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Essentials of Entrepreneurship & Small Business Mgmt.

, 7e (Scarborough)
Chapter 3 Designing a Competitive Business Model and Building a Solid Strategic Plan

1) Which of the following is not one of the three components of intellectual capital?
A) Human
B) Structural
C) Competitor
D) Customer
Answer: C
Diff: 2 Page Ref: 87
AACSB: Analytic Skills
Learning Obj.: 1

2) ________ involves developing a game plan to guide a company as it strives to accomplish its
mission, goals, and objectives to keep it on its desired course.
A) Competitive advantage
B) Mission
C) Strategic management
D) Market segmentation
Answer: C
Diff: 1 Page Ref: 88
AACSB: Analytic Skills
Learning Obj.: 1

3) The aggregation of factors that sets a company apart from its competitors and gives it a unique
position in the market, superior to its competition, is its:
A) mission statement.
B) competitive advantage.
C) competitive profile.
D) strategic plan.
Answer: B
Diff: 1 Page Ref: 88-89
AACSB: Analytic Skills
Learning Obj.: 2

4) Which of the following was not identified as a way for the typical small business to establish a
competitive advantage?
A) Lowering prices
B) Providing higher quality goods or services
C) Improving customer service
D) Doing whatever the company does for its customers better than its competitors
Answer: A
Diff: 2 Page Ref: 89
AACSB: Reflective Thinking
Learning Obj.: 2

1
5) ________ are a unique set of capabilities that a company develops in key operational areas-
such as service, innovation, and others-that allow it to potentially vault past its competitors.
A) Core competencies
B) Opportunities
C) Key success factors
D) Mission statements
Answer: A
Diff: 2 Page Ref: 89
AACSB: Reflective Thinking
Learning Obj.: 2

6) The relationship between core competencies and competitive advantage is best described by
which statement?
A) Strengthening a company's competitive advantage strengthens its core competencies.
B) A company's core competencies become the nucleus of its competitive advantage.
C) As a company's core competencies become stronger, its competitive advantage becomes
weaker.
D) There is no relationship between core competencies and competitive advantage.
Answer: B
Diff: 3 Page Ref: 89-80
AACSB: Analytic Skills
Learning Obj.: 2

7) The key to entrepreneurial success over time is to build a ________ competitive advantage.
A) defensible
B) sustainable
C) coherent
D) random
Answer: B
Diff: 3 Page Ref: 90-91
AACSB: Analytic Skills
Learning Obj.: 2

8) A strategic plan serves as a blueprint to help a company to:


A) match their company's strengths and weaknesses to the environment's opportunities and
threats.
B) accomplish its mission, goals, and objectives.
C) identify a company's competitive advantage and set it apart from its competition with a
unique position in the market.
D) All of the above
Answer: D
Diff: 2 Page Ref: 92
AACSB: Analytic Skills
Learning Obj.: 3

2
9) Which of the following is NOT a characteristic of the strategic management procedure for a
small company?
A) It should use a relatively short planning horizon-two years or less, typically.
B) It should begin with an extensive objective-setting session.
C) It should encourage the participation of employees and even outsiders to improve the
reliability and creativity of the resulting plan.
D) It should allow for flexibility and not be overly structured.
Answer: B
Diff: 2 Page Ref: 91-92
AACSB: Reflective Thinking
Learning Obj.: 3

10) A clearly defined vision helps a company in which of the following ways?
A) Provides direction
B) Determines decisions
C) Motivates people
D) All of the above
Answer: D
Diff: 1 Page Ref: 92
AACSB: Reflective Thinking
Learning Obj.: 3

11) A small company's mission statement:


A) establishes its purpose in writing.
B) gives the business and everyone in it a sense of direction.
C) defines what the company is, why it exists, and its reason for being.
D) All of the above
Answer: D
Diff: 1 Page Ref: 93
AACSB: Reflective Thinking
Learning Obj.: 3

12) When developing a company's mission statement, an entrepreneur should remember to:
A) write the statement alone without anyone else's interference.
B) omit statements about her values because they may turn some stakeholders off.
C) keep it short and simple.
D) All of the above
Answer: C
Diff: 3 Page Ref: 93-94
AACSB: Communication
Learning Obj.: 3

3
13) Strengths and weaknesses are ________ to the organization.
A) internal factors
B) external factors
C) internal and/or external factors
D) factors not belonging
Answer: A
Diff: 1 Page Ref: 95
AACSB: Analytic Skills
Learning Obj.: 3

14) ________ are positive internal factors that contribute toward accomplishing the company's
mission, goals, and objectives, while ________ are negative internal factors that inhibit the
accomplishment of a firm's mission, goals, and objectives.
A) Strengths; weaknesses
B) Weaknesses; strengths
C) Opportunities; threats
D) Threats; opportunities
Answer: A
Diff: 1 Page Ref: 95
AACSB: Analytic Skills
Learning Obj.: 3

15) Kevin Abt noticed that people were cooking meals in their homes less often but wanted to
avoid the hassle of going out to eat. They wanted to "eat in" without cooking. Abt launched a
company, Takeout Taxi, that delivers restaurant-prepared food to his customers' homes and
businesses. Takeout Taxi is the result of a(n):
A) strength.
B) weakness.
C) opportunity.
D) threat.
Answer: C
Diff: 2 Page Ref: 95-96
AACSB: Analytic Skills
Learning Obj.: 3

16) Maria Sanchez is the owner of the Main Street Café and a new restaurant opens a few blocks
away. From Maria's perspective, this new restaurant constitutes a(n):
A) strength.
B) weakness.
C) threat.
D) opportunity.
Answer: C
Diff: 2 Page Ref: 97
AACSB: Reflective Thinking
Learning Obj.: 3

4
17) Every business is characterized by a set of controllable variables that determines the relative
success (or lack of it) of market participants called:
A) distinctive competencies.
B) key success factors.
C) opportunities and threats.
D) competitive edge.
Answer: B
Diff: 1 Page Ref: 101
AACSB: Analytic Skills
Learning Obj.: 3

18) Gathering competitive intelligence, such as "dumpster diving" in a competitors trash, may
raise questions regarding:
A) the integrity of the data.
B) the competitive profile matrix.
C) a cost benefit analysis.
D) ethical standards.
Answer: D
Diff: 2 Page Ref: 105-106
AACSB: Ethical Reasoning
Learning Obj.: 3

19) Your ________ competitors offer the same products and services, and customers often
compare prices, features, and deals from these competitors as they shop.
A) significant
B) direct
C) indirect
D) All of the above
Answer: B
Diff: 1 Page Ref: 104
AACSB: Analytic Skills
Learning Obj.: 3

20) An ________ competitor offers the same or similar products of services only in a small
number of areas, and their target customers seldom overlap yours.
A) indirect competitor
B) direct
C) parallel
D) divergent
Answer: A
Diff: 1 Page Ref: 105
AACSB: Reflective Thinking
Learning Obj.: 3

5
21) Which of the following is true about the information-gathering process in competitive
analysis?
A) It is an expensive process which only large companies can afford.
B) It can be relatively inexpensive and easy for the small business owner to conduct.
C) It is a process closely regulated by various federal laws which prohibit doing things like
purchasing competitive products and analyzing them.
D) It is a process that requires expert help and is relatively expensive.
Answer: B
Diff: 3 Page Ref: 104-106
AACSB: Analytic Skills
Learning Obj.: 3

22) Which of the following is an effective method of collecting information about competitors?
A) Ask customers and suppliers what competitors are doing.
B) Talk to employees, especially sales representatives and purchasing agents, about competitors.
C) Attend trade shows and collect competitors' sales literature.
D) All of the above
Answer: D
Diff: 1 Page Ref: 104-105
AACSB: Analytic Skills
Learning Obj.: 3

23) Which of the following is not a recommended method of collecting competitive intelligence?
A) Attend trade shows and collect competitors' sales literature.
B) Buy competitors' products or services and assess their quality and features, benchmarking
their products and services against yours.
C) Pay competitors' employees to become informants about their companies' strategies, markets,
and trade secrets.
D) Watch for employment ads from competitors to determine the types of workers they are
hiring.
Answer: C
Diff: 2 Page Ref: 104-105
AACSB: Ethical Reasoning
Learning Obj.: 3

6
For the question(s) below, consider the following competitive profile matrix:

Key Success Your Business Competitor 1


Competitor 2
Factors Weighted Weighted
Weighted
Weight Rating Score Rating Score Rating Score
Quality .35 4 1.40 2 .70 1 .35
Service .20 4 .80 2 .40 2 .40
Convenience .15 2 .30 4 .60 1 .15
On-Time Delivery .20 2 .40 4 .80 2 .40
Location .10 3 .30 1 .10 2 .20
TOTAL 1.00 3.20 2.60 1.50

24) Which of the following statements is true?


A) Overall, Competitor 2 is the strongest of these three companies.
B) Your company's most serious weakness is its poor quality.
C) Your company's most vulnerable point against these two competitors is in the area of on-time
delivery.
D) The most important of the key success factors is location.
Answer: C
Diff: 2 Page Ref: 107, Table 3.2
AACSB: Analytic Skills
Learning Obj.: 3

25) Which company has the strongest competitive position?


A) Your company
B) Competitor 1
C) Competitor 2
D) Impossible to tell from the information given
Answer: A
Diff: 2 Page Ref: 107, Table 3.6
AACSB: Analytic Skills
Learning Obj.: 3

26) Which of the following statements is true?


A) Overall, Competitor 2 is the strongest of these three companies.
B) Your company's most serious weakness is its poor quality.
C) Your company's most vulnerable point against these two competitors is in the area of on-time
delivery.
D) The most important of the key success factors is location.
Answer: C
Diff: 2 Page Ref: 107, Table 3.6
AACSB: Analytic Skills
Learning Obj.: 3

7
27) Which company has the worst location?
A) Your company
B) Competitor 1
C) Competitor 2
D) Impossible to tell from the information given
Answer: B
Diff: 2 Page Ref: 107, Table 3.6
AACSB: Analytic Skills
Learning Obj.: 3

28) In terms of quality, which company has the weakest competitive position?
A) Your company
B) Competitor 1
C) Competitor 2
D) Impossible to tell from the information given
Answer: C
Diff: 2 Page Ref: 107, Table 3.6
AACSB: Analytic Skills
Learning Obj.: 3

29) Which key success factor does the entrepreneur who built this table believe is most
important?
A) Quality
B) Service and on-time delivery
C) Convenience
D) Location
Answer: A
Diff: 2 Page Ref: 107, Table 3.6
AACSB: Reflective Thinking
Learning Obj.: 3

30) A competitive profile matrix:


A) identifies a firm's core competencies.
B) permits the small business owner to divide a mass market into smaller, more manageable
segments.
C) allows the small business owner to evaluate her firm against competitors on the key success
factors for the industry.
D) creates a road map of action for the entrepreneur in order to fulfill her company's mission,
goals, and objectives.
Answer: C
Diff: 3 Page Ref: 106-106
AACSB: Reflective Thinking
Learning Obj.: 3

8
31) ________ are the broad, long-range attributes the small business seeks to accomplish;
________ are the more specific targets for performance.
A) Goals; objectives
B) Goals; strategies
C) Objectives; goals
D) Strategies; goals
Answer: A
Diff: 1 Page Ref: 107
AACSB: Reflective Thinking
Learning Obj.: 3

32) Which of the following is not a characteristic of a well-written objective?


A) Realistic, yet challenging
B) Measurable
C) General
D) Timely
Answer: C
Diff: 2 Page Ref: 107-109
AACSB: Reflective Thinking
Learning Obj.: 3

33) The focal point of any company's strategy, whatever it may be, should be:
A) its product or service.
B) its competition.
C) its customers.
D) its strengths and weaknesses.
Answer: C
Diff: 2 Page Ref: 109-110
AACSB: Reflective Thinking
Learning Obj.: 3

34) A ________ is a road map of the tactics and actions an entrepreneur draws up to fulfill the
company's mission, goals, and objectives.
A) mission
B) strategy
C) competitive edge
D) core competency
Answer: B
Diff: 1 Page Ref: 109-110
AACSB: Reflective Thinking
Learning Obj.: 3

9
35) ________ spell(s) out the "ends" an organization is to achieve; ________ define(s) the
"means" for achieving the ends.
A) Mission, goals, and objectives; strategy
B) Key success factors; strategy
C) Strategy; mission, goals, and objectives
D) Strategy; vision
Answer: A
Diff: 2 Page Ref: 107-108
AACSB: Reflective Thinking
Learning Obj.: 3

36) The relationship between a company's mission, goals, and objectives and its strategy is best
described by which of the following statements?
A) Developing a company's strategy lays the groundwork for creating its mission, goals, and
objectives.
B) The mission, goals, and objectives spell out the ends the company wants to achieve, and the
strategy defines the means for reaching them.
C) Although managers must change a company's mission, goals, and objectives as competitive
conditions change, they should avoid adjusting the company's strategy to prevent the company
from losing its focus and momentum.
D) There is no real link between a company's mission, goals, and objectives and its strategy.
Answer: B
Diff: 3 Page Ref: 107-108
AACSB: Reflective Thinking
Learning Obj.: 3

37) A strategy should:


A) be comprehensive and well integrated.
B) focus on establishing for the firm the key success factors in the industry.
C) identify how the firm will accomplish its mission, goals, and objectives.
D) All of the above
Answer: D
Diff: 2 Page Ref: 109-110
AACSB: Reflective Thinking
Learning Obj.: 3

38) A cost-leadership strategy:


A) enables companies to concentrate on a niche within the overall market.
B) is built on differences among market segments.
C) works best when buyers' primary purchase criterion is price.
D) All of the above
Answer: C
Diff: 2 Page Ref: 110-111
AACSB: Reflective Thinking
Learning Obj.: 4

10
39) A cost-leadership strategy works well when:
A) buyers are sensitive to price changes.
B) competing firms sell the same commodity products.
C) a company can reap savings from economies of scale.
D) All of the above
Answer: D
Diff: 2 Page Ref: 110
AACSB: Reflective Thinking
Learning Obj.: 4

40) Small firms pursuing a cost-leadership strategy have an advantage in reaching customers
whose primary purchase criterion is:
A) quality.
B) constant innovation.
C) price.
D) customer service.
Answer: C
Diff: 1 Page Ref: 110
AACSB: Reflective Thinking
Learning Obj.: 4

41) Skatell's, a small jewelry store with three locations, designs and manufactures much of its
own jewelry while its competitors (many of them large department stores) sell standard, "off-the-
shelf" jewelry. As a result, Skatell's has developed a loyal customer base of people who seek
unique pieces of jewelry. Skatell's reputation for selling unique and custom-designed jewelry
allows them to benefit from a:
A) cost-leadership strategy.
B) differentiation strategy.
C) focus strategy.
D) competitive strategy.
Answer: A
Diff: 2 Page Ref: 110-111
AACSB: Reflective Thinking
Learning Obj.: 4

42) Cost-leadership may have which of the following inherent dangers?


A) What is chosen to distinguish the product does not boost its performance.
B) An over-focus on the physical characteristics of the product
C) The identified niche is not large enough to be profitable.
D) An overemphasis on costs to the elimination of other strategies
Answer: D
Diff: 3 Page Ref: 111
AACSB: Reflective Thinking
Learning Obj.: 4

11
43) A differentiation strategy:
A) seeks to build customer loyalty by positioning goods or services in a unique fashion.
B) is built on a company's core competence.
C) must create the perception of value in the customer's eyes.
D) All of the above
Answer: D
Diff: 2 Page Ref: 111
AACSB: Analytic Skills
Learning Obj.: 4

44) A small company following a ________ strategy seeks to build customer loyalty by
positioning its goods and services in a unique fashion.
A) differentiation
B) cost-leadership
C) focus
D) niche
Answer: A
Diff: 1 Page Ref: 111
AACSB: Analytic Skills
Learning Obj.: 4

45) A company that offers superior product quality, extra customer service, and fast delivery
times is pursuing a:
A) cost-leadership strategy.
B) differentiation strategy.
C) concentration strategy.
D) strategic alliance.
Answer: B
Diff: 2 Page Ref: 111-112
AACSB: Analytic Skills
Learning Obj.: 4

46) Which of the following is a danger in choosing a differentiation strategy?


A) Focusing only on physical characteristics of a product or service and ignoring important
psychological factors, such as status, prestige, image, and customer service
B) Choosing a market that is not large enough to be profitable
C) Misunderstanding the firm's true cost drivers
D) All of the above
Answer: A
Diff: 3 Page Ref: 113
AACSB: Reflective Thinking
Learning Obj.: 4

12
47) The principle behind a ________ strategy is to select one or more market segments, identify
customers' special needs, and approach them with a good or service designed to excel in meeting
these needs.
A) cost-leadership
B) differentiation
C) focus
D) concentration
Answer: C
Diff: 1 Page Ref: 113
AACSB: Reflective Thinking
Learning Obj.: 4

48) Rather than attempting to serve the total market, the small firm pursuing a ________ strategy
specializes in serving a specific target segment.
A) cost-leadership
B) differentiation
C) focus
D) head-to-head
Answer: C
Diff: 2 Page Ref: 113
AACSB: Reflective Thinking
Learning Obj.: 4

49) Shere Vincente operates a travel service that specializes in arranging trips for women, giving
special attention to their needs and preferences, from security and comfort to activities and
events designed to appeal to her target customers. Vincente is pursuing a ________ strategy.
A) cost-leadership
B) differentiation
C) focus
D) positioning
Answer: C
Diff: 2 Page Ref: 114-115
AACSB: Analytic Skills
Learning Obj.: 4

50) Small companies must develop strategies that exploit all of the competitive advantages of
their size by:
A) responding quickly to customers' needs.
B) remaining flexible and willing to change.
C) constantly innovating.
D) All of the above
Answer: D
Diff: 1 Page Ref: 114, 116
AACSB: Analytic Skills
Learning Obj.: 4

13
51) In order for the control process to work, the business owner must:
A) make as few changes and modifications in the operational plans as possible.
B) concentrate on competitive information.
C) identify and track key performance indicators.
D) maintain control and delegate as little authority and responsibility as possible.
Answer: C
Diff: 2 Page Ref: 117
AACSB: Analytic Skills
Learning Obj.: 5

52) Which of the following is NOT one of the four important perspectives a balanced scorecard
should look at a business from?
A) Competitor perspective
B) Internal business perspective
C) Innovation and learning perspective
D) Financial perspective
Answer: A
Diff: 3 Page Ref: 118
AACSB: Analytic Skills
Learning Obj.: 5

53) The balanced scorecard ideally looks at a business from four important perspectives relating
to:
A) low-cost, differentiation, focus, and initiative.
B) customers, buyers, suppliers, and substitute products.
C) customers, internal factors, capital, and human resources.
D) customers, internal factors, innovation, and finances.
Answer: D
Diff: 3 Page Ref: 118
AACSB: Reflective Thinking
Learning Obj.: 5

54) With the growth of the Internet, cloud computing, globalization, and increased competition,
the business environment has become more turbulent and challenging.
Answer: TRUE
Diff: 1 Page Ref: 87-88
AACSB: Use of IT
Learning Obj.: 5

55) One of the biggest changes entrepreneurs face is the shift in the economy from a base of
financial to intellectual capital.
Answer: TRUE
Diff: 2 Page Ref: 87
AACSB: Analytic Skills
Learning Obj.: 1

14
56) The three components of intellectual capital are human, structural, and customer.
Answer: TRUE
Diff: 2 Page Ref: 87
AACSB: Analytic Skills
Learning Obj.: 1

57) Narrower product lines, smaller customer bases, and more limited geographic areas give
small companies a natural advantage over large businesses when preparing a strategic plan.
Answer: TRUE
Diff: 2 Page Ref: 88-89
AACSB: Analytic Skills
Learning Obj.: 2

58) The most effective way for a small business to establish a competitive advantage is by
offering lower prices.
Answer: FALSE
Diff: 1 Page Ref: 89
AACSB: Analytic Skills
Learning Obj.: 2

59) Small companies' core competencies are often the result of benefits such as agility, speed,
closeness to customers, superior service, and innovative ability-all of which are size advantages
that allow them to do things that their larger competitors cannot.
Answer: TRUE
Diff: 2 Page Ref: 89
AACSB: Analytic Skills
Learning Obj.: 2

60) Large companies have a natural advantage over small firms when it comes to preparing a
strategic plan.
Answer: FALSE
Diff: 2 Page Ref: 91
AACSB: Analytic Skills
Learning Obj.: 2

61) Although developing a strategic plan is important for large companies, it is not essential to
managing a small company successfully because of its limited resources.
Answer: FALSE
Diff: 1 Page Ref: 92
AACSB: Analytic Skills
Learning Obj.: 3

62) The ideal strategic planning process for a small company should start with setting objectives.
Answer: FALSE
Diff: 2 Page Ref: 91-92
AACSB: Analytic Skills
Learning Obj.: 3
15
63) The ideal strategic planning procedure for a small company should be formal and highly
structured.
Answer: FALSE
Diff: 2 Page Ref: 92
AACSB: Analytic Skills
Learning Obj.: 3

64) The most effective way to communicate the values of a company to everyone it touches is to
formulate an effective mission statement.
Answer: TRUE
Diff: 2 Page Ref: 93-94
AACSB: Communication
Learning Obj.: 3

65) The mission statement addresses the first question of any business venture: "What business
am I in?"
Answer: TRUE
Diff: 1 Page Ref: 94
AACSB: Reflective Thinking
Learning Obj.: 3

66) A company's mission statement defines what it stands for, why it exists, and its reason for
being.
Answer: TRUE
Diff: 1 Page Ref: 94
AACSB: Communication
Learning Obj.: 3

67) As business and competitive conditions change, so should a small company's mission
statement.
Answer: TRUE
Diff: 2 Page Ref: 94
AACSB: Analytic Skills
Learning Obj.: 3

68) A company's mission statement should be lengthy and use fancy jargon to impress outsiders.
Answer: FALSE
Diff: 2 Page Ref: 93, Table 3.1
AACSB: Communication
Learning Obj.: 3

16
69) Conducting a SWOT analysis for her own business and for her key competitors allows an
entrepreneur to gain a competitive edge by matching her company's strengths against her
competitors' weaknesses.
Answer: TRUE
Diff: 1 Page Ref: 95, 97
AACSB: Analytic Skills
Learning Obj.: 3

70) Strengths are positive internal factors that contribute towards accomplishing the company's
mission, goals, and objectives.
Answer: TRUE
Diff: 1 Page Ref: 95
AACSB: Analytic Skills
Learning Obj.: 3

71) Weaknesses are negative external forces that inhibit the firm's ability to achieve its mission,
goals, and objectives.
Answer: FALSE
Diff: 1 Page Ref: 95
AACSB: Analytic Skills
Learning Obj.: 3

72) After a company's strengths and weaknesses are assessed, the strategic planning process
should identify opportunities and threats facing the company and should isolate the key factors
for success in business.
Answer: TRUE
Diff: 2 Page Ref: 95
AACSB: Analytic Skills
Learning Obj.: 3

73) Threats are negative external forces that inhibit a company's ability to achieve its mission,
goals, and objectives.
Answer: TRUE
Diff: 1 Page Ref: 97
AACSB: Analytic Skills
Learning Obj.: 3

74) "Big box retailers" present an opportunity for many small business owners.
Answer: FALSE
Diff: 2 Page Ref: 97-99
AACSB: Analytic Skills
Learning Obj.: 3

17
75) To be effective, the small business owner should limit strategic analysis to only the two or
three most significant opportunities facing the firm.
Answer: TRUE
Diff: 2 Page Ref: 97-99
AACSB: Analytic Skills
Learning Obj.: 3

76) A firm's strategy must focus on establishing for the firm the key success factors the
entrepreneur has identified for the industry.
Answer: TRUE
Diff: 2 Page Ref: 101
AACSB: Analytic Skills
Learning Obj.: 3

77) A small business owner can collect a great deal of information about competitors through a
number of low-cost competitive intelligence methods.
Answer: TRUE
Diff: 1 Page Ref: 103-104
AACSB: Analytic Skills
Learning Obj.: 3

78) Experts estimate that 70 to 90 percent of the competitive information a company needs
already resides with employees who collect it in their daily dealings with suppliers, customers,
and other industry contacts.
Answer: TRUE
Diff: 3 Page Ref: 104-105
AACSB: Analytic Skills
Learning Obj.: 3

79) A competitor analysis should include an analysis of direct competitors as well as significant
and indirect competitors.
Answer: TRUE
Diff: 2 Page Ref: 104-105
AACSB: Analytic Skills
Learning Obj.: 3

80) Significant competitors are those that offer the same products and services your company
offers, and customers often compare prices, features, and deals from these competitors as they
shop.
Answer: FALSE
Diff: 2 Page Ref: 104-105
AACSB: Analytic Skills
Learning Obj.: 3

18
81) Conducting successful competitive intelligence on rivals' strategies and actions may include
researching their Web sites, buying their products to assess their quality, and watching for
employment ads to determine the type of employees they are hiring.
Answer: TRUE
Diff: 1 Page Ref: 105-106
AACSB: Analytic Skills
Learning Obj.: 3

82) Performing competitive intelligence on rivals' strategies and actions does not mean that
entrepreneurs must engage in unethical or illegal espionage activities.
Answer: TRUE
Diff: 2 Page Ref: 105-106
AACSB: Ethical Reasoning
Learning Obj.: 3

83) It is unwise for entrepreneurs to monitor competitors' strategies and actions because such
activities require them to engage in illegal or unethical behavior.
Answer: FALSE
Diff: 2 Page Ref: 105-106
AACSB: Ethical Reasoning
Learning Obj.: 3

84) One of the goals of competitive analysis is to improve a firm's reaction time to competitor's
actions.
Answer: TRUE
Diff: 2 Page Ref: 107
AACSB: Analytic Skills
Learning Obj.: 3

85) A competitive profile matrix analyzes how well a company and its rivals match the key
success factors in the industry.
Answer: TRUE
Diff: 2 Page Ref: 107, Table 3.2
AACSB: Analytic Skills
Learning Obj.: 3

86) Goals are the broad, long-range attributes that a business seeks to accomplish; objectives are
more specific targets of performance.
Answer: TRUE
Diff: 1 Page Ref: 107
AACSB: Analytic Skills
Learning Obj.: 3

19
87) Before an entrepreneur can build a successful strategy, she must establish a clear mission,
goals, and objectives in order to have appropriate targets at which to aim her strategy.
Answer: TRUE
Diff: 2 Page Ref: 107
AACSB: Analytic Skills
Learning Obj.: 3

88) Goals and objectives provide targets to aim for and a basis for evaluating a company's
performance.
Answer: TRUE
Diff: 1 Page Ref: 107-108
AACSB: Reflective Thinking
Learning Obj.: 3

89) "Improving the company's cash flow" is a good example of an effective objective.
Answer: FALSE
Diff: 3 Page Ref: 107-108
AACSB: Analytic Skills
Learning Obj.: 3

90) A company's strategy spells out the ends the business wants to achieve, and its mission,
goals, and objectives define the means for reaching them.
Answer: FALSE
Diff: 2 Page Ref: 108-109
AACSB: Analytic Skills
Learning Obj.: 3

91) Setting seemingly impossible objectives, those outside of the likely reach of employees,
helps managers to create and maintain a high motivation level.
Answer: FALSE
Diff: 2 Page Ref: 108
AACSB: Analytic Skills
Learning Obj.: 3

92) "Increasing our market share from 8 percent to 10 percent by the end of the current fiscal
year" is a good example of an effective objective.
Answer: TRUE
Diff: 2 Page Ref: 107-108
AACSB: Analytic Skills
Learning Obj.: 3

93) Objectives should be as general as possible to permit flexibility in the business.


Answer: FALSE
Diff: 2 Page Ref: 107-108
AACSB: Analytic Skills
Learning Obj.: 3

20
94) The strategic planning process works best when employees are actively involved with
managers in setting company goals and objectives.
Answer: TRUE
Diff: 1 Page Ref: 108-110
AACSB: Analytic Skills
Learning Obj.: 3

95) A strategy is a road map of action for fulfilling a firm's mission, goals, and objectives.
Answer: TRUE
Diff: 1 Page Ref: 109
AACSB: Analytic Skills
Learning Obj.: 3

96) A company pursuing a cost-leadership strategy strives to be the lowest-cost producer relative
to its competitors in the industry.
Answer: TRUE
Diff: 1 Page Ref: 110
AACSB: Analytic Skills
Learning Obj.: 4

97) A danger of cost-leadership is that a company may misunderstand what processes actually
drive its true costs.
Answer: TRUE
Diff: 2 Page Ref: 110
AACSB: Analytic Skills
Learning Obj.: 4

98) Small firms pursuing a cost-leadership strategy have an advantage in reaching customers
whose primary purchase criterion is high quality.
Answer: FALSE
Diff: 2 Page Ref: 110-111
AACSB: Analytic Skills
Learning Obj.: 4

99) The best way to build a cost-leadership competitive advantage is to focus entirely on
manufacturing costs.
Answer: FALSE
Diff: 1 Page Ref: 110-111
AACSB: Analytic Skills
Learning Obj.: 4

100) One key to building a successful differentiation strategy is to be better than competitors at
some characteristic that customers value.
Answer: TRUE
Diff: 1 Page Ref: 111
AACSB: Analytic Skills
Learning Obj.: 4
21
101) To be successful, a differentiation strategy must create the perception of value in the
customer's eyes.
Answer: TRUE
Diff: 2 Page Ref: 111-112
AACSB: Analytic Skills
Learning Obj.: 4

102) The key to a successful differentiation strategy is to build it on a core competency,


something the company is uniquely good at doing in comparison to its competitors.
Answer: TRUE
Diff: 1 Page Ref: 111-112
AACSB: Analytic Skills
Learning Obj.: 4

103) A differentiation strategy frequently allows the company the opportunity to charge a higher
price for its products or services.
Answer: TRUE
Diff: 2 Page Ref: 112
AACSB: Analytic Skills
Learning Obj.: 4

104) One danger in choosing a differentiation strategy is trying to differentiate based on


something that the customer does not perceive as valuable.
Answer: TRUE
Diff: 2 Page Ref: 113
AACSB: Analytic Skills
Learning Obj.: 4

105) A small business following a focus strategy attempts to serve its narrow target markets more
effectively and efficiently than competitors trying to appeal to the broad market.
Answer: TRUE
Diff: 2 Page Ref: 113
AACSB: Analytic Skills
Learning Obj.: 4

106) A focus strategy recognizes that not all markets are homogeneous.
Answer: TRUE
Diff: 2 Page Ref: 113
AACSB: Reflective Thinking
Learning Obj.: 4

107) Focus strategies build on differences among market segments.


Answer: TRUE
Diff: 2 Page Ref: 113
AACSB: Analytic Skills
Learning Obj.: 4
22
108) The secret to good control is identifying and tracking key performance indicators.
Answer: TRUE
Diff: 2 Page Ref: 117
AACSB: Analytic Skills
Learning Obj.: 5

109) To evaluate the effectiveness of their strategies, some companies are developing balanced
scorecards, a set of measurements unique to a company that includes both financial and
operational measures and gives managers a quick, comprehensive picture of the company's total
performance.
Answer: TRUE
Diff: 2 Page Ref: 118
AACSB: Analytic Skills
Learning Obj.: 5

110) When creating a balanced scorecard for his or her company, an entrepreneur should
establish goals for each critical indicator of company performance and create meaningful
measures for each one.
Answer: TRUE
Diff: 2 Page Ref: 118-119
AACSB: Analytic Skills
Learning Obj.: 5

111) The focal point of the entire strategic plan and the competitive strategy chosen should be the
customer.
Answer: TRUE
Diff: 1 Page Ref: 119
AACSB: Analytic Skills
Learning Obj.: 5

112) A balanced scorecard looks at a business from four important perspectives: competitor,
internal, innovation and learning, and financial.
Answer: FALSE
Diff: 3 Page Ref: 119
AACSB: Analytic Skills
Learning Obj.: 5

113) Ideally, strategic planning is not an outcome but an ongoing process.


Answer: TRUE
Diff: 1 Page Ref: 119
AACSB: Reflective Thinking
Learning Obj.: 5

23
114) What advice would you offer an entrepreneur on how to create a mission statement for his
or her company?
Answer: Tips for writing a powerful mission statement include:
• Keep it short
• Keep it simple
• Get everyone in the company involved
• Keep it current
• Reflect your values and beliefs
• Reflect concern for future
• Keep tone positive and upbeat; use it to lay ethical foundation for company
• Look at other companies' mission statements; make sure it is appropriate for company culture
• Use it
Diff: 2 Page Ref: 92-95, Table 3.2
AACSB: Communication
Learning Obj.: 3

115) Define each of the following terms and give an example of each: strengths, weaknesses,
opportunities, and threats.
Answer:
Strengths are positive internal factors that a company can use to accomplish its mission, goals,
and objectives
Examples:
• special skills or knowledge
• positive public image
• experienced sales force
Weaknesses are negative internal factors that inhibit the accomplishment of a company's
mission, goals, and objectives
Examples:
• lack of capital
• shortage of skilled labor
• inferior location
Opportunities are positive external options that a firm can exploit to accomplish its mission,
goals, and objectives
Examples:
• proprietary technology
• emergence of potentially new target market(s)
• lower interest rates
Threats are negative external forces that inhibit a company's ability to achieve its mission, goals,
and objectives
Examples:
• new competitors
• adverse legislation
• economic recession
Diff: 2 Page Ref: 95-97, 99
AACSB: Analytic Skills
Learning Obj.: 3

24
116) Assume that you are a consultant to a small independent hardware store in a town where a
retail giant such as Wal-Mart, Kmart, or Target is about to open. The large retailer sells many of
the same items the small hardware store sells, but at lower prices. What advice would you offer
the owner concerning the hardware store's strategy? Explain.
Answer: To compete successfully against a larger competitor, the small business owner must
develop a true competitive advantage and utilize those core competencies that set the small
business apart from the giant conglomerates like Wal-Mart. Through the strategic management
process, a concise plan could be developed. The typical small business has fewer product lines, a
better-defined customer base, and a specific geographical area. Valuable information can be
obtained through close customer contacts and a more flexible approach to meeting customer
needs.
Diff: 3 Page Ref: 99, Hands On
AACSB: Reflective Thinking
Learning Obj.: 3

117) What is strategic management? What role does a strategic plan play in a small company?
Answer: Strategic management involves developing a game plan to guide a company as it
strives to accomplish its vision, mission, goals, and objectives and to keep it from straying off its
desired course. The strategic management process provides owners a blueprint for matching their
companies' strengths and weaknesses to the opportunities and threats in the environment.
Diff: 3 Page Ref: 109-117
AACSB: Analytic Skills
Learning Obj.: 3

25
118) Assume you own a small print shop. Who are your competitors and why is it important for
you to monitor your competitors' activities? Describe at least five techniques you might use to
monitor competitors' strategies and actions ethically and inexpensively.
Answer: A recent survey identified the greatest small business challenge as competition. Other
studies suggest that monitoring rivals' movements through competitive intelligence programs is
vital to strategic activity and survival.
Specific techniques you might use include:
• Reading industry trade publications
• Asking customers and suppliers
• Regularly debrief employees
• Attending trade shows
• Monitor social media and online activity
• Conduct patent searches
• Check EPA reports
• Learn about the kinds and amounts of equipment and raw materials that competitors are
importing
• Buying competitors' products (benchmarking)
• Obtaining credit reports
• Review SEC reports
• Buying competitors' products (benchmarking)
• Investigate UCC reports
• Checking library resources
• Visit competitors's Web sites periodically
• Visiting competing businesses
• Don't resort to unethical or illegal practices
Diff: 3 Page Ref: 104-106
AACSB: Analytic Skills
Learning Obj.: 3

119) Assume you own a small shoe store. Discuss the three different types of competition you
might face and give examples of each.
Answer: Direct competitors offer the same products and services, and customers often compare
prices, features, and deals from these competitors as they shop. Other shoe stores would be direct
competitors. Significant competitors offer some of the same products and services. Although
their product or service lines may be somewhat different, there is competition with them in
several key areas. Department stores and athletic stores would be examples of significant
competitors. Indirect competitors offer the same or similar products or services only in a small
number of areas, but their target customers seldom overlap yours. Discount stores and thrift
stores may be examples of indirect competitors.
Diff: 2 Page Ref: 104-107
AACSB: Reflective Thinking
Learning Obj.: 3

26
120) What is strategy? Describe the three basic strategies small companies can choose from:
cost-leadership, differentiation, and focus. Explain the conditions under which each works, its
benefits, and its pitfalls.
Answer: Strategy is a road map of the actions an entrepreneur draws up to a company's mission,
goals, and objectives. This master plan covers all of the major organizational parts and ties them
together.

Cost-leadership: Strives to be the lowest-cost producer.


Best When: Primary purchase criterion is price, and the power to set industry's floor price and
economies of scale are available.
Disadvantage: If cost drivers are unknown or other strategies are overlooked.

Differentiation: Seeks to build customer loyalty by positioning its product/service in a unique or


different fashion.
Best When: Differentiation is in the form of a "true benefit" to the customer.
Disadvantage: Trying to differentiate based on something that does not boost performance or
lower cost.

Focus: Select one or more customer(s)/market(s) to create a niche.


Best When: Creating real value for customer by differentiation or low cost in a narrow target
segment.
Disadvantages: Includes not being able to capture enough of a market share to be profitable.
Diff: 3 Page Ref: 110-114
AACSB: Analytic Skills
Learning Obj.: 4

121) Assume you own a small camera shop that sells and repairs cameras and equipment.
Discuss some of the methods you might select to allow you to successfully compete against the
many large retailers that are nearby.
Answer: In most cases, small business owners will not be able to select a cost-leadership
strategy to meet the larger competitors who have a size advantage over them. Therefore, this
small business owner will probably have a greater chance of success utilizing a focus and/or
differentiation strategy. One option is to use a focus strategy by concentrating on a specific
market segment, identifying those consumers' special needs, wants, and interests, and
approaching them with a mix of product offerings that excel in meeting those needs, wants, and
interests. Another choice may be to use a differentiation strategy that would seek to build
customer loyalty by positioning his goods and services in a unique or different way than the
competition. For example, the camera shop may offer superior customer service, special product
features, complete product lines, instantaneous parts availability, absolute product reliability,
supreme product quality, and extensive product knowledge. They might also offer on-site repair
of camera equipment.
Diff: 3 Page Ref: 110-114
AACSB: Reflective Thinking
Learning Obj.: 4

27
Mini-Case 3-1: Finding a Competitive Advantage

Copreneurs Ed and Yolanda recently opened a vintage used car lot called Cherry Lane. They sell
antique and collectible cars on consignment for the owners at a fee of 30 percent of the selling
price. The price is further reduced by 10 percent if a particular car is not sold within the first 30
days. One of the first customers convinced Yolanda that this was the only fair thing to do, and in
an effort to provide something for "the cost conscious buyer," she provided what she thought was
excellent customer service and implemented the idea.

Ed and Yolanda feel Cherry Lane has an ideal location. It is located adjacent to the city's baseball
stadium, alongside the freeway in the center of all the other car dealerships. Although Cherry
Lane has significant foot traffic, most people never make offers to buy.

In an effort to increase sales, Ed and Yolanda are working on a new marketing strategy that they
believe should be quite different from the "shotgun" approach they had been using over the last
few months.

122) What is a competitive advantage? Does Cherry Lane have one? If so, what is it?
Answer: A competitive advantage is an aggregation of factors that sets a company apart from its
competitors and gives it a unique position in the market. No business can be everything to
everyone. Developing a strategic plan allows the small business to differentiate itself from other
companies-a common pitfall for many small firms. Cherry Lane has an advantage over regular
car dealerships because they are well suited to concentrate on the collectible car enthusiast niche
in their marketplace.
Diff: 2 Page Ref: 92-117
AACSB: Reflective Thinking
Learning Obj.: 3

123) As Ed and Yolanda begin the strategic planning process, what steps should they take?
Answer: The entrepreneurs should follow these nine steps:
Step 1: Develop a clear vision and translate it into a meaningful mission statement.
Step 2: Assess the company's strengths and weaknesses.
Step 3: Scan the environment for significant opportunities and threats facing the business.
Step 4: Identify the key factors for success in the business.
Step 5: Analyze the competition.
Step 6: Create company goals and objectives.
Step 7: Formulate strategic options and select the appropriate strategies.
Step 8: Translate strategic plans into action plans.
Step 9: Establish accurate controls.

The strategic planning process does not end with these ten steps; rather, it is an ongoing process
that an entrepreneur will repeat.
Diff: 2 Page Ref: 92-118
AACSB: Reflective Thinking
Learning Obj.: 3

28
124) Considering the three basic small business strategies identified in your textbook, which one
would work best for Cherry Lane? Why might that strategy be successful?
Answer: A cost-leadership strategy would not complement the higher price image that these
collectible cars usually have.

Some students may identify the appropriate strategy as differentiation; however, the other car
dealerships are not direct competitors, nor is their market the same. The focus strategy could be
used to successfully position Cherry Lane with its ability to meet the needs of a special customer
base-collectible car buffs. Rather than attempting to serve the total market, the focusing firm
specializes in serving a specific target segment or niche. Lowering prices with this special target
market is not as important as creating the perception of value in the customers' eyes.
Diff: 3 Page Ref: 110-111
AACSB: Reflective Thinking
Learning Obj.: 4

29