PESTEL Framework this trend could best be classified as a ________ trend.

• sociocultural

• healthy eating

• political

• legal