Question 1

Tesco is saving 3 million USD a year alone in landfill taxes by simply sending its used cooking oil and chicken fat to be used to generate bioenergy rather than putting it in a landfill. This is an example of an overall cost leadership strategy because it
A)gives them competitive advantage by reducing energy costs.
B)gives them competitive advantage by decreasing productivity.
C)eliminates the need to compete based on its products.
D)requires the customer to recognize its efforts.

Accepted Answer

Tesco, the largest grocery retailer in Britain, has changed how it views waste in order to become more efficient. This enhances its cost leadership position.

Question 2

Global logistics firms such as DHL Supply Chain and Global Forwarding or C.H. Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as
A)effective layout of receiving dock operations.
B)effective use of automated technology to reduce scrappage rates.
C)minimize costs associated with employee turnover through effective policies.
D)standardized accounting practices to minimize personnel required.

Accepted Answer

Inbound logistics is a primary activity in the value chain. These global logistics firms strive to achieve cost advantages through the design of their receiving dock operations, among other operation design features.

Question 3

Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up collection of receivables are ineffective strategies.

Accepted Answer

One of the strategies used by successful companies in need of a turnaround is to try to aggressively cut administrative expenses and inventories and speed up collection of receivables. Costs also can be reduced by outsourcing production of various inputs for which market prices may be cheaper than in-house production costs.

Question 4

Piecemeal productivity improvements can be used by a mature business in need of a turnaround.

Accepted Answer

There are many ways in which a firm can eliminate costs and improve productivity. Although individually these are small gains, they cumulate over a period of time to substantial gains. Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain.

Question 5

Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up collection of receivables provide no real value.

Accepted Answer

A study of 260 mature businesses in need of a turnaround identified three strategies used by successful companies. One of these strategies is asset and cost surgery. Firms in turnaround situations try to aggressively cut administrative expenses and inventories and speed up collection of receivables.

Question 6

Piecemeal productivity improvements are not useful as a turnaround strategy because they are not cumulative.

Accepted Answer

Piecemeal productivity improvements, although individually are small gains, cumulate over a period of time to substantial gains.

Question 7

The primary aim of strategic management at the business level is
A)maximizing risk-return tradeoffs through diversification.
B)achieving competitive advantage.
C)maximizing differentiation of products and/or services.
D)achieving a low cost position.

Accepted Answer

How firms compete with each other and how they attain and sustain competitive advantages goes to the heart of strategic management. In short, the key issue becomes to identify why some firms outperform others and enjoy such advantages over time.

Question 8

HSN CEO Mindy Grossman tailored the company offerings to meet the changing needs of her customer base in her quest to turnaround the company.

Accepted Answer

She tailored company offerings to meet the changing needs of her customer base. In the deep days of the recession in 2008-2009, this meant shifting from offering high-priced jewelry and fashions to providing products and services that helped the HSN customers save time and money.

Question 9

Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize which generic strategy?
A)differentiation
B)differentiation focus
C)stuck-in-the-middle
D)overall cost leadership

Accepted Answer

Examples of overall cost leadership within primary value chain activities may involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities may include expertise in process engineering (technology development).

Question 10

When company performance severely erodes, no strategies exist that can help to reverse its situation and enhance its competitive position.

Accepted Answer

When company performance severely erodes, turnaround strategies are needed to reverse its situation and enhance its competitive position. We have discussed three approaches: asset cost surgery, selective product and market pruning, and piecemeal productivity improvements.

Question 11

Southwest Airlines uses an overall cost leadership strategy. This could fail if it
A)cannot maintain parity on differentiation dimensions requested by customers.
B)maintains parity with competitors on low cost.
C)exceeds customer expectations.
D)increases its sales prices while maintaining competitor parity.

Accepted Answer

To generate above-average performance, a firm following an overall cost leadership position must attain competitive parity on the basis of differentiation relative to competitors. The no-frills product strategy employed by Southwest Airlines may fail if it is unable to attain parity on important dimensions of differentiation such as quick responses to customer requests for services or design changes.

Question 12

When a company finds that its performance is in decline at any stage in the life cycle, it can look toward a turnaround strategy that is designed to help it to grow but not necessarily to be profitable.

Accepted Answer

A turnaround strategy involves reversing performance decline and reinvigorating growth toward profitability. The need for turnaround may occur at any stage in the life cycle but is more likely to occur during maturity or decline.

Question 13

A manufacturing business pursuing cost leadership is likely to
A)focus on a narrow market segment.
B)use advertising to build brand image.
C)rely on experience effects to raise efficiency.
D)put heavy emphasis on product engineering.

Accepted Answer

Key to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.

Question 14

With experience, unit costs of production decline as _________ increases in most industries.
A)costs
B)volume
C)price
D)output

Accepted Answer

With experience, unit costs of production decline as output increases in most industries. The experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at efficiency gains that come with experience. For a range of products, as cumulative experience doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent.

Question 15

Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform
A)at about the same level as firms that achieve either cost or differentiation advantages.
B)higher than firms that achieve either a cost or a differentiation advantage.
C)about the same as firms that are stuck-in-the-middle.
D)lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages.

Accepted Answer

Research supports the notion that firms that identify with one or more of the forms of competitive advantage outperform those that do not. There has been a rich history of strategic management research addressing this topic. One study found that businesses combining multiple forms of competitive advantage (differentiation and overall cost leadership) outperformed businesses that used only a single form.

Question 16

Overhead costs associated with the number of layers of management in a firm are part of the _________ activities of the value chain.
A)human resources management
B)operations
C)firm infrastructure
D)marketing and sales

Accepted Answer

Exhibit 5.3 draws on the value-chain concept to provide examples of how a firm can attain an overall cost leadership strategy in its primary and support activities. Reducing management layers to reduce overhead costs is the support activity associated with the firm infrastructure.

Question 17

Renault has found a way to generate high profits on low-priced cards by using simple designs that incorporate components from older car designs and a no-discount retail policy. They are using a(n) ______________ strategy.
A)differentiation
B)overall cost leadership
C)focus
D)broad differentiation

Accepted Answer

Overall cost leadership requires a tight set of interrelated tactics that include: aggressive construction of efficient-scale facilities and vigorous pursuit of cost reductions from experience.

Question 18

HSN CEO Mindy Grossman managed a successful turnaround by first engaging with employees.

Accepted Answer

Grossman managed a successful turnaround of HSN by first finding value in engaging with employees. During her first day at HSN, she choose to go through the same new-employee orientation that all employees go through. She felt this humanized her in the minds of other employees. On her second day, she held a town-hall meeting so that she could directly introduce herself and set the tone that she was accessible and that all employees were valued and could have a future at HSN. She also set up a policy to regularly have breakfasts and lunches with employees.

Question 19

One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by
A)spreading out a given expense or investment over a greater volume.
B)hiring more experienced personnel.
C)repeating a process until a task becomes easier.
D)competing in an industry for a long time.

Accepted Answer

Key to an overall cost leadership strategy is the experience curve, which refers to how business learns to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries.

Question 20

A business that strives for a low-cost advantage must attain a(n) _______ cost advantage over rivals.
A)relative
B)evolutionary
C)absolute
D)potential

Accepted Answer

A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals.

Quiz 5: Business-Level Strategy: Creating and Sustaining Competitive Advantages

Tesco is saving 3 million USD a year alone in landfill taxes by simply sending its used cooking oil and chicken fat to be used to generate bioenergy rather than putting it in a landfill. This is an example of an overall cost leadership strategy because it

Global logistics firms such as DHL Supply Chain and Global Forwarding or C.H. Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as

Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up collection of receivables are ineffective strategies.

Piecemeal productivity improvements can be used by a mature business in need of a turnaround.

Firms in turnaround situations find that cutting administrative expenses and inventories and speeding up collection of receivables provide no real value.

Piecemeal productivity improvements are not useful as a turnaround strategy because they are not cumulative.

The primary aim of strategic management at the business level is

HSN CEO Mindy Grossman tailored the company offerings to meet the changing needs of her customer base in her quest to turnaround the company.

Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize which generic strategy?

When company performance severely erodes, no strategies exist that can help to reverse its situation and enhance its competitive position.

Southwest Airlines uses an overall cost leadership strategy. This could fail if it

When a company finds that its performance is in decline at any stage in the life cycle, it can look toward a turnaround strategy that is designed to help it to grow but not necessarily to be profitable.

A manufacturing business pursuing cost leadership is likely to

With experience, unit costs of production decline as _________ increases in most industries.

Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform

Overhead costs associated with the number of layers of management in a firm are part of the _________ activities of the value chain.

Renault has found a way to generate high profits on low-priced cards by using simple designs that incorporate components from older car designs and a no-discount retail policy. They are using a(n) ______________ strategy.

HSN CEO Mindy Grossman managed a successful turnaround by first engaging with employees.

One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by

A business that strives for a low-cost advantage must attain a(n) _______ cost advantage over rivals.