BADM 449 MIDTERM #1 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

BADM 449 MIDTERM #1 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 What is competitive advantage? - Answers Superior performance relative to competitors What is a sustainable competitive advantage? - Answers occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate. What is strategy? (3 items) - Answers - the quest to create, capture and sustain competitive advantage. - It is not a zero-sum game Win - win scenarios = co-opetition (i.e., collaborative efforts among competitors for mutual gain) - Requires trade-offs for strategic positioning (low cost) JCPenney vs. (upscale) Neiman Marcus (low cost) Southwest Airlines vs. (stuck in the middle) Delta Song What four elements are involved in the strategic management process? - Answers Analysis, Formulation, Implementation, Feedback Textbook def. of Strategy? - Answers - Goal-directed actions to gain & sustain competitive advantage - It is about being different from your rivals. - It is about creating value while containing cost. - It is about deciding what to do, and what not to do. - It combines a set of activities to stake out a unique position. - It has alternatives, consequences, and choices involving significant resources, typically made under some level of uncertainty. - It requires long-term commitments that are not easily reversible. 3 key drivers of Economic Value? - Answers Revenue, Cost, and Risk Drivers Provide some examples of value (revenue) drivers, and of cost drivers - Answers - Value: Technology, Quality, Delivery - Cost: Economies of Scale, Learning Curve Discuss industry vs. firm effects, which tend to be stronger? - Answers -Astute managers create superior performance, making important trade-offs * Toyota's lean manufacturing - Firm effects tend to be stronger Discuss the industry and firm sources of superior profitability - Answers 1.) How do we make money above the competitive level? 2.) INDUSTRY ATTRACTIVENESS- Which businesses should we be in? ----- CORPORATE STRATEGY 2.) COMPETITIVE ADVANTAGE - How should we compete? ------ BUSINESS STRATEGY What is the key question for Corporate Strategy? - Answers Where to compete? What is the key question for Business Strategy? - Answers How to compete? What is the key question for Functional Strategy? - Answers How to implement? Examples of corporate level strategy? - Answers Typically involves decision-making by the top management team that includes the CEO, senior executives, the board of directors, and the corporate staff. Decisions include vertical integration, diversification, strategic alliances, acquisitions, new ventures, and restructuring. Examples of business level strategy? - Answers Includes the strategic choice of generic strategy (cost leadership, differentiation, focus) and the benefits and costs of first-mover advantages. Often an enterprise participating in multiple businesses will have different business strategies. Examples of functional level strategy? - Answers Typically directed at improving the effectiveness of functional operations within a company, such as manufacturing, materials management, human resources, marketing, R&D and operations management. What is the difference between a customer-oriented and a product-oriented mission? - Answers - Customer oriented define the firm in terms of solutions for customers - Product oriented define the firm in terms of products or services What can be the pitfall of a product-oriented mission? - Answers You can be too focused on one product segment and let other competitors pass you up. Technological advancement can slow. Railroad company example. What are some steps and tools used for (top-down) planning? - Answers - Define mission, vision, and goal (strategic intent) - External analysis of opportunities and threats - Internal analysis of strengths and weaknesses - Create strategic fit through SWOT - Formulate appropriate strategy - Implement chosen strategy - Monitor performance and modify if necessary There can be many goals that firms pursue, provide some examples - Answers - Profitability (net profits) - Efficiency (low costs) - Market Share - Growth (increase in total assets, sales) - Survival (avoid bankruptcy) - Reputation What is meant by "scenario planning?" - Answers - Envision different "what-if" plans - Generates a dominant plan - Must implement the most probable option - Keeps other scenarios in the event of changes... "Arab Spring" impact on the oil industry? - Good example of the AFI framework How is the Japan Railways an example of "emergent" planning? - Answers - Autonomous Actions - Serendipity - Resource Allocation Process - Real Options What are the key elements of a PESTEL Framework? - Answers - Political - Economic - Sociocultural - Technological - Environmental - Legal What are the characteristics of perfect competition? - Answers - Many small firms - commodity products Ex. Pet supply stores What are the characteristics of oligopoly? - Answers - A few large firms - interdependent Ex. Express mail, soft drinks What is the definition of an "efficient market?" - Answers Market where all pertinent information is available to all participants at the same time, and where prices respond immediately to available information. What three factors impact company performance? - Answers - Industry Context - National Context - Company Capabilities and Strategies What is the Structure-Conduct-Performance Model? - Answers - Industry Structure Number of buyers and sellers, Degree of product differentiation, Barriers to entry, Cost structures, Vertical integration, Alliances, - Firm Conduct Pricing, Advertising, R&D, Investment in plant and equipment, - Performance Economic profits, Accounting profits (ratios), NPV/DCF, MVA/EVA, Tobin's Q, What are the 5-Forces? - Answers - Rivalry among competitors - Threat of new entrants - Bargaining power of buyers - Threat of substitutes - Bargaining power of suppliers What is the relationship between the Structure-Conduct Performance Model and the 5-Forces? - Answers Porter's 5 Forces are based on SCP Model. Shows what industries are most attractive Industry level If 5 Forces is the answer, what is the question? - Answers Why are some industries more attractive than others? What is meant by "barriers to entry?" - Answers Obstacles that determine how easily a firm can enter an industry. Advantageous for incumbent firms What are examples of barriers to entry? - Answers - Economies of scale. - Network effects. - Customer switching costs. - Capital requirements. - Advantages independent of size. - Government policy. - Credible threat of retaliation. What is meant by economies of scope? - Answers - Multi-product economies of scale ("economies of scope") - Example: Cost (Iron, Steel) Cost (Iron) + Cost (Steel) - Key idea: Shareable input (In this case, thermal economies in the production of iron and steel) - Modern examples: Aircraft, Automobiles, Consumer electronics, Household Appliances, Personal Computers, Software, Power Tools What does an 89% learning curve mean? - Answers each doubling of plant scale over time was accomplished by an 11% reduction in unit costs. Thus, there is an "89% learning curve." How can reputation for toughness be a barrier to entry? - Answers If an incumbent firm is notoriously tough on new entrants, many new firms may want to stay away from this industry. Why is product differentiation often an effective barrier to entry? - Answers - If a firm has many different products, it will be hard for new firms to find a new product in the industry that has not been established. Limits how new firms will enter the industry - Brand identification and customer loyalty plays an important role. How is product differentiation often measured? - Answers High product quality, fast delivery, design and new products, and unique product features. Explain how switching costs of buyers can be a barrier to entry - Answers If a new company enters a market, many consumers that have developed brand loyalty will be skeptical to switch. Name two kinds of barriers to entry in the value chain - Answers - Economies of Scale - Brand Loyalty Explain how exit barriers can be entry barriers - Answers - High exogenous and endogenous sunk costs (not just high fixed costs!) - High asset specificity - Highly illiquid assets - Low salvage value if exit occurs - High switching costs - Low mobility of assets - Credible commitments - Irreversible investment - New firms may be skeptical entering knowing that these high exit costs exist. A key concept in strategy is "irreversible investment." What are some of the ways this idea is expressed in accounting, economics, finance, and management courses? - Answers Firm-specific resources are investments that are difficult to reverse and may provide a source of competitive advantage. Irreversible investments create credible barriers to entry and are thus valuable. Under what conditions is a supplier group powerful? - Answers - Dominated by a few companies - No substitutes for supplier products - Suppliers products are differentiated - Incumbents face high switching costs - Product is important input to buyer - Forward Integration is a credible threat - Suppliers exert power in the industry by threatening: (1) to raise prices or (2) to reduce quality. - Powerful suppliers can squeeze industry profitability. Under what conditions is a buyer group powerful? - Answers - A few large buyers (potential collusion) - Large buyers relative to a seller (e.g., HMO power buying pharmaceuticals) - Products are standardized and undifferentiated - Buyers face few switching costs - High switching costs for sellers - Backward Integration is credible (buyer has full information) - Buyers compete with the supplying industry by: (1)Bargaining down prices (2)Forcing higher quality (3) Playing firms off of each other When is the threat of substitutes high? - Answers - Substitute is good price-performance trade-off - Buyers' switching costs to substitute are low - New substitutes can emerge over time Under what conditions will incumbent rivalry be high? - Answers - Many competitors in the industry (industry concentration is low) - Firms are of equal size - Industry growth is slow or shrinking (over-capacity is high) - Exit barriers are high (1)Contractual obligations (2)Geographic or historical attachments - Products and services are direct substitutes (product differentiation is low) Why is advertising completion preferable for a firm rather than price competition? - Answers - Firms will engage in non-price competition, in spite of the additional costs involved, because it is usually more profitable than selling for a lower price, and avoids the risk of a price war. - Advertising battles may well expand or enhance the level of product differentiation in the industry for the benefit of all firms. What are some of the uses of industry analysis? - Answers - Static Analysis (How do we explain current rivalry and profitability?) - Dynamic Analysis (Where is the industry likely to be headed in the future?) Explain the role of complements as the 6th Force. - Answers - The biggest benefit of considering complementors is that they add a cooperative dimension to Porter's (1980) "competitive forces" model. - Identifying complements, which add value to original product when the two are together. They increase demand for primary product and enhancing profit potential. Not a zero sum game, searching out compliments that can help both partners. - The suppliers of the complements create value for the industry and can exercise bargaining power; a product or service that adds value to the original product when its performance increases or its price falls What is meant by "core competencies"? - Answers - Unique strengths deep inside that differentiate a firm - Can drive competitive advantage