According to Cadbury (2002), corporate governance is an issue of power and:

b) Accountability

Feedback:

Corporate governance is required to ensure that the managers of an organization do not act in their own

self-interest.

Page reference: 392

The OECD argues that corporate governance problems arise because:

a) Ownership and control is separated

Feedback:

This is known as the 'principle-agent problem'.

Page reference: 393

The Institute of Chartered Accountants in England and Wales considers argue that one particular

stakeholder group should have primacy over all other groups. Which stakeholder group are they

referring to?

c) Shareholders

Feedback:

This is because it is shareholders' money at stake.

Page reference: 394

An organization that is owned by shareholders but managed by agents on their behalf is

conventionally known as the modern:

b) Corporation

Feedback:

The modern corporation has a number of attributes that have led to its spread and acceptance.

Page reference: 395

The modern corporation has four characteristics. These are limited liability, legal personality,

centralized management and:

d) Transferability

Feedback:

It is a feature of the modern corporation that shareholders can sell their shareholding when they wish.

This makes the level of risk associated with investing in a corporation more acceptable.

Page reference: 395

What makes a corporation distinct from a partnership?

a) If the members of a corporation die, the corporation remains in existence providing it has capital

Feedback:

This is known as 'legal personality'. In contrast, a partnership does not have a legal personality.

Page reference: 396

The term 'asymmetry of information' means information in a corporation is:

c) Not equally transparent to all stakeholders

Feedback:

Asymmetry of information occurs when the managers have access to more information than some of the

owners who may be widely dispersed.

Page reference: 398

The view that sees profit maximization as the main objective is known as:

a) Shareholder theory

Feedback:

The opposing view is stakeholder theory which has the view that corporations' role in society goes

beyond just making a profit.

Page reference: 398

Who is the most famous exponent of shareholder theory?

c) Milton Friedman

Feedback:

Milton Friedman argues that managers who run a corporation for social good are being irresponsible with

shareholders' money. 

Page reference: 398

The key protagonist of stakeholder theory is:

b) R. E Freeman

Feedback:

Stakeholder theory does not give primacy to shareholders.

Page reference: 405

Where an organization takes into account the effect its strategic decisions have on society, this is

known as:

d) Corporate social responsibility

Feedback:

CSR is an umbrella term for the ethical behaviour of an organization with respect to all of its stakeholders.

More and more organizations are becoming aware of the need to act in a manner that goes beyond the

legal minimum obligation.

Page reference: 406

Which intervention resulted from the Enron scandal?

b) The Sarbannes-Oxley Act

Feedback:

The Sarbannes-Oxley Act went further than codes of conduct. Some companies are having difficulty

adhering to the stipulations of the Act.

Page reference: 415

Executive pay in the UK was reviewed by:

a) The Greenbury Committee

Feedback:

The Greenbury report was in response to concerns over excessively high levels of executive pay. These

executives were popularly referred to as 'fat cats'.

Page reference: 416

Kakabadse and Kakabadse (2001) argue that existing corporate governance models in general

are:

b) Increasing social inequalities

Feedback:

These authors represent the stakeholder view. They argue that corporate governance issues need to be

debated at the level of society, rather than at the level of the corporation.

Page reference: 423

In Japan, some corporations operate within the philosophy of 'kyosei'. The term 'kyosei' means:

c) Living and working for the common good

Feedback:

The kyosei way of running a corporation reflects stakeholder theory rather than shareholder theory. It

sees business as being part of society.

Page reference: 405

Leadership is defined as:

b) Bringing about change

Feedback:

Leadership is distinct from management. Management is about bringing order to a situation. Leadership is

about creating a shared vision and bringing about the changes needed to achieve that vision.

Page reference: 354

Collins and Porras found that successful organizations use BHAGs to motivate and inspire. What

are BHAGs?

c) Big Hairy Audacious Goals

Feedback:

Another purpose of BHAGs is to provide continued momentum after the leader has gone.

Page reference: 354

Which of the following activities is most likely to be a leadership activity?

b) Formulating strategy

Feedback:

Leadership and management are distinctly different activities.

Page reference: 357

Cyert (1990) argues that leaders perform three broad functions. These are:

a) Organizational, interpersonal, decision

Feedback:

Cyert argues that most leaders are actually being managers.

Page reference: 357

Senge identifies three distinct leadership roles. These are:

a) Designer, teacher, steward

Feedback:

The designer builds the core values. The teacher helps people to challenge their assumptions. The

steward role involves guidance.

Page reference: 359

Organizations that are good at developing relevant capabilities to respond to a changing context

are known as:

c) Learning organizations

Feedback:

There is a large body of literature about learning organizations. A learning organization is one that can

respond to changes in its environment through a process of adaptation. It has a culture conducive to

learning and the acceptance of change.

Page reference: 359

Which of the following attributes is not seen as being necessary for an organization to become a

'learning organization'?

a) Cultural diversity

Feedback:

Whilst cultural diversity could increase the number of viewpoints in an organization and thus increase

overall knowledge, there is no reason why a culturally homogeneous organization should not become a

learning organization.

Page reference: 359

Emotional intelligence is manifest in self-awareness, self-regulation, empathy, social skills and:

b) Motivation

Feedback:

Research by Daniel Goleman suggests that an organization's success is linked to the emotional

intelligence of its leader.

Page reference: 362

Daniel Goleman groups leadership attributes into three areas. These are emotional intelligence,

technical skills and:

a) Cognitive skills

Feedback:

Goleman suggests that traditional attributes associated with leaders such as technical skills and IQ does

not go far enough to identify great leaders.

Page reference: 362

What does Goleman say regarding whether emotional intelligence can be learned?

d) It can only be learned with effort

Feedback:

According to Goleman EQ can be learned but only with effort. He also argues that EQ increases with age.

Page reference: 364

Macoby (2000) identifies a particular type of leader who can be very effective but also potentially

destructive. What type of leader is this?

c) Narcissistic

Feedback:

Narcissism is a personality type identified by Freud. Narcissists want to be admired. They can have

grandiose ideas that are not always productive.

Page reference: 364

In the research conducted by Groysgerg et al, what type of leadership did they argue to be the

most portable between organizations?

b) Strategic human capital

Feedback:

Groysberg et al studied former GE leaders to ascertain whether they possessed leadership skills that

could be transferred between industries.

Page reference: 369

A country that measures high on power distance would have which of the following

characteristics?

a) People are accepting of unequal distribution of power

Feedback:

Power distance is one of the measures of culture constructed by Hofstede. It measures the extent to

which people tolerate unequal power distribution. Decisions are likely to be centralized and hierarchical

structures are the norm.

Page reference: 372

What fifth dimension was added later to Hofstede's framework of culture?

a) Long-term orientation

Feedback:

Nations with a long-term orientation value thrift and hard work accepting that it is necessary to wait for

results. 

Page reference: 373

Kets de Vries describes Richard Branson and Percy Barnevik as what type of leaders?

a) Charismatic

Feedback:

Charismatic leaders are dissatisfied with the status-quo and are able to communicate a vision that others

are willing to follow.

Page reference: 376

The use of rules, policies and procedures to coordinate employees are appropriate in:

b) stable environments

Feedback:

The use of rules, policies and procedures to coordinate employees will be appropriate for organisations

that operate in a relatively stable environment. 

Page reference: 314

Alfred Chandler produced classic work on the study of organizational structures. He was of the

view that:

a) Strategy determines structure

Feedback:

Chandler was of the view that an organization's strategy led to particular structural forms. His work has

been extended by various writers such as Burns and Stalker and Lawrence and Lorsch. This view has

been contested by subsequent researchers.

Page reference: 315

If a person is unsure what their role within the organization should be, they are experiencing:

b) Role ambiguity

Feedback:

This can be a particular problem in a matrix structure.

Page reference: 313

Bartlett and Ghoshal (1990) distinguish between an organization's anatomy, physiology and

psychology. The anatomy is the organization's:

a) Structure

Feedback:

Bartlett and Ghoshal believe that organizational change requires a change to its psychology first (values,

beliefs and norms).

Page reference: 320

Which type of organizational structure most closely describes Benetton?

b) A networked structure

Feedback:

Benetton structure consists of a central hub which controls a network of outsourced activities.

Page reference: 321

Bartlett and Ghoshal argue that process is more important than structure. They identified three

processes that form an organization's:

a) Core organizational processes

Feedback:

Bartlett and Ghoshal studied 20 organizations which understood the importance of process.

Page reference: 322

The core organizational processes as identified by Bartlett and Ghoshal are entrepreneurial

processes, competence-building processes and:

d) Renewal processes

Feedback:

Bartlett and Ghoshal argue that processes are more important than structure.

Page reference: 322

Goold and Quinn suggest there are three main reasons for strategic control systems. These are

coordination, motivation and:

a) Intervention

Feedback:

Strategic control systems give senior managers an indication of when it is necessary to intervene in the

decisions of business unit managers.

Page reference: 324

In which type of situation do Goold and Quinn consider strategic control systems to be most

valuable?

a) Stable environment, objectives easy to measure

Feedback:

A strategic control system is still of use in a turbulent environment but it cannot be too rigidly applied.

Page reference: 325

An organization adjusts its pricing in response to falling customer demand. This is an example of

which type of learning?

a) Single-loop learning

Feedback:

Single-loop learning does not challenge underlying assumptions held within the organization. 

Page reference: 412

According to Collins and Poras, what separates visionary organizations from merely good

organizations is that:

b) They are not prepared to change their core values

Feedback:

Collins and Poras tried to identify the factors that distinguish visionary organizations from non-visionary

organizations. They concluded that visionary organizations have exceptionally strong core values that

they are not prepared to change.

Page reference: 324

Ouchi identified the Theory Z organization. A Theory Z organization is one which:

b) Is based on trust

Feedback:

The Theory Z organization is based on informal controls and trust. 

Page reference: 344

Collins studies a number of firms to distinguish 'great' firms from 'good' firms. Great firms

understood three things - 'what can you be best in the world at', 'what drives your economic

engine' and:

c) What are you deeply passionate about

Feedback:

According to Collins it is not enough to want to be the best, a firm needs to know where it can be the best.

Page reference: 347

Collins uses the 'hedgehog concept' to distinguish great companies from good companies. What

does the hedgehog concept mean?

a) Being best at a particular thing

Feedback:

Collins uses the analogy of the hedgehog and the fox to distinguish great from good companies. The

hedgehog is good at one particular thing (rolling into a ball) whereas the fox is always trying to outwit the

hedgehog. The hedgehog always wins because its one thing is more effective.

Page reference: 346

According to Greiner, in his five phases of growth model, what type of crisis follows phase 1 (growth

through creativity)?

c) Crisis of leadership

Feedback:

The crisis of leadership is the first revolutionary change for a small, young organization. After a certain

size, the founder cannot manage everything and has to appoint managers.

Page reference: 332

Theodore Levitt (1983) was a proponent of which view?

c) Global convergence

Feedback:

Levitt argued that world tastes were becoming 'irrecocably homogenized'.

Page reference: 268

A cement producer would be advised to follow which of the following international strategies?

d) None of these

Feedback:

For something like cement local adaptation is not required. There is little to be gained from global

integration because it would be expensive to transport cement from a central location.

Page reference: 284

Porter has designed a framework to help understand why certain countries achieve global

competitive advantage in certain industries. It also helps internationalizing firms to make location

decisions. The framework is called:

d) Porter's Diamond

Feedback:

This model was popularized in Porter's book 'The Competitive Advantage of Nations'. The theory is that a

country or region needs to possess more than a natural advantage in resources to become globally

competitive in a particular industry.

Page reference: 289

In terms of Porter's Diamond model, a demand condition as applied to the chocolate industry in

Belgium would be:

b) Belgian consumers are particularly discerning about chocolate

Feedback:

Demand conditions refer to the nature and behaviour of customers. In Japan for example, consumers do

not have a lot of space and so demand small items. This is one reason why initially Japan was a world

leader in miniaturization.

Page reference: 291

If pressures to adapt to local tastes are high and pressures to lower costs are low, a firm should

follow which international strategy?

c) Multi-domestic

Feedback:

Some types of products require local adaptation such as frozen foods. Also, some products would not

benefit from being centrally produced.

Page reference: 284

Which of the following products is arguably most suited to a global strategy?

a) Luxury watches

Feedback:

It is argued that luxury brands are universally appealing across the globe. For example, Gucci clothes or

Rolex watches. Cars might seem like an obvious example of a global product but they do mostly require

some degree of local adaptation.

Page reference: 269

Douglas and Wind argued that price-based worldwide strategies are not sustainable because:

c) Price-based strategies are easily imitated

Feedback:

Levitt asserted that consumers were becoming increasingly price-sensitive and would sacrifice quality for

low prices.

Page reference: 269

With reference to the global convergence/divergence debate, Hofstede (1997) argued that:

b) There is no evidence that cultures of different countries are converging

Feedback:

Hofstede is more on the side of Douglas and Wind than Levitt.

Page reference: 269

There are three tools for achieving global competitive advantage. These are national differences,

economies of scale and:

b) Economies of scope

Feedback:

Economies of scope is where the same resources can be exploited across different products/markets.

Page reference: 277

A strategy that can exploit local differences and achieve global efficiencies is called:

a) Transnational

Feedback:

Bartlett and Ghoshal (1989) argue that a new organizational form is necessary to take advantage of both

local differences and achieve global efficiencies. It is difficult to implement in practice because it is so

complex.

Page reference: 280

The 'Icarus paradox' describes a situation where:

c) A firm becomes the victim of its own success

Feedback:

Firms that have been successful in the past can fail to see the need for innovation thus becoming a victim

of their own success.

Page reference: 290

The geographic grouping known as the triad consists of:

b) Japan, Europe and USA

Feedback:

A high proportion of world trade takes place between firms in the triad nations. Other groupings are

emerging as powerful global forces.

Page reference: 293

Ghemawat (2005) argues that globalization is more accurately described as:

d) Regionalization

Feedback:

Hardly any firms are truly global. Most operate in a number of markets within countries in a particular

region of the world.

Page reference: 295

Administrative heritage includes elements such as:

c) A firm's configuration, management style and values

Feedback:

Firms originating in different parts of the world tend to have a different administrative heritage. Firms are

to some extent structured in such a way because of historical factors. 

Page reference: 282

The three objectives of the transnational organization are efficiency, responsiveness and:

d) Learning

Feedback:

The transnational organization does not conform to a rigid structure. It is a collection of integrated

networks that together aim to achieve efficiency, responsiveness and learning.

Page reference: 282

A decision made at the business level of a firm would be:

c) How to compete in a given market

Feedback:

Business level strategy is concerned with how to compete in its market. Corporate strategy is concerned

with the overall logic of the portfolio but may give businesses considerable autonomy over competitive

strategy.

Page reference: 226

At corporate level, the scope of an organization relates to:

a) The breadth of the portfolio of SBUs

Feedback:

At corporate level, scope of portfolio means the degree to which the SBUs are serving different

industries. 

Page reference: 226

Substantial changes to the range of offerings or the markets served or both are known as:

b) Diversification

Feedback:

Diversification can occur if this product range is new or substantially altered or if serving new markets. 

Page reference: 229

Which of the following outcomes is not an advantage of a completely vertically integrated

business?

c) Lowering of risk is achieved

Feedback:

Whilst vertical integration can increase control over quality and lower transaction costs, there is the

disadvantage of requiring specialized knowledge of different business activities, such as manufacturing

and retailing in the case of Zara and Benetton. Lowering of risk is not achieved because the business is

only operating in one industry.

Page reference: 230

'Synergy' can best be explained by which of the sums below?

a) 2+2=5

Feedback:

Synergy is where two or more units or companies work better together than they do apart. They are 'more

than the sum of their parts'. However, quite often attempted synergies result is less than sum of parts.

Page reference: 227

The Boston Group Portfolio Matrix is used to assess:

c) The balance of the portfolio of businesses

Feedback:

This type of matrix became popular in the 1970s. It was thought at the time that a 'balanced portfolio' was

necessary i.e. a mix of cash generators, fast growing, small, large etc. However, it has not been proven

that a balanced portfolio offers any benefits.

Page reference: 246

The parenting fix matrix is used to assess whether:

a) The businesses are a good fit with the parent company

Feedback:

The parenting fix matrix is for the purpose of identifying whether businesses within the portfolio are ones

that the corporate parent understands and can add value to.

Page reference: 256

In the parenting fix matrix, a business that the parent understands but doesn't add any value to is

known as:

d) A ballast business

Feedback:

A ballast business is one where the parent cannot add much value. It would be mutually beneficial for the

parent company to sell the business.

Page reference: 257

When evaluating a strategic option a firm can test the option against the criteria of suitability,

feasibility and acceptability. Suitability in this context means:

c) The strategy is consistent with the strengths, weaknesses, opportunities and threats identified in the

strategic analysis

Feedback:

This is just one method of evaluating strategic options. If a strategy is suitable, it addresses the issues

identified in the strategic analysis.

Page reference: 258

Ansoff's growth vector matrix is used for:

a) Analysing the different strategic directions an organization can pursue

Feedback:

Ansoff's matrix was devised in 1965. It shows the potential growth directions a firm can take using the

variables of new/present, products/markets.

Page reference: 227

In Ansoff's matrix, 'product development' involves going in the direction of:

c) New products to present markets

Feedback:

Product development and market development are medium risk strategies. The highest risk is

'diversification' - new products to new markets. 

Page reference: 227

Horizontal integration is where:

c) A firm takes over a competitor

Feedback:

Horizontal integration can also be where a firm offers complementary products at the same stage within

its value chain.

Page reference: 230

Conglomerate diversification is another name for:

a) Unrelated diversification

Feedback:

Unrelated diversification involves moving into areas where there are no linkages with existing businesses.

Page reference: 232

Which of the following statements is true when describing the merits of related and unrelated

diversification?

c) The evidence on diversification strategies is contradictory

Feedback:

The evidence is not conclusive on whether related or unrelated diversification is more successful.

Page reference: 235

What did Peters and Waterman (1982) mean when they implored businesses to 'stick to the

knitting'?

a) Corporations should strip down to core activities

Feedback:

Peters and Waterman's mantra was aimed at corporations that had become too diversified for no good

reason.

Page reference: 233

A market is defined by:

a) Demand conditions and customers

Feedback:

Industries are defined from the point of view of suppliers. Markets are defined by the point of view of

customer needs. 

Page reference: 190

Porter's generic strategies are:

b) Cost leadership, differentiation, cost focus, focus differentiation

Feedback:

Porter's generic strategies model is very well known but it has attracted a lot of criticism for being too

simplistic and not being upheld by empirical testing. 

Page reference: 192

According to Porter, if an organization does not follow either a cost reduction strategy or a

differentiation strategy they are:

b) Stuck in the middle

Feedback:

Porter's 'stuck in the middle' argument has been disproved on many occasions. It is possible to follow

both generic strategies and succeed. For example, Ikea and H&M.

Page reference: 201

In Porter's Generic Strategies model, a focus strategy involves:

b) Selling to a narrow customer segment

Feedback:

There is a problem in defining what a broad and narrow segment is which is an inherent weakness in the

model. For example, targeting women between 60-70 of a particular income, but to the whole of Europe -

is this a broad or a narrow segment?

Page reference: 198

A question for business level strategy would be:

c) How should the business compete in its market?

Feedback:

Corporate level strategy concerns the overall rationale for a particular mix of businesses. Business level

strategy concerns how to compete in its market - it is the part of the organization that the customers

interact with.

Page reference: 191

Which of Porter's generic strategies is Easyjet following?

b) Cost leadership

Feedback:

For the cost leadership strategy to be sustainable, Easyjet must be able to keep passenger volumes high

and operating costs the lowest in the industry. Easyjet must continually be aware of issues that might

reduce demand or increase costs.

Page reference: 194

The experience curve theory suggests that as output doubles, the cost of production falls by:

b) 20-30%

Feedback:

The Boston Consulting Group developed the concept of the experience curve. A cost leadership strategy

is appropriate where greater experience confers cost advantages. 

Page reference: 195

A differentiation strategy offers:

a) A broad segment something unique

Feedback:

A differentiation strategy involves offering something that a broad segment of something that they

especially value. A focus differentiation strategy involves only a narrow segment.

Page reference: 197

H&M, the clothes retailer, is for most of its products following which business level strategy?

b) Hybrid

Feedback:

At business level, organizations could follow different generic strategies for different products. For

example, Marks and Spencers includes budget lines in its clothes range (as a way of defending against

low price producers such as Primark) as well as mid-priced clothes to a broad target and expensive

clothes to a narrow target. H&M is mostly following a hybrid strategy - low price and high perceived value,

but it does have some higher priced clothes in collaboration with designers such as Karl Lagerfeld and

Stella McCartney.

Page reference: 205

According to Grant, what is the basis of competitive advantage?

d) Capabilities

Feedback:

Grant views the source of competitive advantage as residing within the firm rather than being based on a

particular positioning in an industry. Resources on their own do not confer competitive advantage, it is

how they are deployed (capabilities).

Page reference: 206

The 'durability' of resources and capabilities refers to:

b) The rate at which they depreciate or become obsolete

Feedback:

Resources and capabilities can become obsolete because of technological changes. Intangible resources

such as brand name are less vulnerable to becoming obsolete.

Page reference: 207

The 'transparency' of competitive advantage refers to the extent to which?

a) Competitors can identify the reason for the competitive advantage

Feedback:

Competitive advantage is difficult to copy if there is 'causal ambiguity' i.e. the reason for it is not known.

Page reference: 207

Kim and Mauborgne (2005) argue that organizations should try to capture uncontested market

space. These uncontested markets are known as:

b) Blue oceans

Feedback:

According to Kim and Mauborgne, blue ocean markets can be created and captured through innovations

that make competitors irrelevant, because there are no competitors. 

Page reference: 210

At which stage of the industry life-cycle is buyer power likely to be at its lowest?

a) Introduction

Feedback:

This is because buyers have few suppliers to chose from and lack knowledge to use in negotiations.

Page reference: 214

D'Aveni (1999) describes industries in terms of how turbulent they are. The four different degrees

of turbulence are described as equilibrium, fluctuating equilibrium, punctuated equilibrium and:

d) Disequilibrium

Feedback:

D'Aveni argues that organizations need to understand the pattern of turbulence in the industry in order to

achieve 'strategic supremacy'.

Page reference: 218

The 'principal-agent problem' refers to:

d) The separation of ownership from control in firms

Feedback:

In most large firms, the managers may not be the owners of the firm. They are acting on behalf of the

owners and should put the firm before their own self-interest.

Page reference: 158

Friedman (1962) is a famous exponent of the view that:

a) Business is business

Feedback:

Milton Friedman believed that the role of business is to produce value for its shareholders. It is not

business's responsibility to look after society as well. His views are referred to as the shareholder view of

business. The other approach is the stakeholder view.

Page reference: 158

Which measure of performance is arguably most useful to shareholders?

b) Wealth added index

Feedback:

The wealth added index was created by the consulting firm Stern Stewart as a more realistic way for

shareholders to understand how much value they are receiving from their investment. It should be noted

that different accounting measures can show the company performance in different lights.

Page reference: 159

Those who advocate the stakeholder view of organizations have the view that:

c) An organization has more than one purpose - it also needs to consider the society within which it

operates

Feedback:

Stakeholder theorists argue that an organization's purpose goes beyond creating value for the owners. An

organization also needs to fulfill various stakeholder expectations.

Page reference: 162

Stakeholders can be defined as:

c) Individuals or groups that affect and are affected by the organization

Feedback:

Stakeholders can be internal such as employees and owners or external such as suppliers and

customers.

Page reference: 162

Mendelow (1991) has developed a model for prioritizing stakeholders using the two variables:

b) Power and interest

Feedback:

The use of this model is subjective but it is useful as a tool for discussion. It is not always possible to

identify all stakeholders and understand their degree of power and interest.

Page reference: 162

Which two countries are most likely to give prominence to shareholders in their corporate

governance framework?

d) UK and USA

Feedback:

Corporate governance frameworks are different in different parts of the world.

Page reference: 167

The balanced scorecard approach is a framework for measuring performance based on four

factors. These are 'innovation and learning', 'the customer perspective', 'the internal perspective'

and:

c) The financial perspective

Feedback:

The balanced scorecard approach is the most well known performance measurement technique. The

measures need to be compared against 'value drivers', otherwise known as critical success factors.

Page reference: 172

The Balanced Scorecard approach has been criticized for leaving out certain measures. One of

these is:

b) Employee satisfaction measures

Feedback:

The Balanced Scorecard approach is very popular but it has below average performance itself.

Page reference: 172

Benchmarking is a popular tool to measure performance. Benchmarking involves the continual

process of comparing organizational performance against:

b) High achieving organizations

Feedback:

Benchmarking can be done using any organization that is considered 'best in class'. It does not have to

be a competitor or an organization within the same industry.

Page reference: 176

In Japan benchmarking is practiced through what is called:

b) Shukko

Feedback:

The key advantage of Shukko is the acquisition of specific knowledge that is currently lacking in the

organization. This is possible between organizations that are not direct competitors.

Page reference: 176

How many measures do Kaplan and Norton recommend an organization should include when

using the balanced scorecard approach?

b) 20-30

Feedback:

The balanced scorecard approach isn't always successful. This is partly because organizations measure

too many things.

Page reference: 175

In the balanced scorecard approach quality would come under which perspective?

a) The internal perspective

Feedback:

Other internal measures include productivity and cycle times. 

Page reference: 172

The overall purpose of the balanced scorecard approach is to:

a) Help turn strategy into action

Feedback:

One of the problems in organizations that Kaplan and Norton found was that employees do not know how

to turn strategies into day to day action. The balanced scorecard approach gives employees something to

aim for that should be consistent with the organization's strategies.

Page reference: 170

The problem with using financial measures alone to measure organizational performance is that:

a) They need to be compared with competitors to have any real meaning

Feedback:

Financial measures need to be compared with competitors to have any value in a strategic sense. 

Page reference: 170

The resource-based view is also known as:

d) The inside-out approach

Feedback:

The resource-based view of strategy dates back to 1959. It is an alternative perspective to the positioning

approach of Porter.

Page reference: 129

Toyota has excellent materials handling and inventory control. In terms of the value chain, this is

the activity of:

c) Inbound logistics

Feedback:

Toyota is an example of a firm that has used its internal capabilities to achieve superior profitability to

competitors.

Page reference: 130

Which of the following approaches is not another way of referring to the approach that is

exemplified by the Five Forces model?

c) Stretch approach

Feedback:

The stretch approach is where an organization uses its resources to create opportunities in the

environment.

Page reference: 131

An organization's reputation is an example of:

b) An intangible resource

Feedback:

Reputation is an intangible asset. It is difficult to quantify and may even be difficult to establish the cause

of the reputation.

Page reference: 132

Tacit knowledge is knowledge which is?

b) Difficult to codify

Feedback:

Tacit knowledge is an extremely important intangible asset. It is the knowledge that is difficult to express

(e.g. how to tell a joke or ride a bike) but could actually be the basis for a firm's competitive advantage.

Page reference: 150

The resources of an organization can be defined as:

a) Inputs to enable the organization to carry out its activities

Feedback:

Resources can be tangible and intangible. Resources on their own do not confer any advantage.

Page reference: 131

Competencies can be defined as:

a) Attributes that a firm requires to be able to compete in the market place

Feedback:

There is a lot of confusing terminology in the resource-based view of strategy. Competencies are

sometimes referred to as capabilities. Competencies, on their own do not confer competitive advantage.

Page reference: 132

A core competence can be defined as:

a) A cluster of attributes that confers competitive advantage

Feedback:

Core competences are sometimes referred to as strategic capabilities. 

Page reference: 133

Core competences or distinctive capabilities derive from three areas. These are:

c) Architecture, innovation and reputation

Feedback:

Core competences or distinctive capabilities are difficult to imitate but may erode over time.

Page reference: 133

Prahalad and Hamel (1990) refer to 'the tyranny of the SBU' when describing the situation where:

a) Corporations see their portfolio as a collection of discrete businesses

Feedback:

Prahalad and Hamel are of the view that corporations should try to develop core competences that span

the whole corporation and a range of markets rather than residing only within one SBU or one market.

Page reference: 133

An organization's architecture comprises of:

a) Relational contracts that exist within and outside the organization

Feedback:

The relational architecture includes elements such as trust. Relational architecture must be difficult to

imitate if it is to confer competitive advantage.

Page reference: 135

For a resource to provide the potential for sustainable competitive advantage it must be:

a) Valuable, rare, difficult to imitate, no strategic substitutes

Feedback:

A sustainable competitive advantage does not mean it is permanent but it must at least be difficult for

competitors to imitate the resource quickly and easily.

Page reference: 144

Causal ambiguity refers to the situation where:

b) The reason for something isn't fully understood

Feedback:

If the reasons for a competitor's success are not known then they are difficult to imitate.

Page reference: 146

The way in which an organization generates value from the knowledge held in the organization is

referred to as:

a) Knowledge management

Feedback:

The phenomenon of knowledge management emerged in the 1990s. It includes managing the acquisition,

codifying, sharing and exploitation of knowledge held within the firm and in external relationships.

Knowledge management also overlaps with the literature on learning.

Page reference: 150

Explicit knowledge is:

a) Knowable and easily transferable

Feedback:

Explicit knowledge is easily written down and transferred. It is different to tacit knowledge which is difficult

to express and transfer. Explicit knowledge is easier to imitate than tacit knowledge.

Page reference: 151

The term 'differential performance' refers to:

d) The differences in performance between firms with similar resources operating in the same industry

Feedback:

Industry analysis doesn't adequately answer the question as to why firms within the same industry with

similar resources differ in their profitability.

Page reference: 105

Within the debate regarding differential performance, Rumelt (1991) is of the view that:

b) The internal resources of the firm are the main driver of firm performance

Feedback:

The debate concerning what has more effect on firm performance, (industry or internal resources) is not

resolved. Different studies have found different results.

Page reference: 106

The value chain is subdivided into two main headings. These are primary activities and:

b) Support activities

Feedback:

The value chain can be seen as the chain of events that a product service passes through from inception

to customer.

Page reference: 109

The primary activities in Porter's Value Chain are:

a) Inbound logistics, operations, outbound logistics, marketing and sales, service

Feedback:

The value chain is a generic framework that can be adapted to suit a particular organization. Inbound

logistics should not be confused with procurement which is a support function.

Page reference: 109

The support activities in Porter's Value Chain are:

b) Procurement, technology development, human resource management, firm infrastructure

Feedback:

The support activities are there to ensure that the primary functions work effectively. Linkages are very

important in delivering value to the customer.

Page reference: 110

The 'operation' in a passenger airline service would be:

b) Getting passengers and baggage from A to B by means of flying in an aircraft

Feedback:

It is sometimes difficult to fit Porter's value chain framework to a particular firm because the value chain

seems more tailored to a manufacturing firm. The important thing about the value chain is how the

different activities are linked together to provide overall value.

Page reference: 109

Which of the following activities is NOT the direct concern of the procurement activity?

b) Obtaining assets such as plant and machinery

Feedback:

Procurement concerns obtaining the materials necessary for the operation. The inbound logistics activity

is concerned with receiving and storing the materials.

Page reference: 110

The leadership style of the person leading an organization would come under which support

activity?

d) Firm infrastructure

Feedback:

Firm infrastructure includes activities such as general management, planning and finance. Leadership

would come under this activity although it is also related to the human resource management activity.

Page reference: 110

The primary and support activities contain a further subdivision of activities that impact on

competitive advantage. These are:

a) Direct activities, indirect activities and quality assurance

Feedback:

Direct activities are directly involved in creating value for the customer. Indirect activities allow direct

activities to take place such as maintenance. Quality assurance is an ongoing activity.

Page reference: 111

Porter suggests that linkages within the value chain can lead to competitive advantage in two

ways. These are Optimization and:

d) Coordination

Feedback:

Optimization is where better overall efficiency can be achieved by for example, spending more on design

at the outset to enable cheaper manufacturing in the long run. Good coordination of linkages can provide

basis for differentiation and or lower costs. For example, a supermarket offers promotions (marketing) so

it must have the stock available to satisfy demand (inbound logistics and procurement).

Page reference: 112

The decision regarding whether to do manufacturing within the organization or to sub-contract it

to someone else is popularly known as:

b) A 'make or buy' decision

Feedback:

The value-chain is a useful tool when making 'make or buy' decisions. There may be some activities that

could be carried out cheaper and better by an outside organization. However, the management of the

linkage between the two organizations would need to be good enough to make it a worthwhile thing to do.

Page reference: 117

The value-chains of different organizations that form relationships with each other can be seen as

being part of a:

a) Value chain system

Feedback:

Organizations need to think about linkages between activities both within the firm and externally with the

other firms that it has dealings with.

Page reference: 116

A firm shares its offices with another firm in a foreign location to reduce costs. This is an example

of:

c) Synergy

Feedback:

Firms may want to combine activities with another firm in order to reduce costs for both. This is an

example of synergy. The danger is that firms may try to steal each others' competitive secrets.

Page reference: 121

WH-Smith the stationer and bookseller has a store on most high streets in the UK. In terms of the

SWOT analysis, this could be considered a:

c) Strength and a weakness

Feedback:

It is a strength in that WH Smith has many good locations in high streets. However, the high cost of these

locations makes it difficult to compete on price with online retailers and large supermarkets selling books

and stationery. This shows the inherent ambiguity of the SWOT analysis. It is not always clear cut and

should be treated with caution.

Page reference: 123

The two main schools of thought regarding how competitive advantage is achieved are:

b) The positioning school and the resource-based view

Feedback:

There is an ongoing debate trying to explain differential advantage. The positioning school of Porter was

prominent in the 1980s. The resource-based view took hold in the 1990s. The explanation for differential

advantage has profound implications for strategy formulation.

Page reference: 124

Porter's Five Forces framework is based on the principle of:

c) Structure - conduct - performance

Feedback:

The fundamental principle that Porter implicitly believes in is that the structure of an industry determines

how organizations must conduct themselves and this determines the profits that are possible in that

industry. This view has been vigorously opposed by many theorists some of whom represent the

resource-based view of the firm.

Page reference: 67

In Porter's Five Forces, the 'threat of new entrants' relates to:

a) Barriers to entry

Feedback:

This force can be seen from two points of view - from the outsider's view (barriers to entry) and from

those already in the industry (threat of new entrants).

Page reference: 69

Brandenburg and Nalebuff added a sixth force to Porter's Five Forces. It is known as:

b) Complementors

Feedback:

Brandenburg and Nalebuff's contention is that some industries rely on other industries for survival such as

the personal computer industry requiring adequate software to go inside. Also televisions require the

existence of acceptable programmes. Cinemas require the existence of films. Complementors shouldn't

be confused with substitutes.

Page reference: 86

'Co-opetition' as suggested by Brandenburger and Nalebuff (1997) can be defined as:

a) Competitive behaviour that combines competition and cooperation

Feedback:

The theory is that companies can create a more valuable market overall if they cooperate with each other

rather than engage in competitive behaviour. They can then compete with each other for a share of this

more valuable market. 

Page reference: 86

The 'positioning' approach to strategy holds the view that:

a) Strategy is about how a firm positions itself in relation to the industry structure

Feedback:

The positioning approach was popular in the 1980s but has now declined in popularity due to the

emergence of the resource-based view of the firm.

Page reference: 67

Barriers to entry into an industry are likely to be high if:

c) Requirement for economies of scale is high

Feedback:

If economies of scale are required to make a reasonable profit-margin it will be difficult to enter the

industry. 

Page reference: 71

Buyer power is high if:

a) Differentiation is low

Feedback:

If the product is standard or undifferentiated, buyers are more likely to exert pressure on price because

they can get the same product from alternative suppliers.

Page reference: 71

Supplier power will be high if:

c) There is a threat of forward integration

Feedback:

When suppliers are able to acquire firms in the buyer's industry, it will reduce the profitability of the

buyer's industry.

Page reference: 73

A substitute product or service is:

b) An alternative way of meeting the same need

Feedback:

Firms need to consider whether other ways of meeting the same need are likely to be more attractive to

the customer. The substitute could come from an entirely different industry.

Page reference: 73

Competitive rivalry will be high if:

b) There are a few strong players in the industry

Feedback:

If there are a few strong players in an industry it will be difficult for a firm to make a move that goes

unnoticed.

Page reference: 74

Porter's Five Forces assumes a 'zero-sum game'. A 'zero-sum game' means:

a) Firm A wins at the expense of Firm B

Feedback:

It is becoming increasingly common for firms within an industry to cooperate with each other thus creating

a 'win-win' situation. 

Page reference: 82

An industry characterized by irregular patterns of stability, rapid technological change, high

uncertainty and global competition can be described as:

a) Hypercompetitive

Feedback:

Hypercompetition is a term coined by d'Aveni. In these conditions, deliberate strategies are perhaps

unrealistic because the environment is moving too fast. Strategy is more likely to be developed in an

opportunistic fashion.

Page reference: 82

The 'value-net' as developed by Brandenburger and Nalebuff (1996) can be defined as:

c) The relationship between organizations interacting in the same game

Feedback:

The 'value-net' uses the idea of the complementor to extend the usual rules of business. It uses concepts

from game theory.

Page reference: 84

A strategic group can be defined as:

d) A group of firms in an industry following the same or a similar strategy

Feedback:

It should be assumed that a firm within one strategic group cannot move into another strategic group. It

depends on the mobility barriers between the groups.

Page reference: 88

Strategic group analysis involves mapping organizations using:

a) Two variables appropriate to the industry

Feedback:

One of the problems with strategic group analysis is that judgment is involved when selecting the two

variables on which to map the firms. If inappropriate variables are chosen, it can give a false picture. The

mapping can also change according to the variables chosen.

Page reference: 90

The general environment is also referred to as the:

b) Macro-environment

Feedback:

The general environment consists of factors that could affect all industries such as social trends

and ecological changes.

Page reference: 38

The general environment can be broken down using a PEST analysis. Conventionally the PEST

analysis consists of:

d) Political, economic, social, technological

Feedback:

The PEST analysis is a general list of factors in the environment that can have an effect on the industry

under analysis. It should be noted that PEST factors can affect any industry. 

Page reference: 38

Threats faced by organizations that have the potential to undermine the way they currently

compete are known as:

c) Discontinuities

Feedback:

An organization cannot assume that the environment will remain stable. They have to scan the

environment in an attempt to sense an oncoming change. Some changes are so profound that they

completely rewrite the rules of competition in an industry.

Page reference: 40

'Weak signals' can be defined as:

a) Barely perceptible changes in the external environment

Feedback:

Weak signals can easily be missed but they may go on to have a large impact on an industry. For

example, some new technologies may be written off as a passing fad but may go on to have profound

effects on industries.

Page reference: 40

The process of following weak signals in the environment is referred to as:

d) Monitoring

Feedback:

Weak signals need to be constantly monitored otherwise their significance may be missed.

Page reference: 41

Van Der Heijden (1996) identifies three main types of uncertainty. These are risks, structural

uncertainties and:

b) Unknowables

Feedback:

An unknowable event is one that we cannot even imagine.

Page reference: 41

'Structural uncertainties' (Van Der Heijden 1996) can be defined as:

a) Unique events that could not have been predicted because there was no past experience to learn from

Feedback:

Not all aspects of the environment are equally uncertain. 

Page reference: 43

A method for imagining alternative, possible futures is known as:

c) Scenario planning

Feedback:

Scenario planning involves guessing realistically what the future might turn out to be with the goal of

being better prepared for whatever actually happens.

Page reference: 42

A 'tipping point' as suggested by Gladwell (2000) is defined as:

c) An unexpected and unpredictable event that has a major impact on the organization's environment

Feedback:

A tipping point event could appear as a weak signal but its effects can be exponential.

Page reference: 42

Two further categories that are often added to the PEST analysis are:

b) Legal and environmental

Feedback:

Legal is closely linked to political. Environmental concerns the green environment. This category has

become more important in the last decade.

Page reference: 48

The umbrella term for the policies and principles that guide an organization's impact on society is:

b) Corporate social responsibility

Feedback:

Organizations are increasingly aware that they need to consider the ethical and social impact of their

activities. The field of corporate social responsibility has arisen out of this concern.

Page reference: 50

Which of the following industries is most likely to suffer due to a rise in interest rates?

a) The construction industry

Feedback:

Some industries are affected more than others by a rise or fall in interest rates. The construction industry

relies heavily on external funding and can go over timescale therefore is very vulnerable. Domestic

tourism could benefit because people may be less inclined to go abroad. Hairdressing and magazines are

relatively small purchases and are less likely to be affected by a decrease in disposable income.

Page reference: 51

Which of the following types of data is the most predictable in terms of forecasting into the

future?

c) Demographics

Feedback:

Demographic data such as population size, education, income and age is relatively stable and can be

extrapolated into the future with some degree of certainty. Other indicators such as social trends are very

difficult to anticipate.

Page reference: 48

In the SWOT analysis, the 'strengths' and 'weaknesses' part refers to:

a) What the organization does internally in relation to competitors

Feedback:

The SWOT analysis is a popular tool for an organization to assess its relative strengths and weaknesses

(compared to competitors) in dealing with the opportunities and threats that arise in the external

environment.

Page reference: 58

The competitive environment refers to:

a) The structure of the industry in which the firm competes

Feedback:

The competitive environment has a more direct influence on a firm than the general or macro

environment. 

Page reference: 58

It is generally agreed that the role of strategy is to:

b) Achieve competitive advantage

Feedback:

Competitive advantage is achieved by fulfilling customer needs better than competitors.

Page reference: 4

According to Porter (1996) in his article 'What is strategy?', strategy is about being:

a) Different

Feedback:

Porter stated that to be different an organization must deliberately choose 'a different set of activities to

deliver a unique mix of value'.

Page reference: 5

According to Markides (1999), a strategic position represents a company's answers to three

questions - who should the company target, what products/services should be offered, and:

d) how the company can do this efficiently.

Feedback:

Markides (1999) argues that the essence of strategy is to select one strategic position that it can claim as

its own.

Page reference: 5

Kay (1993) sees the strategy of an organization as matching internal capabilities with:

b) Its external relationships

Feedback:

External relationships are the different stakeholders that the organization has dealings with such as

employees, customers, shareholders and suppliers.

Page reference: 5

An organization's external environment consists of the general or macro environment and:

b) The competitive environment

Feedback:

The competitive environment deals with the industry in which the company competes. The general

environment could affect all industries and has a less direct effect.

Page reference: 5

Strategy has its antecedents in:

a) Military conflicts

Feedback:

Although its use in management is fairly recent the use of strategy has existed for many centuries borne

out of military conflicts.

Page reference: 3

The key activities in the strategic management process are:

c) Analysis, formulation, implementation

Feedback:

Strategic management is the process of bringing about the strategy.

Page reference: 6

Strategy analysis is also referred to as:

d) Situation analysis

Feedback:

Strategy analysis involves evaluating the position of the organization in relation to its environment.

Page reference: 7

Strategy formulation takes place at two levels. These are:

c) Corporate and business

Feedback:

Corporate strategy involves deciding which industries to be in. Business level strategy involves deciding

how to compete in those industries.

Page reference: 7

The goals of an organization derive from its:

b) Purpose

Feedback:

Strategies are shaped by the purpose of the organization i.e. the raison d'etre of the organization. The

purpose is shaped by the organization's stakeholders.

Page reference: 8

The statement of an organization's aspirations can be found in the organization's:

d) Vision statement

Feedback:

The mission statement is how the organization communicates what business it is in. The vision statement

communications the future aspirations of the organization. What the organization actually does in practice

(actions) or what it intends to do (strategic objectives) might not reflect its aspirations or its mission

statement.

Page reference: 8

Drucker refers to an organization's assumptions about its environment and its internal strengths

and weaknesses as its:

a) Theory of business

Feedback:

The 'theory of business' affects an organization's behaviour.

Page reference: 14

Decisions regarding which industries to compete in are the concern of:

b) Corporate level strategy

Feedback:

Corporate level decisions concern the broader issues of a corporation that consists of a number of SBUs.

For example, which industries to be in and the degree of relatedness between the SBUs.

Page reference: 18

Competitive strategy is also known as:

d) Business level strategy

Feedback:

Competitive strategy concerns how a business will compete in its industry. The decision as to which

industry to be in is the concern of corporate strategy.

Page reference: 8

The perspective on strategy formulation that is associated with frameworks such as the SWOT

analysis is known as:

c) The Design School

Feedback:

The design school views strategy as rational, deliberate and analytical. Alternative schools of thought

argue that the design school does not reflect how strategies actually come about in reality.

Page reference: 20