Strategic Management Midterm

A regional coffee chain wants to open 200 stores in three years but has little cash. It has a strong brand and a well-documented store system. Which growth approach fits best?

A. Acquire a national competitor with debt

B. Franchise, letting owners fund stores while following the chain's system

C. Build every store as company-owned to keep full control

D. Cut prices to grow same-store sales first

E. Diversify into packaged snacks

B. Franchise, letting owners fund stores while following the chain's system

Why: Franchising grows fast with others' capital and uses the firm's strengths (brand + system).

A furniture maker's supplier of specialty hardwood controls 80% of supply and keeps raising prices. Quality from this wood is central to the maker's premium brand. Which move is most defensible? A. Switch to cheaper wood to protect margins B. Raise prices on everything to pass along costs C. Evaluate backward vertical integration or long-term sourcing agreements to secure the key input D. Enter the budget furniture segment E. Ignore it, since supplier power is temporary

C. Evaluate backward vertical integration or long-term sourcing agreements to secure the key input

Why: Strong supplier power over a critical input threatens the differentiation. Securing it protects the brand. A destroys the premium position.

A midsize car company wants to move from the mass-market group into the luxury group next year. What will most likely stand in its way? A. PESTEL factors B. Mobility barriers such as brand reputation and specialized technology C. Low switching costs D. Network effects E. Supplier power

B. Mobility barriers such as brand reputation and specialized technology

Why: Mobility barriers block moves between strategic groups (Ch. 4).

A food company is reviewing its environment. Consumers are shifting to plant-based diets, and new labeling laws take effect next year. What does this analysis represent, and where do the results go? A. Five Forces → rivalry B. PESTEL (sociocultural and legal) → the opportunities and threats in SWOT C. VRIO → rare resources D. Value chain → support activities E. Strategic groups → mobility barriers

B. PESTEL (sociocultural and legal) → the opportunities and threats in SWOT

Why: Diet trends = sociocultural; labeling = legal. PESTEL feeds the O and T in SWOT.

A ride-sharing app has plenty of riders but not enough drivers, so wait times are rising and riders are leaving. What should it do first?

A. Raise rider fees to boost profit

B. Invest in attracting drivers, since each side's value depends on the other

C. Launch in five new cities

D. Buy a fleet and hire employee drivers

E. Cut marketing to riders only

B. Invest in attracting drivers, since each side's value depends on the other

Why: Cross-side network effects: fix the constrained side first.

A snack-food company is profitable, but its CEO wants to buy an unrelated hotel chain "to spread risk." The company has no hospitality experience. What is the strongest concern? A. Hotels have low switching costs B. Unrelated diversification offers little synergy, and the firm lacks resources that fit the new industry C. The deal is too small to matter D. Related diversification always fails E. There is no concern, since spreading risk always creates value

B. Unrelated diversification offers little synergy, and the firm lacks resources that fit the new industry

Why: No synergy and no fitting resources. Watch for "always" in E.

A clothing retailer's revenue grew 15%, but its operating margin fell from 12% to 6% because of discounting and returns. What does this tell you strategically? A. The strategy is working because revenue is up B. The firm is creating demand but failing to capture value; its cost structure or pricing is undermining the strategy C. The firm should immediately expand overseas D. Margins don't matter for strategy E. The firm has a sustainable competitive advantage

B. The firm is creating demand but failing to capture value; its cost structure or pricing is undermining the strategy

Why: Revenue up and margins down = value created but not captured (same logic as sample Q2).

A U.S. software firm expanding to Europe must decide between selling one standardized product everywhere or customizing it for each country's regulations and language. Customization raises costs, but EU privacy law requires some changes. Best approach? A. Fully standardize and ignore local rules to keep costs lowest B. Fully customize every feature for every country C. Keep a standardized core while adapting where laws and local needs require it D. Delay entry until all countries have the same laws E. License the software to a local firm and exit the decision

C. Keep a standardized core while adapting where laws and local needs require it

Why: A balanced global/local approach. A and B are extremes; D is unrealistic.

A hotel chain's leaders are deciding whether to enter the cruise industry. The front-desk manager is deciding next week's staff schedule. How should these decisions be classified?

A. Neither matters to strategy

B. Both are strategic because both affect guests

C. The schedule is strategic because it happens more often

D. The cruise decision is strategic, the schedule is operational

E. Both are operational

D. The cruise decision is strategic, the schedule is operational

Why: Strategic decisions are big, long-term, and uncertain. Operational decisions are small, routine, and short-term.

A company decides to own both a restaurant chain and a snack brand. The restaurant division decides to win by offering the fastest service in town. The HR team designs training to speed up service. Which level of strategy is the HR team working at? A. Functional B. Global C. Business D. Operational only, not strategy E. Corporate

A. Functional

Why: Corporate = WHERE to compete (which businesses). Business = HOW to win in one market. Functional = how departments support the business strategy.

A startup's plan is exciting but vague, identical to its rivals' plans, and needs far more money than it can raise. What is wrong with it? A. It focuses too much on internal capabilities B. It is too long-term C. Nothing, because ambition always pays off D. It fails the tests of a good strategy: it isn't clear, differentiated, or feasible E. It needs more short-term profit

D. It fails the tests of a good strategy: it isn't clear, differentiated, or feasible

Why: Good strategies are clear, different from rivals, long-term, doable, match strengths to opportunities, and can adapt.

A food distributor's restaurant customers keep buying from it for years because their ordering systems, menus, and delivery schedules are all built around it. What type of economic moat is this?

A. Network effects

B. Switching costs

C. Cost advantage

D. Efficient scale

E. Intangible assets

B. Switching costs

Why: Customers are "locked in" because leaving would be costly and a hassle (the book's example is Sysco). The five moats: cost, network effects, switching costs, intangibles, efficient scale.

A soda company has kept its profits high for decades. Rivals can make similar drinks, but none can match its famous brand and secret formula. What type of moat protects it? A. Network effects B. Switching costs C. Efficient scale D. Intangible assets E. Cost advantage

D. Intangible assets

Why: A brand and a secret formula are intangible assets (the book uses Coca-Cola). ALDI/Trader Joe's = cost; Visa/Mastercard = network effects.

A once-dominant photo company kept focusing on film even as digital cameras took over, and it eventually collapsed. What caused its failure?

A. Over-diversification

B. Low switching costs

C. Too much supplier power

D. Too much innovation

E. Strategic inertia and poor foresight

E. Strategic inertia and poor foresight

Why: This is the Kodak (and Blockbuster) lesson: sticking with what worked before and not seeing change coming.

A new CEO wants to follow the strategic management process in the right order. Which order is correct? A. Formulation → mission → evaluation → scanning → implementation B. Evaluation → mission → implementation → scanning → formulation C. Scanning → implementation → mission → formulation → evaluation D. Mission/vision/values → environmental scanning → formulation → implementation → evaluation and control E. Implementation → formulation → scanning → mission → evaluation

D. Mission/vision/values → environmental scanning → formulation → implementation → evaluation and control

Why: Set the direction, scan the environment, create the strategy, put it into action, then check results and adjust.

A team spends a meeting deciding "Should we move into electric bikes over the next decade, and why?" The next meeting covers "Which suppliers do we sign with this quarter, and when do we launch?" Which is which?

A. The first is strategy; the second is planning

B. Neither is strategy nor planning

C. Both are planning

D. Both are strategy

E. The first is planning; the second is strategy

A. The first is strategy; the second is planning

Why: Strategy asks "what should we do and why?" Planning asks "how and when?"

Two coffee shops on the same street sell similar products, yet one is far more profitable because of its unique staff training and loyal community. Which school of thought best explains this? A. Chandler's "structure follows strategy" B. Classical/Porter positioning C. Blue Ocean D. Resource-Based View E. Global strategy

D. Resource-Based View

Why: The Resource-Based View says advantage comes from inside the firm: its unique resources and capabilities. Clue: firms in the same industry perform differently.

A company chose a new strategy of expanding into five regions, and then reorganized into five regional divisions to carry it out. Which idea does this show?

A. Mintzberg

B. Strategic drift

C. Stakeholder theory

D. Chandler

E. Blue Ocean strategy

D. Chandler

Why: Chandler: structure follows strategy. Pick the strategy first, then build the organization to fit it.

A small software company never wrote a formal plan. Its strategy took shape over several years as it learned what customers wanted. Which school of thought describes this?

A. Evolutionary/Mintzberg

B. Chandler

C. Resource-Based View

D. Classical/Porter

E. Cost leadership

A. Evolutionary/Mintzberg

Why: Mintzberg argued strategy often emerges over time instead of being fully planned in advance.

A circus company stopped competing with other circuses on animal acts and instead created a new kind of theater-style show with no direct rivals. Which strategy is this? A. Cost leadership B. Vertical integration C. Strategic drift D. Blue Ocean strategy E. Hybrid strategy

D. Blue Ocean strategy

Why: Blue Ocean (Kim & Mauborgne) means creating uncontested market space. The book's example is Cirque du Soleil.

In a fast changing industry, a firm keeps watching for shifts, grabs new opportunities quickly, and reshapes itself when needed. Which idea, from Teece, does this describe?

A. Dynamic capabilities

B. Economic moat

C. Key success factors

D. Cost focus

E. Strategic groups

A. Dynamic capabilities

Why: Teece's dynamic capabilities = sense change, seize opportunities, transform the firm.

A company writes three statements: "We provide affordable meals to busy families"; "We will be the most trusted family restaurant in the country"; "We treat every guest with honesty and respect." Which is which? A. Mission, vision, values B. Mission, values, vision C. Vision, values, mission D. Vision, mission, values E. Values, mission, vision

A. Mission, vision, values

Why: Mission = what we do now and for whom. Vision = where we want to be. Values = how we behave.

A grocery chain's mission is "fresh, local, healthy food." To boost short-term profit, it slowly replaces local produce with cheap processed products. What is happening, and what should it do?

A. Diversification; add more product lines

B. Nothing is wrong because profit is up

C. Blue Ocean strategy; expand faster

D. Cost leadership; keep going

E. Strategic drift; realign resources with the mission

E. Strategic drift; realign resources with the mission

Why: Actions slowly drifting away from the mission = strategic drift (like sample Q5, Evergreen Grocers). Fix: realign with the mission.

A factory could raise profits by closing a plant, which would devastate the local town. The board is weighing effects on workers, the community, and suppliers, not just shareholders. Which idea is it using? A. Stakeholder theory and corporate governance B. Cost focus C. Five Forces D. VRIO E. Network effects

A. Stakeholder theory and corporate governance

Why: Stakeholder theory: firms answer to employees, customers, suppliers, and communities, not just shareholders. The board's job is to weigh all long-term consequences.

In a fast-changing industry, which approach is most likely to succeed?

A. Copying the market leader exactly

B. Being proactive, resilient, and innovative

C. Cutting all research spending

D. Waiting until changes are certain before acting

E. Always sticking to the original plan regardless of change

B. Being proactive, resilient, and innovative

Why: Dynamic environments reward proactivity, resilience, and innovation. Watch for the trap words "always" and "regardless."

An automaker wants to know which companies are its real, direct rivals and where there's an unserved gap in the market. Which tool helps most? A. TOWS B. Income statement C. Strategic group mapping D. VRIO E. Value chain

C. Strategic group mapping

Why: Strategic groups cluster firms with similar strategies (luxury, mass, budget). Mapping shows your real rivals and "white space."

In the airline industry, every airline must be safe, on time, and good at filling seats just to stay in business. What are these called? A. Key success factors B. Dynamic capabilities C. Mobility barriers D. Core competencies E. Economic moats

A. Key success factors

Why: Key success factors = what every firm must do well to survive in the industry. They don't make you special; they keep you alive.

A company owns modern factories and $50 million in cash. It also has a beloved brand and a strong company culture. Which of these is most likely to be a source of lasting advantage? A. The factories, because they're expensive B. None of them, since resources never matter C. The cash, because it's flexible D. The brand and culture, because intangible resources are harder to copy E. All equally

D. The brand and culture, because intangible resources are harder to copy

Why: Tangible resources (plants, cash) can be bought. Intangibles (brand, culture, knowledge) are harder to copy.

An online shoe retailer wins because its employees are trained and empowered to deliver amazing service. This is best described as a: A. Tangible resource B. Capability C. Mobility barrier D. Key success factor E. Substitute

B. Capability

Why: Capabilities = what the firm can DO with its resources (Zappos service culture, Toyota lean production, Walmart inventory systems).

A streaming company moved from mailing DVDs, to streaming, to producing its own shows, each time before rivals caught up. What does this show? A. Strategic inertia B. Cost focus C. Dynamic capabilities D. Unrelated diversification E. Strategic drift

C. Dynamic capabilities

Why: Dynamic capabilities = the ability to change your capabilities as the world changes (Netflix; Disney buying Pixar/Marvel/Lucasfilm; Ford making ventilators in COVID).

A company combines its engineering skill, special technology, and design process into something it does better than anyone else. What is this an example of?

A. A switching cost

B. A key success factor

C. A strategic group

D. A substitute

E. A core competency

E. A core competency

Why: Core competency = processes + technologies + capabilities combined into something the firm is uniquely good at.

A furniture company wants to find which steps in its business increase costs without adding anything customers care about. Which tool should it use?

A. PESTEL

B. Strategic group mapping

C. Value chain analysis

D. Five Forces

E. Blue Ocean

C. Value chain analysis

Why: The value chain breaks the business into steps. Primary: inbound logistics → operations → outbound logistics → marketing & sales → service. Support: infrastructure, HR, technology, procurement.

In value chain analysis, which of these is a SUPPORT activity, not a primary activity? A. Human resources B. Service C. Outbound logistics D. Operations E. Marketing and sales

A. Human resources

Why: Support activities: firm infrastructure, HR, technology development, procurement. The others are primary.

In a SWOT analysis, a company lists "loyal customers" and "new competitor entering the market." Where does each go?

A. Loyal customers = opportunity; new competitor = weakness

B. Both are threats

C. Loyal customers = threat; new competitor = strength

D. Both are strengths

E. Loyal customers = strength; new competitor = threat

E. Loyal customers = strength; new competitor = threat

Why: Strengths and weaknesses are internal. Opportunities and threats are external.

A team finished a SWOT list and says, "Great, that's our new business strategy." What's the problem here?

A. SWOT is only for nonprofits

B. They skipped the value chain

C. Nothing; SWOT is a complete strategy

D. They should have used VRIO instead

E. A SWOT list isn't a complete strategy

E. A SWOT list isn't a complete strategy

Why: SWOT can help, but should not be used solely as a final strategy.

A bakery known for excellent recipes sees rising demand for gluten-free food. It launches a gluten-free line. Which SWOT strategy is this? A. WO: fix weaknesses to pursue opportunities B. SO: use strengths to seize opportunities C. ST: use strengths to reduce threats D. WT: minimize weaknesses to avoid threats E. None; this is PESTEL

B. SO: use strengths to seize opportunities

Why: SO = strength + opportunity. ST = strength vs. threat. WO = fix weakness to chase opportunity. WT = shrink weakness to avoid threat.

A retailer with a weak online store sees online shopping growing fast. It invests to fix its website. Which SWOT strategies are these?

A. S and O

B. W and O

C. All of them

D. W and T

E. None of them

B. W and O

Why: WO = fix weaknesses to pursue opportunities.

A company with a strong brand image faces a flood of cheap imitators. It uses its brand reputation to keep customers loyal. Which SWOT strategies are these?

A. S and O

B. None, it is a PESTEL example

C. W and O

D. W and T

E. S and T

E. S and T

Why: ST = use strengths to reduce threats.

A local grocery chain's convenient location is valuable, but every competitor also has convenient locations. According to VRIO analysis, what does it give the chain?

A. Competitive disadvantage

B. Competitive parity

C. A Blue Ocean

D. Temporary advantage

E. Sustained advantage

B. Competitive parity

Why: Valuable but NOT rare = parity (you're even with rivals). The first "no" in VRIO tells you the result.

An airline's friendly service is valuable and rare, but competitors could copy it within a year or two. According to VRIO, what does it have?

A. Sustained advantage

B. Temporary advantage

C. Competitive disadvantage

D. Nothing

E. Competitive parity

B. Temporary advantage

Why: Valuable + rare but NOT costly to imitate = temporary advantage (the book's example: JetBlue).

A low-cost airline's model and unique culture are valuable, rare, very hard to copy, and the company is organized to take full advantage of them. According to VRIO, what does it have? A. Competitive disadvantage B. Competitive parity C. Sustained competitive advantage D. Strategic drift E. Temporary advantage

C. Sustained competitive advantage

Why: Yes to all four VRIO questions = sustained advantage (Southwest's model + culture; Starbucks' brand + systems).

Every bank in town bought the same AI platform, yet one bank gets far better results because of its own customer data and well-trained staff. What is the true source of its advantage? A. The hard-to-copy data, people, and routines around the AI B. Supplier power C. Lower prices D. Luck E. The AI platform itself

A. The hard-to-copy data, people, and routines around the AI

Why: Technology anyone can buy fails VRIO's "rare" test. AI is a strategy only when combined with hard-to-copy data, people, and processes (like sample Q1 and Q6).

A new online tutoring industry has very little money, cheap technology, and has no brand loyalty. Which force is strongest, and what's a smart response?

A. Threat of new entrants; build scale, brand, and switching costs

B. Buyer power; cut quality

C. Supplier power; find more suppliers

D. Rivalry; start a price war

E. Threat of substitutes; lower prices

A. Threat of new entrants; build scale, brand, and switching costs

Why: Low entry barriers = high threat of new entrants. Respond with scale, brand, patents, and switching costs.

A few giant retailers buy most of a toy maker's products, the toys are fairly standard, and the retailers can easily switch toy makers. Which force is strong, and what's the smart response? A. Buyer power; differentiate and raise switching costs B. Supplier power; integrate backward C. No force is strong D. Threat of new entrants; get patents E. Rivalry; cut prices to match

A. Buyer power; differentiate and raise switching costs

Why: Few big buyers + standard product + easy switching = strong buyer power. Stand out and make switching harder.

Gyms are losing members to home workout apps and equipment. Which force is this, and what's the smart response?

A. Buyer power; raise prices

B. Supplier power; buy equipment makers

C. New entrants; build more gyms

D. Rivalry; cut membership prices

E. Threat of substitutes; add value home workouts can't match

E. Threat of substitutes; add value home workouts can't match

Why: A different product meeting the same need = substitute. Offer something the substitute can't (classes, community, etc).

A pizza chain faces many similar competitors in a slow-growing market where everyone keeps cutting prices. Which force is strong, and what's the smart response? A. Rivalry; match every competitor's price B. Rivalry; differentiate and avoid a price war C. Supplier power; switch cheese suppliers D. Buyer power; ignore customers E. Threat of new entrants; open 100 more stores

B. Rivalry; differentiate and avoid a price war

Why: Many similar competitors + slow growth + price competition = intense rivalry. Matching every price is the classic price-war trap.

Pioneer Fitness Clubs faces intense rivalry from low-priced gyms, home exercise platforms, and community recreation centers. Membership cancellations are rising because customers can switch providers easily. Pioneer has strong instructors and highly rated small-group coaching, but management is considering broad price cuts to defend market share. Which response is most likely to improve Pioneer’s long-term industry position?

A. Match every competitor’s price to prevent additional cancellations.

B. Open more locations before determining why members are leaving.

C. Build memberships around coaching relationships, progress tracking, and integrated services that make switching less attractive.

D. Reduce instructor development and redirect the savings toward promotional discounts.

E. Negotiate equipment prices because suppliers represent the strongest competitive pressure.

C. Build memberships around coaching relationships, progress tracking, and integrated services that make switching less attractive.

Why: uses differentiation and integrated services to increase customer value and the perceived cost of leaving. It responds directly to the forces reducing retention.

A clothing importer faces new tariffs on goods from overseas. Which PESTEL factor is this? A. Sociocultural B. Environmental C. Technological D. Economic E. Political

E. Political

Why: Political = trade policy, tariffs, government stability. (P-E-S-T-E-L: Political, Economic, Sociocultural, Technological, Environmental, Legal.)

A home builder sees rising interest rates making mortgages more expensive for buyers. Which PESTEL factor is this?

A. Economic

B. Environmental

C. Legal

D. Sociocultural

E. Political

A. Economic

Why: Economic = inflation, interest rates, exchange rates.

A company notices its customers are aging and care more about health. Which PESTEL factor is this? A. Legal B. Political C. Sociocultural D. Economic E. Technological

C. Sociocultural

Why: Sociocultural = demographics, health trends, values.

A shipping company faces pressure to cut emissions as droughts disrupt river routes. Which PESTEL factor is this? A. Legal B. Political C. Technological D. Environmental E. Economic

D. Environmental

Why: Environmental = climate, sustainability, resource scarcity. (Legal would be the actual laws; Technological would be AI, automation, digital platforms.)

An analyst wants to judge how attractive the restaurant industry is, while another wants to scan big changes in society, law, and technology. Which tools should each use? A. The first uses TOWS; the second uses the value chain B. Both use VRIO C. The first uses PESTEL; the second uses Five Forces D. The first uses Five Forces; the second uses PESTEL E. Both use PESTEL

D. The first uses Five Forces; the second uses PESTEL

Why: Five Forces looks at the industry. PESTEL looks at everything outside it and feeds the O and T in SWOT.

A discount chain wins by being extremely efficient and huge, so it can offer the lowest prices to everyone. Which generic strategy is this? A. Broad differentiation B. Hybrid C. Blue Ocean D. Focused differentiation E. Cost leadership

E. Cost leadership

Why: Cost leadership = lowest-cost producer at acceptable quality through efficiency and scale (Walmart, IKEA, Southwest). Low price is the result, not the strategy.

A luxury car brand sells only to wealthy buyers who want handcrafted, exclusive vehicles. Which generic strategy is this? A. Focused differentiation B. Cost focus C. Hybrid D. Cost leadership E. Broad differentiation

A. Focused differentiation

Why: Narrow market + standing out = focused differentiation (Rolls-Royce, Lululemon, In-N-Out). Narrow market + low cost = cost focus (Dollar General).

A company redesigns its product to look different from rivals and immediately doubles the price, assuming customers will pay. What's the flaw? A. Nothing; differentiation always allows higher prices B. It should have cut prices instead C. Different doesn't automatically mean customers will pay more; they must value the difference D. Prices never matter E. It should have used cost focus

C. Different doesn't automatically mean customers will pay more; they must value the difference

Why: Differentiation wins on PERCEIVED value (brand, features, design, quality, experience). Different ≠ automatically able to charge more.

A mid-priced chain tries to be both the cheapest and the most premium option, and ends up with a confusing image and stretched resources. What happened? A. It achieved cost leadership B. It built an economic moat C. It reached competitive parity through VRIO D. It got "stuck in the middle" with a risky hybrid strategy E. It succeeded with a Blue Ocean strategy

D. It got "stuck in the middle" with a risky hybrid strategy

Why: Hybrid = differentiate AND keep costs low. High risk, high reward; the danger is being stuck in the middle.

A meal-kit company's customers can cancel anytime and switch to a rival with one click. It faces many competitors. What is the best long-term move?

A. Differentiate and raise switching costs

B. Cut prices below every competitor

C. Guarantee customers will never leave

D. Stop marketing

E. Buy a competitor right away

A. Differentiate and raise switching costs (e.g., personalized plans, loyalty rewards)

Why: Low switching costs + many rivals → stand out and make leaving harder, not price cuts.

A social app becomes more useful every time a new user joins, which attracts even more users. What is this called? A. Economies of scale B. Network effects C. Strategic drift D. Switching costs E. Vertical integration

B. Network effects

Why: Network effects = the product gets more valuable as more people use it (Visa/Mastercard).

A tutoring website connects students with tutors and earns a fee on each session. It's growing fast but losing money. What's the smartest fix?

A. Stop recruiting tutors altogether and focus on current ones

B. Cut prices to zero on both sides forever

C. Shut down the platform

D. Charge both sides more immediately

E. Use targeted ways to make money while protecting the side most sensitive to price

E. Use targeted ways to make money while protecting the side most sensitive to price

Why: A platform connects two groups and earns from their interactions. Monetize carefully so you don't drive away the price-sensitive side.

A retailer with serious delivery problems and unhappy customers wants to acquire a competitor to grow. What should it do first? A. Cut prices to win back customers B. Fix its own operations first C. Open more stores D. Acquire two competitors E. Acquire immediately before prices rise

B. Fix its own operations first

Why: Acquisitions are hard to integrate and can spread existing problems. Fix execution before growing ("grow before fixing" is a trap).

A smartphone maker buys the chip company that supplies its processors. What is this? A. A strategic alliance B. Franchising C. Forward vertical integration D. Unrelated diversification E. Backward vertical integration

E. Backward vertical integration

Why: Backward = toward suppliers. Forward = toward customers (like buying stores or distributors).

A drug company needs AI expertise it doesn't have. It must choose between: building a team (slow, full control), buying an AI startup (fast, costly, risky), or partnering with an AI firm (flexible, shared control). What should it do first?

A. Always build internally

B. Always partner

C. Buy the biggest AI firm available

D. Ignore AI

E. Identify the exact capability gap, then choose the option that fits

E. Identify the exact capability gap, then choose the option that fits

Why: Build / buy / partner each have trade-offs. The right first step is to identify the gap first

Two companies form a joint venture to develop a new battery, sharing resources while staying independent. What is this? A. Merger B. Franchising C. Unrelated diversification D. Vertical integration E. Strategic alliance

E. Strategic alliance

Why: Strategic alliance = partnership where firms share resources but stay independent (joint venture, licensing).

A sporting goods company already sells running shoes and decides to add running apparel, using the same designers, stores, and brand. What type of diversification is this? A. Cost focus B. Unrelated diversification C. Franchising D. Related diversification E. Vertical integration

D. Related diversification

Why: Related = shares skills or resources (synergy). Unrelated = no link, mainly spreads risk.

A company entering a new country wants the LEAST risk and investment to start, even if it means less control. Which entry mode fits best? A. Building a factory abroad B. Joint venture C. Wholly owned subsidiary D. Exporting E. Buying a local company

D. Exporting

Why: Low to high risk and control: exporting → licensing/franchising → alliance/joint venture → wholly owned subsidiary.

A company's CEO wants to know three things: whether it's actually keeping profit, how much debt it has, and whether it has cash to invest in expansion. Which financial statements answer these?

A. Financial statements don't relate to strategy

B. Income statement; balance sheet; cash flow statement

C. Income statement only

D. Cash flow statement only

E. Balance sheet only

B. Income statement; balance sheet; cash flow statement

Why: Income statement = margins (capturing value?). Balance sheet = resources and debt. Cash flow = capacity to invest.

A drug company's best-selling patents expire in two years, and it has few new drugs in development. What should it do? A. Cut research to boost short-term profit B. Acquire an unrelated business C. Do nothing, since patents guarantee advantage D. Raise prices while it can E. Invest in renewal and innovation now

E. Invest in renewal and innovation now

Why: Its advantage is temporary. Dynamic capabilities: renew before the edge expires.

A furniture maker's unique handcrafted process is what customers love. A consultant suggests switching to a cheaper standard factory process. What's the best response? A. Always choose the cheapest option B. Copy a competitor's process C. Switch immediately to save money D. Raise prices first E. Weigh the savings against losing the hard-to-copy capability customers value

E. Weigh the savings against losing the hard-to-copy capability customers value

Why: This tests the trade-off / Resource-Based View: don't give up what makes you special just to save money n