MGMT 5560 — Test 1 — Thompson Ch. 1–4 — Hill Fall 2026

[Ch. 1] Strategy vs. an objective?

An objective is a result to achieve. Strategy is the coordinated game plan for competing, running the business, and achieving those results.

[Ch. 1] What does competing differently require?

Meaningful differences that buyers value, especially doing what rivals do not or cannot do. Every activity need not be unique.

[Ch. 1] When does a company have a competitive advantage?

When its edge over rivals attracts buyers who prefer its offering, supporting superior market performance and profitability.

[Ch. 1] What makes a competitive advantage sustainable?

The reasons buyers prefer the company persist despite rivals' efforts to imitate, neutralize, or surpass them.

[Ch. 1] How does a low-cost provider gain an edge?

Lower costs than rivals allow lower prices, higher profit margins at comparable prices, or both.

[Ch. 1] What is a differentiation strategy?

Offer distinctive attributes buyers value, such as quality, performance, or service, that support profitable competition against rivals.

[Ch. 1] What makes a best-cost provider different from a basic low-cost provider?

It combines appealing quality/features/performance with a better-than-expected price: more value for the money.

[Ch. 1] What defines a focus or niche approach?

Serving a narrow buyer segment's special needs better than rivals, rather than targeting the whole market.

[Ch. 1] Why can resources and capabilities produce durable advantage?

Experience, know-how, and specialized capabilities can take rivals much longer to replicate than product features.

[Ch. 1] Proactive vs. reactive strategy elements?

Proactive: deliberate initiatives and successful ongoing approaches. Reactive: adjustments made as unexpected developments and fresh conditions emerge.

[Ch. 1] Why does a company's strategy keep evolving?

Changing technology, rivals, buyer needs, opportunities, and performance feedback require adjustments. Ineffective elements may be abandoned.

[Ch. 1] What does a business model explain?

How the strategy creates customer value and generates enough revenue, relative to costs, to earn attractive profits.

[Ch. 1] Customer value proposition vs. profit proposition (profit formula)?

Value proposition: satisfy buyers at a price they consider worthwhile. Profit formula: generate sufficient revenue and control costs to deliver that value profitably.

[Ch. 1] What are the three tests of a winning strategy?

Fit: matches external and internal circumstances. Competitive advantage: builds a durable edge. Performance: produces strong results.

[Ch. 1] A strategy is legal. Is it necessarily ethical?

No. It must also pass moral scrutiny; legal actions can still be deceitful, unfair, harmful, or environmentally irresponsible.

[Ch. 2] Strategic vision vs. mission statement?

Vision describes future direction and intended market position. Mission describes the present business, customers, and purpose.

[Ch. 2] Why communicate a strategic vision clearly?

It gives the organization a common direction, guides decisions, and builds commitment to the changes needed to get there.

[Ch. 2] What role should core values play?

Guide employees' conduct and the way the company pursues its vision, mission, and strategy; they must shape behavior, not just publicity.

[Ch. 2] What makes an objective well stated?

Specify a measurable, challenging result and a deadline: how much of what, by when.

[Ch. 2] Why set stretch objectives?

They push the organization toward its full potential, encourage inventive effort, and resist complacency with ordinary results.

[Ch. 2] What is strategic intent?

Relentlessly pursuing an ambitious strategic objective by concentrating resources and competitive actions on achieving it.

[Ch. 2] Financial vs. strategic objectives: profit margin vs. market share?

Profit margin is financial; market share is strategic because it tracks competitive standing. A balanced scorecard tracks both types of objectives.

[Ch. 2] Why are financial results lagging indicators and strategic outcomes leading indicators?

Financial results reflect past actions. Changes in competitive strength and buyer appeal signal future financial prospects.

[Ch. 2] What constitutes a strategic plan?

The company's strategic vision, mission, objectives, and strategy, typically supported by resource commitments and achievement deadlines.

[Ch. 2] What are the five strategy-making/strategy-executing tasks?

Develop vision, mission, and values; set objectives; craft strategy; implement and execute it; monitor developments and make corrective adjustments.

[Ch. 2] What is the strategy-making hierarchy?

Corporate, business, functional-area, operating. In a single-business company, corporate and business strategy merge into one level.

[Ch. 2] Corporate strategy vs. business strategy?

Corporate strategy manages the company's collection of businesses. Business strategy determines how one business competes and strengthens its position.

[Ch. 2] Functional-area vs. operating strategy?

Functional strategy guides an area such as marketing or production. Operating strategy guides specific units or activities, such as a plant or advertising campaign.

[Ch. 2] Why is strategy making collaborative rather than solely the CEO's job?

Managers across levels contribute specialized knowledge. Involving the people who execute strategy also builds commitment and accountability.

[Ch. 2] What is the board of directors' role in strategy?

Oversee management: scrutinize direction/strategy, evaluate executives' skills, align incentive compensation with stakeholder interests, and oversee financial reporting.

[Ch. 3] PESTEL vs. Five Forces: what does each analyze?

Both belong to Chapter 3's external analysis. PESTEL scans the broad macro-environment; Five Forces examines competitive pressures within the industry's environment.

[Ch. 3] What are the six PESTEL categories, with examples?

Political: tariffs; Economic: inflation; Sociocultural: lifestyles; Technological: AI; Environmental: pollution; Legal/regulatory: labor laws.

[Ch. 3] What are the Five Forces?

Rivalry among sellers, threat of new entrants, substitute-product competition, supplier bargaining power, and buyer bargaining power.

[Ch. 3] All five competitive forces strengthen. What happens to industry profit potential?

It generally falls: stronger pressures make attractive profits harder to earn. Weaker collective forces generally improve profit potential.

[Ch. 3] Customers face high costs to switch rival brands. What happens to rivalry?

Rivalry generally weakens because customers are harder to steal. Low switching costs strengthen rivalry by making switching easier.

[Ch. 3] Rival products become strongly differentiated. What happens to rivalry?

Rivalry generally weakens as buyer loyalty rises. Weak differentiation strengthens rivalry because offerings are more interchangeable.

[Ch. 3] Rapid market growth slows sharply. What usually happens to rivalry?

Rivalry strengthens as firms fight for existing customers. Rapid growth usually eases rivalry because firms can grow without taking others' sales.

[Ch. 3] Why do excess capacity, high fixed costs, and perishable inventory intensify rivalry?

They create pressure to fill capacity and discount unsold output. An empty airline seat or last night's hotel room cannot be sold later.

[Ch. 3] Several similarly capable rivals become dissatisfied and aggressive. What happens to rivalry?

It strengthens: evenly matched rivals can fight back, and dissatisfied firms launch moves to win customers and improve performance.

[Ch. 3] What commonly raises entry barriers?

Incumbent cost advantages and brand loyalty, large capital needs, difficult distribution access, restrictive regulation, and tariffs that impede foreign entry.

[Ch. 3] Low barriers, a large capable entrant pool, and little expected retaliation imply what?

A stronger entry threat. High barriers, few capable entrants, and credible incumbent retaliation generally weaken it.

[Ch. 3] High profits and strong industry growth attract outsiders. What happens to entry threat?

It rises as outsiders pursue attractive opportunities. Poor profitability or weak growth reduces the incentive to enter.

[Ch. 3] In soft drinks, is Pepsi a rival or a substitute for Coca-Cola?

A rival within the same industry. Coffee can be a substitute from another industry serving a similar buyer need.

[Ch. 3] What makes substitute-product pressure strong or weak?

Strong: readily available, attractively priced substitutes with good performance and low switching costs. High switching costs or poor price/performance weaken substitute pressure.

[Ch. 3] Only a few qualified suppliers offer a scarce, differentiated input. Supplier power?

Stronger: industry members have fewer good sourcing options, especially when the input improves quality or performance.

[Ch. 3] Switching suppliers is cheap and good substitute inputs exist. Supplier power?

Weaker because industry members can leave. High switching costs and no good substitute inputs strengthen supplier power.

[Ch. 3] An industry provides most of a supplier's revenue. What happens to supplier power?

It weakens because keeping that industry's business matters greatly. Low dependence on the industry strengthens supplier power.

[Ch. 3] How do credible forward/backward integration threats shift bargaining power?

Supplier forward integration strengthens supplier power. Buyer backward integration strengthens buyer power and weakens supplier power by making self-supply credible.

[Ch. 3] A few large, well-informed buyers place high-volume orders. Buyer power?

Stronger: their business matters to sellers, and knowledge of competing offers helps them negotiate concessions.

[Ch. 3] A buyer can switch brands almost without cost. What happens to buyer power?

It rises because the buyer can credibly leave. High switching costs reduce buyer power by making exit costly.

[Ch. 3] Strong differentiation makes alternatives less equivalent. What happens to buyer power?

It falls as buyers prefer particular offerings. Weak differentiation increases buyer power because competing offerings are easier to compare and replace.

[Ch. 3] Price-sensitive buyers can postpone purchases. What happens to buyer pressure?

It strengthens: delaying or reducing purchases pressures sellers to offer concessions. Tight budgets or large spending commitments heighten price sensitivity.

[Ch. 3] What are driving forces, and what are the three analysis steps?

Major causes of industry change, such as long-term growth shifts. Identify them; assess their combined effect on industry attractiveness; determine needed strategy adjustments.

[Ch. 3] What is a strategic group, and why map it?

Industry rivals with similar competitive approaches and market positions. Mapping reveals close competitors and differences in positioning.

[Ch. 3] What makes good axes for a strategic-group map?

Characteristics that differentiate rivals and are not highly correlated, such as geographic coverage and service level. Correlated axes add little new information.

[Ch. 3] What does circle size represent on a strategic-group map?

The group's share of total industry sales revenue. Larger circles indicate larger combined sales shares, not higher profits.

[Ch. 3] Are all strategic-group positions equally attractive?

No. Competitive pressures and driving forces affect groups differently, so their growth and profit prospects differ.

[Ch. 3] How can managers anticipate rivals' likely next moves?

Study rivals' current strategies, performance, weaknesses, capabilities, and public plans. Poor results or ambitious goals often signal new offensives.

[Ch. 3] What are an industry's key success factors (KSFs)?

The strategy elements, attributes, capabilities, and outcomes most important to competitive success. Firms must measure up on them or risk falling behind.

[Ch. 3] Is an industry's outlook equally attractive to every firm?

No. The final assessment asks whether industry conditions and this firm's position/capabilities offer good profit prospects; a strong firm may prosper in a difficult industry.

[Ch. 4] A question asks whether our company has a distinctive competence: Chapter 3 or 4?

Chapter 4: an internal resources/capabilities question. Chapter 3 analyzes the external macro-environment, industry, and competition.

[Ch. 4] What are the three best indicators that the current strategy is working?

Meeting financial and strategic objectives; performing above the industry average; gaining customers and market share.

[Ch. 4] Resource vs. capability?

A resource is an asset or productive input the firm owns or controls. A capability is its proficiency in performing an activity.

[Ch. 4] When does an ability become a competence?

When accumulated experience and know-how let the company perform the activity consistently well at acceptable cost.

[Ch. 4] Core competence vs. distinctive competence?

Core: performed well and central to strategy/competitiveness. Distinctive: a competitively important activity performed better than rivals.

[Ch. 4] Why can a resource/capability bundle be more powerful than its pieces?

Integration creates complementary strengths: the functioning whole has greater competitive value than the components used separately.

[Ch. 4] What four tests assess a resource or capability's competitive power?

Competitively valuable; rare/not widely possessed; hard to copy; not easily trumped by rivals' substitute resources or capabilities.

[Ch. 4] A valuable capability is common among rivals. Advantage or parity?

Usually competitive parity from that capability alone. Being valuable does not automatically make it rare or superior.

[Ch. 4] What is a dynamic capability?

The ability to modify, deepen, refresh, and add resources/capabilities as conditions change, helping sustain competitiveness.

[Ch. 4] In SWOT, where do a weak brand and a new market opportunity belong?

Weak brand: internal weakness. New market opportunity: external opportunity. Strengths/weaknesses are internal; opportunities/threats are external.

[Ch. 4] Why are four SWOT lists insufficient?

Draw conclusions, then act: build on strengths, correct important weaknesses, pursue suitable opportunities, and defend against threats.

[Ch. 4] Should a firm pursue every attractive industry opportunity?

No. Pursue opportunities that fit resources/capabilities it has or can acquire; industry opportunity does not automatically mean company opportunity.

[Ch. 4] What is a value chain, and how do primary/support activities differ?

It links activities that create customer value. Primary activities directly create/deliver that value; support activities enable and improve them.

[Ch. 4] Do rivals in the same industry necessarily have identical value chains?

No. Different strategies, technologies, operating methods, and vertical integration create different activities and costs.

[Ch. 4] Why examine suppliers' and distributors' value chains as well as our own?

Their activities, costs, and margins affect end-customer value and the total cost/price position of the industry value-chain system.

[Ch. 4] Benchmarking vs. a best practice?

Benchmarking compares activities' costs/results across companies, even outside the industry. A best practice is a demonstrated method that consistently produces superior results.

[Ch. 4] Hill's warning: why can blindly copying best practices weaken differentiation?

Isomorphism: firms imitate each other and become more alike. Copying can erase a distinctive advantage and push competition toward price.

[Ch. 4] Our costs exceed rivals' at comparable price and customer value. What does that imply?

Greater competitive vulnerability. Value-chain analysis and benchmarking help locate cost gaps or ways to deliver more value profitably.

[Ch. 4] What does a competitive-strength assessment tell managers?

Where the firm is stronger/weaker than rivals on important factors and overall. It guides offensive moves and defenses against vulnerabilities.

[Ch. 4] What is the strategic worry list, and what must management do with it?

Priority issues from external and internal analysis, framed as how to, whether to, or what to do about. Strategy must address each issue.