SUPPORTING THE BUSINESS LEVEL STRATEGY: COMPETITIVE AND COOPERATIVE MOVES

Chapter 6

SUPPORTING THE BUSINESS LEVEL STRATEGY: COMPETITIVE AND COOPERATIVE MOVES

 True/False Questions 

1. First movers must be willing to commit sufficient resources to follow through on their pioneering efforts.

True; Easy 

2. First moves that build on strategic resources, such as patented technology, are difficult for rivals to imitate and thus are likely to succeed.

True; Easy 

3. Typically, most disruptive innovations are overnight sensations.

False; Easy 

4. Executives who are deciding whether to pursue a disruptive innovation must first make sure that their firm can sustain itself during an initial period of slow growth.

True; Easy 

5. A foothold is a small position that a firm intentionally establishes within a market in which it does not yet compete.

True; Easy 

6. Instead of trying to outmaneuver its competition, a firm using a blue ocean strategy tries to make the competition irrelevant.

True; Easy

7. Federal Express’ invention of the fast-shipping business is an example of the foothold strategy.

False; Easy 

8. The blue ocean strategy involves using whatever materials and resources happen to be available as the inputs into a creative process.

False; Easy

9. Johannes Gutenberg’s printing press is a classic example of the foothold strategy.

False; Easy 

10. The concept of bricolage stresses on firms using innovative strategies for competing in existing markets.

False; Easy 

11. Executives apply the concept of bricolage when they combine ideas from existing businesses in order to create a new business.

True; Easy 

12. The three factors that determine the likelihood of a firm responding to a competitive move are awareness, motivation, and capability.

True; Easy 

13. If there is a long delay between a competitor’s attack and a firm’s response, this generally provides the attacker with an edge.

True; Easy 

14. Bricolage is a situation where a firm faces the same rival in more than one market.

False; Easy 

15. Mutual forbearance is a situation where rivals do not act aggressively because each recognizes that the other can retaliate in multiple markets.

True; Easy

16. Executives routinely use the bricolage strategy to respond to a rival who has introduced a disruptive innovation.

False; Easy

17. A fighting brand is a lower-end brand that a firm introduces to try to protect the firm’s market share without damaging the firm’s existing brands.

True; Easy 

18. Cutting prices to match a rival’s lower cost products can be effective in the long-term.

False; Easy 

19. The bricolage strategy, that many executives adopt to compete against a rival, may devalue a firm’s brands.

False; Easy 

20. Fighting brands prevent devaluation of a firm’s established brands.

True; Easy

21. The partners in a joint venture share decision making authority, control of the operation, and any profits that the joint venture earns.

True; Easy

22. A strategic alliance is a cooperative arrangement that involves two or more organizations, each contributing to the creation of a new entity.

False; Easy

23. A strategic alliance is a cooperative arrangement between two or more organizations that does not involve the creation of a new entity.

True; Easy

24. A joint venture is a cooperative arrangement between two or more organizations that does not involve the creation of a new entity.

False; Easy

25. Co-location occurs when goods and services offered under different brands are located very close to each other.

True; Easy

26. The bricolage strategy refers to a blending of competition and cooperation between two firms.

False; Easy

27. The term co-opetition refers to a blending of competition and cooperation between two firms.

True; Easy

28. The blue ocean strategy involves blending of competition and cooperation between two firms.

False; Easy

29. Hypercompetition is a situation that involves very rapid and unpredictable moves and countermoves that can undermine competitive advantages.

True; Easy

30. Co-opetition is a situation that involves very rapid and unpredictable moves and countermoves that can undermine competitive advantages.

False; Easy

Multiple-choice Questions

31. A _____ advantage exists when making the initial move into a market allows a firm to establish a dominant position that other firms struggle to overcome.
    1. co-opetitive
    2. bricolage
    3. first mover
    4. hypercompetitive
    5. blue ocean

c; Easy

32. Apple’s creation of a user-friendly small computer in the early 1980s helped fuel a reputation for creativity and innovation that persists today. This is an example of a _____ strategy.
    1. co-opetitive
    2. foothold
    3. bricolage
    4. fighting brand
    5. first mover

e; Moderate

33. Genentech’s early development of biotechnology allowed it to overcome many of the pharmaceutical industry’s traditional entry barriers (such as financial capital and distribution networks) and become a profitable firm. This is an example of a _____ strategy.
    1. co-opetitive
    2. foothold
    3. bricolage
    4. fighting brand
    5. first mover

e; Moderate

34. Which of the following is true about the first mover strategy?
    1. The first mover bears the costs of developing the product and educating customers.
    2. Owing to its novel and unique product, a first mover can be sure that customers will embrace its offering.
    3. First movers are likely to succeed even without committing resources to follow through on their pioneering efforts.
    4. First moves that build on strategic resources are easy for rivals to imitate.
    5. First movers typically enjoy an advantage over rivals for about five years.

a; Moderate

35. A _____ innovation is an innovation that conflicts with, and threatens to replace, traditional approaches to competing within an industry.
    1. blue ocean
    2. disruptive
    3. foothold
    4. first mover
    5. didactic

b; Easy

36. Which of the following is true about disruptive innovations?
    1. Most disruptive innovations are overnight sensations.
    2. Fast followers can easily imitate strategic resources based on disruptive innovations.
    3. Typically, a large group of customers embrace a disruptive innovation as it is launched.
    4. Disruptive innovations conflict with, and threaten to replace, traditional approaches to competing within an industry.
    5. Executives must have sufficient resources on hand to cope with the initial burst of demand for disruptive innovations.

d; Moderate

37. By undercutting rivals on tuition, using data analytics to identify students who are struggling, and relying on low paid adjunct instructors rather than full-time professors, Southern New Hampshire University developed what type of situation?
    1. Blue ocean
    2. Foothold
    3. First mover
    4. Disruptive
    5. Didactic

d; Easy

38. Which of the following best describes the foothold strategy?
    1. It refers to the idea of creating a new, untapped market rather than competing with rivals in an existing market.
    2. It involves combining ideas from existing businesses in order to create a new business.
    3. It involves introducing a lower-end brand to protect the firm’s market share without devaluating the firm’s existing brands.
    4. It involves a firm intentionally establishing a small position within a market in which it does not yet compete.
    5. Such a strategy conflicts with, and threatens to replace, traditional approaches to competing within an industry.

d; Moderate

39. When IKEA enters a new country, it opens just one store. This store is then used as a showcase to establish IKEA’s brand. Once IKEA gains brand recognition in a country, more stores are established. This is an example of the _____ strategy.
    1. blue ocean
    2. disruptive
    3. foothold
    4. bricolage
    5. first mover

c; Easy

40. A _____ strategy involves creating a new, untapped market rather than competing with rivals in an existing market.
    1. blue ocean
    2. disruptive
    3. foothold
    4. fast follower
    5. didactic

a; Easy

41. Which of the following best describes the blue ocean strategy?
    1. A firm using a blue ocean strategy tries to make the competition irrelevant.
    2. It involves combining ideas from existing businesses in order to create a new business.
    3. It involves introducing a lower-end brand to protect the firm’s market share without devaluating the firm’s existing brands.
    4. It involves a firm intentionally establishing a small position within a market in which it does not yet compete.
    5. Such a strategy conflicts with, and threatens to replace, traditional approaches to competing within an industry.

a; Moderate

42. One Flew South’s strategy of locating their high-end restaurant in the Atlanta airport rather than where premier establishments are usually placed – the city center or crowded suburbs, is an example of the _____ strategy.
    1. blue ocean
    2. disruptive
    3. foothold
    4. hypercompetitive
    5. fighting brand

a; Easy

43. Coffeeshops were once the domain of old men, insomniacs, and urban hipsters. By reinventing coffee shops, Starbucks made the $4 latte a must-have item for college students, businesspeople, and soccer moms. By altering the business model to address the demand of new markets, Starbucks used a ______________ strategy.
    1. competitive
    2. disruptive
    3. foothold
    4. reinvention
    5. blue ocean

e; Easy

44. When pursuing a blue ocean strategy, executives try to create and exploit untapped markets rather than competing directly with rivals. Which of the following are examples of blue ocean strategies?
    1. Nintendo’s Wii
    2. Henry Ford’s Model T
    3. Callaway’s Big Bertha club
    4. Yellow Tail Wines
    5. All of the above

e; easy

45. Which of the following is true about a firm following the concept of bricolage?
    1. It is a small position that a firm intentionally establishes within a market in which it does not yet compete.
    2. It is a lower-end brand that a firm introduces to try to protect the firm’s market share without devaluating the firm’s existing brands.
    3. Executives apply the concept of bricolage when they combine ideas from existing businesses in order to create a new business.
    4. It refers to an innovation that conflicts with, and threatens to replace, traditional approaches to competing within an industry.
    5. It refers to a strategy in which a firm forms a cooperative arrangement with another firm to ward off potential competition.

c; Moderate

46. The printing press is a classical example of the concept of _____.
    1. disruptive
    2. bricolage
    3. foothold
    4. hypercompetitive
    5. fighting brand

b; Easy

47. Monster Mini Golf partnered with the rock band KISS to create a niche for itself by custom-designing a frightfully fun course that features animated KISS and monster props lurking in all 18 fairways. This is an example of the:
    1. blue ocean strategy.
    2. disruptive strategy.
    3. concept of fighting brands.
    4. foothold strategy.
    5. concept of bricolage.

e; Moderate

48. Which of the following is a factor that determines the likelihood of a firm responding to a competitive move?
    1. Differentiation
    2. Awareness
    3. Focus
    4. Fragmentation
    5. Integration

b; Easy

49. _____ is one of the three factors that determines the likelihood of a firm responding to a competitive move.
    1. Capability
    2. Differentiation
    3. Focus
    4. Fragmentation
    5. Integration

a; Easy

50. Former General Electric CEO Jack Welch is quoted as describing success in most competitive rivalries as “less a function of grandiose predictions than it is a result of being able to respond rapidly to real changes as they occur. That’s why strategy has to be _____ and ________.”
    1. dynamic and anticipatory
    2. predictable and consistent
    3. complex and rigid
    4. anticipatory and complex
    5. dynamic and consistent

a; Moderate

51. _____ is a situation where a firm faces the same rival in more than one market.
    1. Resource-based rivalry
    2. Global co-opetition
    3. Focused rivalry
    4. Multipoint competition
    5. Bricolage

d; Easy

52. Cigarette makers R.J. Reynolds (RJR) and Philip Morris square off not only in the United States but in many countries around the world. This is an example of:
    1. resource-based rivalry.
    2. global co-opetition.
    3. focused rivalry.
    4. multipoint competition.

d; Easy

53. Kellogg’s and General Mills compete fiercely for the breakfast cereal market not only in the United States but in many countries around the world. This is an example of:
    1. resource-based rivalry.
    2. global co-opetition.
    3. focused rivalry.
    4. multipoint competition.

d; Easy

54. Which of the following best describes multipoint competition?
    1. It is a situation where a firm faces the same rival in more than one market.
    2. It is a situation where rivals launch lower-end brands to protect devaluation of their established brands.
    3. It is a situation where competing firms form a cooperative arrangement to ward off third-party competition.
    4. It is a situation where rivals do not act aggressively because each recognizes that the other can retaliate in multiple markets.
    5. It is a situation where rivals form a strategic alliance without forming a new entity to deal with third-party competition.

a; Moderate

55. In the late 1990s, Southwest Airlines and United Airlines competed in some but not all markets. United’s announcement of plans to move into some of Southwest’s other routes caused Southwest to publicly threaten retaliation. United then backed down and Southwest had no reason to attack. The result was better performance for both firms. This is an example of _____.
    1. resource-based rivalry
    2. mutual forbearance
    3. global co-opetition
    4. focused rivalry
    5. hypercompetition

b; Easy

56. Which of the following best describes mutual forbearance?
    1. It is a situation where a firm faces the same rival in more than one market.
    2. It is a situation where rivals launch lower-end brands to protect devaluation of their established brands.
    3. It is a situation where competing firms form a cooperative arrangement to ward off third-party competition.
    4. It is a situation where rivals do not act aggressively because each recognizes that the other can retaliate in multiple markets.
    5. It is a situation where rivals form a strategic alliance without forming a new entity to deal with third-party competition.

d; Moderate

57. Fresh Mornings, a breakfast chain, is known for its old-style potatoes, ham, and egg sandwiches. A rival introduces a new breakfast concept with exotic fruits and sandwiches customers can make themselves that conflicts with the industry’s current competitive practices. The owners of Fresh Mornings realize that they may lose some customers to this new concept. But instead of competing by offering the new breakfast concept that the rival has introduced, they decide to stick to and to market their old-style potatoes, ham, and egg sandwiches, which they are famous for. Which of the following responses are they following?
    1. Forming a joint venture with another firm.
    2. Offering lower cost products or services.
    3. Entering a strategic alliance with a global player.
    4. Developing better product differentiation.
    5. Focusing on traditional modes of business.

e; Hard

58. When online trading emerged in the late 1990s, A.G. Edwards avoided online trading because personal relations with brokerage clients are central to the firm’s strategy. Which of the following responses of firms to disruptive innovations does this example illustrate?
    1. Focusing on traditional modes of business.
    2. Offering lower cost products or services.
    3. Entering a strategic alliance with a global player.
    4. Developing better product differentiation.
    5. Matching the competitor’s move.

a; Moderate

59. Which of the following responses of firms to disruptive innovations carries with it the risk of cannibalization of a firm’s traditional business?
    1. Focusing on traditional modes of business.
    2. Offering lower cost products or services.
    3. Entering a strategic alliance with a global player.
    4. Developing better product differentiation.
    5. Matching the competitor’s move.

e; Moderate

60. A _____ brand is a lower-end brand that a firm introduces to try to protect the firm’s market share without damaging the firm’s existing brands.
    1. mass
    2. value
    3. fighting
    4. defender
    5. niche

c; Easy

61. Which of the following is true about a fighting brand?
    1. Firms launch fighting brands to protect their market share.
    2. A fighting brand is usually a higher-end brand.
    3. Firms fix prices of a fighting brand above the price of their established brands.
    4. Firms launch fighting brands during times of economic boom.
    5. A fighting brand leads to devaluation of a firm’s established brands.

a; Moderate

62. When threatened with cheaper microprocessors from firms like AMD, Intel launched Celeron for retaining the lower-end of the chip market without devaluing its existing brand, Intel. Celeron is an example of a _____ brand.
    1. mass
    2. value
    3. fighting
    4. defender
    5. niche

c; Moderate

63. A _____ is a cooperative arrangement that involves two or more organizations each contributing to the creation of a new entity.
    1. strategic alliance
    2. consortium
    3. tactical association
    4. cloud system
    5. joint venture

e; Easy

64. A joint venture:
    1. occurs when goods and services offered by two or more organizations under different brands are located very close to each other.
    2. is a cooperative arrangement that involves two or more organizations sharing only control of the operations.
    3. is a cooperative arrangement between two or more organizations that does not involve the creation of a new entity.
    4. refers to a blending of competition and cooperation between two firms.
    5. is a cooperative arrangement that involves two or more organizations, each contributing to the creation of a new entity.

e; Moderate

65. The partners in a _____ share decision making authority, control of the operation, and profits earned.
    1. tactical alliance
    2. consortium
    3. strategic association
    4. cloud system
    5. joint venture

e; Easy

66. Exom and Royshe are two oil and natural gas exploration and production companies. They created a new entity, CalEner, for oil exploration in California. The two parent companies remained separate. CalEner is an example of a _____.
    1. tactical alliance
    2. consortium
    3. strategic association
    4. cloud system
    5. joint venture

e; Easy

67. A _____ is a cooperative arrangement between two or more organizations that does not involve the creation of a new entity.
    1. strategic alliance
    2. consortium
    3. tactical association
    4. cloud system
    5. joint venture

a; Easy

68. A strategic alliance differs from a joint venture in that a strategic alliance:
    1. occurs when goods and services offered by two or more organizations under different brands are located very close to each other.
    2. is a cooperative arrangement that involves two or more organizations sharing only control of the operations.
    3. is a cooperative arrangement between two or more organizations that does not involve the creation of a new entity.
    4. refers to a blending of competition and cooperation between two firms.
    5. is a cooperative arrangement that involves two or more organizations, each contributing to the creation of a new entity.

c; Moderate

69. A _____ simply involves two or more firms collaborating, as opposed to creating a new entity together.
    1. strategic alliance
    2. consortium
    3. tactical association
    4. cloud system
    5. joint venture

a; Easy

70. In January 2011, Merck and PAREXEL International Corporation announced a cooperative arrangement for collaboration on biotechnology efforts known as biosimilars. This arrangement did not involve creation of a new entity. Such cooperative arrangements are examples of _____.
    1. strategic alliances
    2. consortiums
    3. tactical associations
    4. cloud systems
    5. joint ventures

a; Easy

71. In June 2011, Twitter and Yahoo! Japan entered into a cooperative arrangement that involves relevant Tweets appearing within various functions offered by Yahoo! Japan. This arrangement did not involve creation of a new entity. Such a cooperative arrangement is an example of a _____.
    1. strategic alliance
    2. consortium
    3. tactical association
    4. cloud system
    5. joint venture

a; Easy

72. All of the following are examples of risks that companies open themselves up to when they choose to enter into cooperative relationships except:
    1. Loss of control over operations.
    2. Leaking of valuable secrets to other companies.
    3. Being taken advantage of by partners.
    4. All of the above are potential risks.
    5. A and C

d; easy

73. When goods and services offered by two or more organizations under different brands are stationed very close to each other:
    1. hypercompetition always takes place.
    2. a consortium is formed.
    3. co-opetition occurs.
    4. co-location occurs.
    5. a joint venture is formed.

d; Easy

74. In many cities, theatres and art galleries are clustered together in one neighborhood. This is an example of _____.
    1. co-opetition
    2. a strategic alliance
    3. a joint venture
    4. co-location
    5. a consortium

d; Easy

75. Auto malls that contain several different car dealerships are found in many areas. This is an example of _____.
    1. co-opetition
    2. a strategic alliance
    3. a joint venture
    4. co-location
    5. a consortium

d; Easy

76. Co-location differs from co-opetition in that co-location:
    1. occurs when goods and services offered by two or more organizations under different brands are stationed very close to each other.
    2. refers to a cooperative arrangement that involves two or more organizations sharing only control of the operations.
    3. refers to a cooperative arrangement between two or more organizations that does not involve the creation of a new entity.
    4. occurs when there is a blending of competition and cooperation between two closely located firms.
    5. refers to a cooperative arrangement that involves two or more organizations, each contributing to the creation of a new entity.

a; Moderate

77. Ray Noorda, the founder of software firm Novell, coined the term _____.
    1. co-location
    2. frienemies
    3. tactical alliance
    4. co-opetition
    5. friendly fire

d; Easy

78. The term _____ refers to a blending of competition and cooperation between two firms.
    1. co-location
    2. joint venture
    3. tactical alliance
    4. co-opetition
    5. friendly fire

d; Easy

79. NEC (a Japanese electronics company) has three different relationships with Hewlett-Packard Co.: customer, supplier, and competitor. Some units of each company work cooperatively with the other company, while other units are direct competitors. This is an example of _____.
    1. co-location
    2. joint survival
    3. a joint venture
    4. co-opetition
    5. a friendly alliance

d; Easy

80. In what ways did the Toyota and General Motors joint operation, New United Motor Manufacturing Incorporated, benefit the two firms?
    1. NUMMI offered Toyota a lower-risk means of entering the U.S. market
    2. The venture offered GM the chance to learn Japanese management
    3. The venture offered GM the chance to learn Japanese production techniques
    4. NUMMI offered both GM and Toyota economies of scale in manufacturing
    5. All of the above

e; Easy

81. Which of the following is true about co-opetition?
    1. The term co-opetition was coined by Bill Gates, the founder of software firm Microsoft.
    2. Firms engaged in co-opetition can be described as “frienemies” – part friends and part enemies.
    3. Firms engaged in co-opetition compete in activities located far in the value chain from customers.
    4. It views competition and cooperation as two separate and distinct processes.
    5. Firms engaged in co-opetition must cooperate in activities that occur close to customers.

b; Moderate

Essay Questions

82. Is the cliché “the early bird gets the worm” always true when applied to the business world? When is it not true?

The cliché “the early bird gets the worm,” when applied to the business world, implies that

certain benefits are available to a first mover into a market that will not be available to later entrants. A first mover advantage exists when making the initial move into a market allows a firm to establish a dominant position that other firms struggle to overcome. Firms take advantage of being a first mover when certain conditions are met:

• First movers must be willing to commit sufficient resources to follow through on their pioneering efforts.
• First moves that build on strategic resources, such as patented technology, are difficult for rivals to imitate and are thus likely to succeed.

Being a first mover might not be advantageous for a firm under certain conditions:

• Customers might not embrace the innovative new offerings, making a first move inherently risky.
• The first mover bears the costs of developing the product and educating customers. If the new offering fails, the first mover stands to lose this investment.
• If a new offering does not leverage strategic resources like patents, competitors can easily imitate it, making it a failure for the first mover.

Hard 

83. Describe the concept of foothold as applied to the business world.

Within the context of business, a foothold is a small position that a firm intentionally establishes within a market in which it does not yet compete. These footholds provide value in at least two ways. First, owning a foothold can dissuade other firms from entering that market. Second, owning a foothold gives a firm the capability to quickly expand its reach when such a need arises.

Moderate

84. Describe the blue ocean strategy.

A blue ocean strategy involves creating a new, untapped market rather than competing with rivals in an existing market. This strategy follows the approach recommended by the ancient master of strategy, Sun-Tzu. Instead of trying to outmaneuver its competition, a firm using a blue ocean strategy tries to make the competition irrelevant.

Moderate

85. Describe the concept of bricolage as applied to the world of business.

Bricolage, a concept borrowed from the arts, stresses moves that create new markets. Bricolage means using whatever materials and resources happen to be available as the inputs into a creative process. Executives apply the concept of bricolage when they combine ideas from existing businesses in order to create a new business.

Moderate

86. Identify three factors that determine the likelihood that a firm will respond to a competitive move.

Research indicates that three factors determine the likelihood that a firm will respond to a competitive move: awareness, motivation, and capability. These three factors together determine the level of competition tension that exists between rivals.

Moderate

87. Describe mutual forbearance. When is the strategy of mutual forbearance most appropriate?

Mutual forbearance is a situation where rivals do not act aggressively because each recognizes that the other can retaliate in multiple markets. The strategy of mutual forbearance is most appropriate for firms engaged in multipoint competition, a situation where a firm faces the same rival in more than one market.

Hard

88. What are the three main responses that executives choose from when a rival introduces a disruptive innovation that conflicts with the industry’s current competitive practices.

When a rival introduces a disruptive innovation that conflicts with the industry’s current competitive practices, executives choose from among three main responses. First, executives may believe that the innovation will not replace established offerings entirely and thus may choose to focus on their traditional modes of business while ignoring the disruption. Second, a firm can counter the challenge by attacking along a different dimension. Third, a firm may respond by simply matching the competitor’s move. Here the firm risks cannibalizing its traditional business, but executives may find that their response attracts an entirely new segment of customers.

Moderate

89. Compare and contrast joint ventures and strategic alliances.

Similarities: Both joint ventures and strategic alliances involve cooperative arrangements between two or more organizations.

Differences: Whereas joint ventures involve creation of a new entity by the participating organizations, no new entity is created when a strategic alliance is formed.

Hard

90. Describe co-location. How can it be advantageous to businesses?

Co-location occurs when goods and services offered under different brands are located very close to one another. By providing customers with a variety of choices, a set of co-located firms can attract a bigger set of customers collectively than the sum that could be attracted to individual locations. Because of these benefits, savvy executives in some firms co-locate their own brands.

Moderate

91. Describe co-opetition.

Although competition and cooperation are usually viewed as separate processes, the concept of co-opetition highlights a complex interaction that is becoming increasingly popular in many industries. Ray Noorda, the founder of software firm Novell, coined the term to refer to a blending of competition and cooperation between two firms. Firms engaged in co-opetition can be described as “frienemies” – part friends and part enemies. Firms usually tend to cooperate in activities located far in the value chain from customers while competition generally occurs close to customers.

Moderate