Name ______________________________________________
BADM 450-01 – Exam 1
PART I (60 points)
- Define or describe briefly each of the following. (3 points each)
- Industry
An industry is a group of firms producing products that are close substitutes. _______________________________________________________________________________________________________________________________________________________________
- Market
A market is a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate the exchange of goods and services. ________________________________________________________________________________________________________________________________________________________________________
- Competitors
Competitors are firms that supply similar goods and services and services and compete for market share. ______________________________________________________________________________________________________________________________________________________________________
- Core Competence
Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.
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- Economies of Scale
Economies of scale refer to reduced cost per unit arising due to an increase in the total output. ________________________________________________________________________________________________________________________________________________________________________
- Above Average Returns
Above average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. ________________________________________________________________________________________________________________________________________________________________________
- Outsourcing
Outsourcing is the purchase of value-creating activity or a support function activity from an external supplier.
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- According to the I/O model, what should a firm do to earn above-average returns? (5 points)
Study the external environment, especially the industry environment. Locate an industry with high potential for above average returns. Identify the strategy called for by the attractive industry to earn above average returns. Develop or acquire assets and skills needed to implement the strategy. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy. ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
- What are the elements of the strategic management process? (6 points)
There are four key elements of the strategic management process: environmental planning, strategy formulation, strategy implementation, and strategy evaluation.
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- What are the three major parts of the external environment? (6 points)
The external environment has three major parts:
(a) The general environment (segments and elements in the broader society that affect industries and the firms competing in them) _______________________________________________________________________________________
(b)The industry environment (factors that influence a firm, its competitive actions and responses, and the industry’s profitability potential) ________________________________________________________________________________________
(c) The competitor environment (in which the firm analyzes each major each major competitor’s future objectives, current strategies, assumptions, and capabilities. _______________________________________________________________________________________
5. Explain how one of the parts of the external environment can be analyzed. (6 points)
The analysis of the industry environment entails understanding the forces that are at work in the industry and consider the possible responses to any potential opportunity and threat. When completing he analysis, it is important to understand probable profitability of the industry. It is also important to know whether competition in the industry will increase or decrease. _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
6. What are the differences between tangible and intangible resources? (6 points)
Tangible resources or tangible assets are measurable and physical assets, which are used in the operation of a company. These resources include property, plant, and equipment, machinery, vehicles, land, inventory, furniture, and securities like cash, bonds, and stock. Tangible assets fall into two categories, which include current assets and fixed assets. Current assets are things like marketable securities, inventory and cash. They are used within a year and are readily sold in case of emergencies. Fixed assets refer to non-current assets. Companies often use it for over a year. Li includes things like office furniture, machinery, trucks and buildings.
Intangible resources refer to intangible assets, which are not physical. They are intellectual properties and assigning value to them is difficult. They are intellectual properties, which include the brand of the company, goodwill, trademarks, patents, franchise, and copyrights. ____________________________________________________________________________________________________________________________________________________________________________________
7. What is a value chain analysis? (10 points)
Value chain analysis allows the firm o understand the parts of its operation that create value and those that do not Understanding these issues is important because the firm earns above-average returns only when the value it creates is greater than the costs incurred to create the value. The value chain is a template that firms uses o analyze their cost position and to identify the multiple means that can be used to facilitate implementation of a chosen strategy. Today’s competitive landscape demands that firms examine their value chains in a global rather than a domestic-only context. In particular, activities associated with supply chain should be studied within a global context. In particular, activities associated with supply chains should be studied within a global context. _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
PART II (40 points)
Select one of the following cases and answer the following questions.
_____ Luck Companies _____ American Express: Bank 2.0 _____Kipp Houston Schools
- What are three of the firm’s core competencies? (6 points)
The first core competency of the firm is its ability to acquire. It was successful in acquiring the two largest domestic companies in the market.
The second key competency is its big market share in the United States that it has been able to attain through its brand.
The third key competency is its methods of advertising, and the fact that it spends so much in its marketing department. ___________________________________________________________________________________________________________________________________________________________________________________
- Which of these core competencies is/are likely to provide this firm with a sustainable competitive advantages? Why? (4 points) The competency that is likely to contribute to a sustainable competitive advantage is the second one, which it attains through its brand. Having a big market share means that customers are acquainted with the brand of the company. Therefore, they remain loyal to the company because they know that they get the best out of it. Customers who are loyal to the company give it positive reviews, and many people will always want to have an experience with the products that the company offers. Once customer loyalty has been won, the company will have a big market share and thus the competitive advantage.
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- Select one of the strategic alternatives. Gives at least two pros and two cons for this alternative. (10 points)
- State alternative Product diversification_ __________________________________________________________
- Pros: (i) Consumers have a wide variety of products from which they can choose. __________________________________________________________________
(ii)The sales of the company will go up because of the many products that it has to sell to different customers. __________________________________________________________________
- Cons: (i) Consumers may buy one product more and leave out the other, because of their tastes and preferences. __________________________________________________________________
(ii) One product may cause slow sales, and therefore the company may be compelled to sop its production. __________________________________________________________________
- If this alternative is selected for implementation, what would be your plan for assessing the action? (10 points)
_The plan for assessing the action in case this plan was selected would be to invest heavily on the marketing department. With product diversification, it is important to always let the customers know what they should expect in the market. The first stage of the product life cycle, which is the launching stage should have an impact on the customers in such a way that they will always want to use the products. The advertising strategies should be frequent so that customers are always reminded of what they will miss out if they do not use the products. Besides, the products made should also be in line with the tastes and preferences of the customers. It is important to know the market niche and ensure that the customer satisfaction is attained. _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
PART III Bonus (20 points)
- A watch manufacturer incurs a variable cost of $10 per watch and fixed costs of $400,000. To earn a 25% markup on selling price, the manufacturer should charge _____ for each of the 50,000 watches its expects to sell.