QUESTION 1
- Consider two similar industries, portal crane manufacturing (PCM) and forklift manufacturing (FLM). The PCM industry has three incumbents with annual sales of $800 million, $200 million and $100 million, respectively. The FLM industry has also three incumbents, with annual sales of $500 million, $450 million and $400 million, respectively. Which industry is more likely to experience a higher level of rivalry?
| a. | PCM will experience higher degree of rivalry because the overall market size is lower in that industry ([800+200+100 = $1.1B] < [500+450+400 = $1.35B]), and the rivalry is always higher in the industries with lower demand. | |
| b. | FLM will experience higher degree of rivalry because the sum of the squared market shares of its incumbents, calculated from the information given (at .336), is lower than that of the PCM industry (at .570). | |
| c. | FLM will experience higher degree of rivalry, because the size of its two smaller competitors is larger than the size of the two smaller competitors in the PCM industry ($450M>$200M and $400M>$100M). | |
| d. | We cannot tell from the information given: The sum of the market share of the top four competitors, normally used to estimate the industry concentration (so-called CR4), cannot be calculated from the information above: we simply do not have enough incumbents! |
QUESTION 2
- “Organizational routine” can be best defined as:
| a. | Competitive response to the new entrants by lowering prices for the firm’s products | |
| b. | Sequence of activities that organization invariably undertakes when a certain external signal or event is detected | |
| c. | Just another name for the organizational capability | |
| d. | Negative effect of managers and employees performing the same task over and over, without critically questioning the task’s value-creating potential |
0.8 points
QUESTION 3
- One of the factors that usually affects the Bargaining Power of Suppliers in the Porter’s Five Forces model is:
| a. | The level of the Sociocultural element of the PESTEL framework in the focal industry (“focal” means the industry we analyze), compared to that same element of the PESTEL framework in the suppliers’ industry | |
| b. | The level of the Herfindahl-Hirschman index of the industry that supplies the components to the focal industry, relative to the HHI of the industry that buys the products from the focal industry | |
| c. | Suppliers have shown that they are capable of quickly developing innovative capabilities | |
| d. | The track record (recent history) of some of the firms in the focal industry being acquired by the firms that sell components to the incumbents. |
0.8 points
QUESTION 4
- The VRIO (also known as VRI, VRIN) framework is typically used for:
| a. | Deciding on whether it is better to build a new capability internally or to acquire another company that already has such capability | |
| b. | Checking if the firm’s capabilities can be the source of the sustainable competitive advantage | |
| c. | Understanding the threat of substitutes in the industry you analyze | |
| d. | Deciding on which performance measures, like Return on the Invested Capital or Return on Equity, should be used to measure the competitive advantage of the firm |
0.8 points
QUESTION 5
- Assume we are analyzing a commercial airline industry by applying the Porter’s Five Forces framework. A substitute that we will have to include in the “threat of substitutes” analysis is:
| a. | Airlines that pursue the low-cost strategy (e.g., Spirit, Allegiant Air, Frontier, Norwegian, Vueling) or those airlines that may occasionally offer sale prices with ticket discounts of 15% or more | |
| b. | The travel agencies, including the major online players, like Kayak | |
| c. | All major manufacturers of the commercial jet airliners (Boeing, Airbus, Embraer, Bombardier) | |
| d. | Software applications like Skype (by Microsoft) and other products with similar functionality, like Gmail chat |
0.8 points
QUESTION 6
- Differentiation is a firm-level generic strategy that:
| a. | Aims to exploit the firm’s capability base in order to add value-creating attributes to the products, so that the customers’ willingness to pay goes up | |
| b. | Should de-emphasize cost control, as that control will diminish the creativity in the firm and suppress the addition of new and exciting attributes to the products | |
| c. | Is always preferable to the cost leadership, because a firm can differentiate on many different attributes, whereas the cost is easier for customers to observe and thus more difficult for the firms to compete on | |
| d. | Both (a) and (b) |
0.8 points
QUESTION 7
- The “Resource-Based View” (sometimes also called “Resource-Based Theory”) argues that:
| a. | A firm should diversify its resources as much as possible in order to generate greater cash flows | |
| b. | A firm may or may not be a good candidate to pursue a particular strategy depending on the resources that the firm currently has, or to which it has access to | |
| c. | Any firm can pursue any strategy as long as it does it in a very disciplined manner | |
| d. | A firm should conserve its resources and invest as little as possible in pursuing a strategy because it can never predict what it might need in the future |
0.8 points
QUESTION 8
- There are many factors that can affect the risk of entry in an industry (higher new entry typically damages the incumbents’ profitability. One factor that typically does NOT affect the risk of entry is:
| a. | Typical (average) amount of initial capital required to start operating in the industry | |
| b. | The costs the incumbents’ customers must incur before they can switch their purchases to another competitor | |
| c. | The differentiation between many firms that supply components to the focal industry | |
| d. | Regulatory environment, on the city, regional and/or national levels |
0.8 points
QUESTION 9
- All activities in a firm’s value chain or value network:
| a. | Should be carefully aligned with the overall strategy of the firm | |
| b. | Should be performed at the lowest possible cost or outsourced to the lowest-cost supplier | |
| c. | Should pursue differentiation of the final product | |
| d. | Should always generate significant value added for the firm |
0.8 points
QUESTION 10
- Dynamic Capability can be best defined as:
| a. | Capability that the firm has been changing actively in the recent past | |
| b. | Capability that can affect more than one of the five structural forces in the industry | |
| c. | A “higher order” capability: a capability to develop operational capabilities of the firm | |
| d. | Capability that consists of multiple interacting activities |
0.8 points
QUESTION 11
- Briefly explain the VRI analysis of the capabilities of the firm (10 points). Please explain how you would test a firm’s capability for the inimitability (5 points). (Do NOTexceed 300 words)
QUESTION 12
- The next two short essay questions (Question 12 & 13) draw on the following hypothetical scenario:
Pills & Co., one of the top-five pharmaceutical companies globally, is pursuing an ambitious project (the “Gamma Project”). It is essentially an aggressive acquisition program in which Pills & Co. will fully acquire two of its biggest direct rivals within two years. It also plans acquisitions of one large and two mid-sized Pharmacy Benefit Management (PBM) companies. A big part of the Pharmacy Benefit Management business is managing prescription drug costs for health plans and insurers; PBMs do it by buying patented drugs from the drug manufacturers on behalf of the health plans.
For the purposes of this exam, let’s define the pharmaceutical industry so that it includes all patented pharmaceutical incumbents worldwide, such as Novartis, GlaxoSmithKline, Merck, Pfizer, Eli Lilly, Johnson & Johnson, AstraZeneca, Bristol-Myers Squibb and others like them. They discover new drug targets through extensive R&D, patent them, obtain necessary approvals, manufacture and sell drugs. Most important supplier groups for the industry are workforce (scientists, support staff, manufacturing staff), commodity chemicals producers, laboratory and scientific equipment manufacturers, IT and other professional services suppliers, including marketing agencies. Let’s exclude from the industry definition the companies that mostly manufacture and sell non-patented (generic) medications, like Teva Pharmaceuticals. Please note that you will not need any additional knowledge about the pharmaceutical industry or PBM to answer the essay questions 2 and 3 – you should be able to fully answer them using the information contained here, even if you have had no prior familiarity with the industry.
If the Gamma Project is fully implemented, how will it affect the industry for the patented pharmaceuticals (Each force worth 3 points)? (Do NOT exceed 300 words)
Hint: in answering the question, you don’t need to do a full Five Forces analysis of the industry as it exists right now: Just make your projections about whether each of the five forces will change significantly and predictably as a result, relative to its current level. Please make sure you are clear as to the direction of the effect: for each force that might change, please indicate if the incumbents will be better off or worse off as a result of the change. If you don’t predict a change will happen in some Forces as a result of the Gamma Project, please indicate that explicitly as well.
QUESTION 13
- If you are a top manager of Pills & Co. in charge of the Gamma Project, which dynamic capability your firm would have to possess for the successful completion of the project? There are several possible good answers here, so please identify just one capability that you would deem the most important and explain why you think so. (Do not exceed 300 words) 3 points
QUESTION 14
- Using our Apple case (Apple in 2015), please indicate which generic strategy Apple has been following in 2005-2015 (9 points).Does the strategy you have identified align with Apple’s organizational capabilities? Why or why not? (6 points) (Do NOT exceed 300 words)
