WPC 480 EXAM QUESTIONS AND ANSWERS
LATEST UPDATE (ALREADY GRADED A+)
Ackbar, Inc. has had 40% growth in accounting profits for several years, and each new year has been
the highest profits Ackbar has ever had. What can you conclude from this information about Ackbar's
competitive advantage?
Competitive advantage cannot be assessed.
True or False: Firms that outperform their competitors have a high quality, planned strategy.
False
A firm may have negative profits for several years in a row, and still decide to give a big performance
bonus to the CEO or other top executives. What is the best explanation for getting a bonus when you
aren't making a profit?
The firm has been growing rapidly along with the price of the stock.
Accounting profit is best for measuring performance for relatively stable firms or industries; with high
growth the profits are put back into the company so as to get greater profits in the future.
major source of inaccuracy as an estimate of the value and/or performance of the firm: Accounting
Value
Base on Historical Data
major source of inaccuracy as an estimate of the value and/or performance of the firm: Shareholder
Value
Based on predictions of future growth
major source of inaccuracy as an estimate of the value and/or performance of the firm: Balanced
Scorecard
Based on perceptions of value by customer
What are problems with asking successful firms to explain how they achieved their success AFTER
they became successful?
People tend to attribute all their success to their own efforts.
People tend to forget all the mistakes made along the way.
People tend to reverse the causality and forget that success came unexpedly before the strategy.
, Takeaways Module 2:
The halo effect is where the success of the firm makes people assume that the people at the top of the
firm are successful at setting strategy -- but that is not always true. Luck plays a role, and sometimes the
leadership stumbled into success and didn't have much of a plan at all -- but when telling the story
afterwards they will tend to only focus on how they made decisions and took actions that intentionally
led to success.
No one at the top of a firm likes to admit that success was a surprise and unplanned, even though that
often happens. Or that it was an incremental process of trial and error, and they did not have a long
term strategy. Once the firm becomes successful, people tend to claim success was due to their efforts
(conversely, if a firm fails they blame everything on the environment, timing, etc.) and make it appear as
if the key to their success was an intentional plan all the time.
the way of measuring firm performance with the situation or condition where that metric will be most
useful to a strategic analyst: Accounting Value
Firms value is mostly in tangible assets
the way of measuring firm performance with the situation or condition where that metric will be most
useful to a strategic analyst: Shareholder Value
Firm is rapidly growing in several markets
the way of measuring firm performance with the situation or condition where that metric will be most
useful to a strategic analyst: Balanced Scorecard
Firm sells a product where prand and status are important
Balanced scorecard is about understanding and evaluating value as a function of customer's (and
other's) perceptions of the value. For a firm that sells status or a brand image, the greatest value will be
in the perceived value people give to the goods and services the firm sells.
True or False: Theories about firm performance ought to be constructed by studying both firms that
succeed and firms that fail.
True
If you only study firms that succeed, you cannot decide what elements are related to success, and what
elements are not. Only when you compare them to failed firms is it possible to identify the elements
that are only associated with success, or that don't seem to matter at all.
What is the halo effect?
It is attributing performance of a firm to the skill of the top manager.
Why is the halo effect an irrational bias of perception -- that is, why is the halo effect wrong?
The top manager has authority over the firm, but doesn't control the entire firm.
LATEST UPDATE (ALREADY GRADED A+)
Ackbar, Inc. has had 40% growth in accounting profits for several years, and each new year has been
the highest profits Ackbar has ever had. What can you conclude from this information about Ackbar's
competitive advantage?
Competitive advantage cannot be assessed.
True or False: Firms that outperform their competitors have a high quality, planned strategy.
False
A firm may have negative profits for several years in a row, and still decide to give a big performance
bonus to the CEO or other top executives. What is the best explanation for getting a bonus when you
aren't making a profit?
The firm has been growing rapidly along with the price of the stock.
Accounting profit is best for measuring performance for relatively stable firms or industries; with high
growth the profits are put back into the company so as to get greater profits in the future.
major source of inaccuracy as an estimate of the value and/or performance of the firm: Accounting
Value
Base on Historical Data
major source of inaccuracy as an estimate of the value and/or performance of the firm: Shareholder
Value
Based on predictions of future growth
major source of inaccuracy as an estimate of the value and/or performance of the firm: Balanced
Scorecard
Based on perceptions of value by customer
What are problems with asking successful firms to explain how they achieved their success AFTER
they became successful?
People tend to attribute all their success to their own efforts.
People tend to forget all the mistakes made along the way.
People tend to reverse the causality and forget that success came unexpedly before the strategy.
, Takeaways Module 2:
The halo effect is where the success of the firm makes people assume that the people at the top of the
firm are successful at setting strategy -- but that is not always true. Luck plays a role, and sometimes the
leadership stumbled into success and didn't have much of a plan at all -- but when telling the story
afterwards they will tend to only focus on how they made decisions and took actions that intentionally
led to success.
No one at the top of a firm likes to admit that success was a surprise and unplanned, even though that
often happens. Or that it was an incremental process of trial and error, and they did not have a long
term strategy. Once the firm becomes successful, people tend to claim success was due to their efforts
(conversely, if a firm fails they blame everything on the environment, timing, etc.) and make it appear as
if the key to their success was an intentional plan all the time.
the way of measuring firm performance with the situation or condition where that metric will be most
useful to a strategic analyst: Accounting Value
Firms value is mostly in tangible assets
the way of measuring firm performance with the situation or condition where that metric will be most
useful to a strategic analyst: Shareholder Value
Firm is rapidly growing in several markets
the way of measuring firm performance with the situation or condition where that metric will be most
useful to a strategic analyst: Balanced Scorecard
Firm sells a product where prand and status are important
Balanced scorecard is about understanding and evaluating value as a function of customer's (and
other's) perceptions of the value. For a firm that sells status or a brand image, the greatest value will be
in the perceived value people give to the goods and services the firm sells.
True or False: Theories about firm performance ought to be constructed by studying both firms that
succeed and firms that fail.
True
If you only study firms that succeed, you cannot decide what elements are related to success, and what
elements are not. Only when you compare them to failed firms is it possible to identify the elements
that are only associated with success, or that don't seem to matter at all.
What is the halo effect?
It is attributing performance of a firm to the skill of the top manager.
Why is the halo effect an irrational bias of perception -- that is, why is the halo effect wrong?
The top manager has authority over the firm, but doesn't control the entire firm.
