WPC 480 Midterm UPDATED ACTUAL
Questions and CORRECT Answers
Ackbar, Inc. has had 40% growth in accounting profits for several years, and each new year has
been the highest profits Ackbar has ever had. What can you conclude from this information about
Ackbar's competitive advantage? - CORRECT ANSWER - Competitive advantage cannot
be assessed. (Competitive advantage is always RELATIVE to competitors; Ackbar's competitors
may have had 60% accounting profit growth every year, and so the firm does not have a
competitive advantage. This can happen when an industry has a sudden expansion so all firms in
the industry improve together , but that would not be a durable competitive advantage for any
single firm.)
True or False: Firms that outperform their competitors have a high quality, planned strategy. -
CORRECT ANSWER - FALSE : (Good environmental situations can make even poor
strategy profitable, and sometimes, a firm stumbles onto an effective strategy without much
planning because the world is not predictable.)
A firm may have negative profits for several years in a row, and still decide to give a big
performance bonus to the CEO or other top executives. What is the best explanation for getting a
bonus when you aren't making a profit? - CORRECT ANSWER - The firm has been
growing rapidly along with the price of the stock.
Accounting profit is best for measuring performance for relatively stable firms or industries; with
high growth the profits are put back into the company so as to get greater profits in the future.
major source of inaccuracy as an estimate of the value and/or performance of the firm:
Accounting Value - CORRECT ANSWER - Base on Historical Data
major source of inaccuracy as an estimate of the value and/or performance of the firm:
Shareholder Value - CORRECT ANSWER - Based on predictions of future growth
major source of inaccuracy as an estimate of the value and/or performance of the firm: Balanced
Scorecard - CORRECT ANSWER - Based on perceptions of value by customer
,What are problems with asking successful firms to explain how they achieved their success
AFTER they became successful? - CORRECT ANSWER - People tend to attribute all
their success to their own efforts.
People tend to forget all the mistakes made along the way.
People tend to reverse the causality and forget that success came unexpedly before the strategy.
Takeaways Module 2: - CORRECT ANSWER - The halo effect is where the success of the
firm makes people assume that the people at the top of the firm are successful at setting strategy -
- but that is not always true. Luck plays a role, and sometimes the leadership stumbled into
success and didn't have much of a plan at all -- but when telling the story afterwards they will
tend to only focus on how they made decisions and took actions that intentionally led to success.
No one at the top of a firm likes to admit that success was a surprise and unplanned, even though
that often happens. Or that it was an incremental process of trial and error, and they did not have
a long term strategy. Once the firm becomes successful, people tend to claim success was due to
their efforts (conversely, if a firm fails they blame everything on the environment, timing, etc.)
and make it appear as if the key to their success was an intentional plan all the time.
the way of measuring firm performance with the situation or condition where that metric will be
most useful to a strategic analyst: Accounting Value - CORRECT ANSWER - Firms value
is mostly in tangible assets
the way of measuring firm performance with the situation or condition where that metric will be
most useful to a strategic analyst: Shareholder Value - CORRECT ANSWER - Firm is
rapidly growing in several markets
the way of measuring firm performance with the situation or condition where that metric will be
most useful to a strategic analyst: Balanced Scorecard - CORRECT ANSWER - Firm sells
a product where prand and status are important
, Balanced scorecard is about understanding and evaluating value as a function of customer's (and
other's) perceptions of the value. For a firm that sells status or a brand image, the greatest value
will be in the perceived value people give to the goods and services the firm sells.
True or False: Theories about firm performance ought to be constructed by studying both firms
that succeed and firms that fail. - CORRECT ANSWER - True
If you only study firms that succeed, you cannot decide what elements are related to success, and
what elements are not. Only when you compare them to failed firms is it possible to identify the
elements that are only associated with success, or that don't seem to matter at all.
What is the halo effect? - CORRECT ANSWER - It is attributing performance of a firm to
the skill of the top manager.
Why is the halo effect an irrational bias of perception -- that is, why is the halo effect wrong? -
CORRECT ANSWER - The top manager has authority over the firm, but doesn't control
the entire firm.
One person does not control the outcome of an entire firm, even though they might be held
responsible for those outcomes.
What is the main reason to do an industry analysis? - CORRECT ANSWER - Identify all
firms that can take profits generated by the firm.
Industry analysis is about finding all the forces that diminish (or take) profits from a firm -- not
just competitors, but everyone.
What is the second, critical step in doing an industry analysis? (Note: you may have to iterate on
this step as your analysis leads you to refine this step and you do the analysis again). -
CORRECT ANSWER - Identify relevant competitors that define your industry or industry
group.
Questions and CORRECT Answers
Ackbar, Inc. has had 40% growth in accounting profits for several years, and each new year has
been the highest profits Ackbar has ever had. What can you conclude from this information about
Ackbar's competitive advantage? - CORRECT ANSWER - Competitive advantage cannot
be assessed. (Competitive advantage is always RELATIVE to competitors; Ackbar's competitors
may have had 60% accounting profit growth every year, and so the firm does not have a
competitive advantage. This can happen when an industry has a sudden expansion so all firms in
the industry improve together , but that would not be a durable competitive advantage for any
single firm.)
True or False: Firms that outperform their competitors have a high quality, planned strategy. -
CORRECT ANSWER - FALSE : (Good environmental situations can make even poor
strategy profitable, and sometimes, a firm stumbles onto an effective strategy without much
planning because the world is not predictable.)
A firm may have negative profits for several years in a row, and still decide to give a big
performance bonus to the CEO or other top executives. What is the best explanation for getting a
bonus when you aren't making a profit? - CORRECT ANSWER - The firm has been
growing rapidly along with the price of the stock.
Accounting profit is best for measuring performance for relatively stable firms or industries; with
high growth the profits are put back into the company so as to get greater profits in the future.
major source of inaccuracy as an estimate of the value and/or performance of the firm:
Accounting Value - CORRECT ANSWER - Base on Historical Data
major source of inaccuracy as an estimate of the value and/or performance of the firm:
Shareholder Value - CORRECT ANSWER - Based on predictions of future growth
major source of inaccuracy as an estimate of the value and/or performance of the firm: Balanced
Scorecard - CORRECT ANSWER - Based on perceptions of value by customer
,What are problems with asking successful firms to explain how they achieved their success
AFTER they became successful? - CORRECT ANSWER - People tend to attribute all
their success to their own efforts.
People tend to forget all the mistakes made along the way.
People tend to reverse the causality and forget that success came unexpedly before the strategy.
Takeaways Module 2: - CORRECT ANSWER - The halo effect is where the success of the
firm makes people assume that the people at the top of the firm are successful at setting strategy -
- but that is not always true. Luck plays a role, and sometimes the leadership stumbled into
success and didn't have much of a plan at all -- but when telling the story afterwards they will
tend to only focus on how they made decisions and took actions that intentionally led to success.
No one at the top of a firm likes to admit that success was a surprise and unplanned, even though
that often happens. Or that it was an incremental process of trial and error, and they did not have
a long term strategy. Once the firm becomes successful, people tend to claim success was due to
their efforts (conversely, if a firm fails they blame everything on the environment, timing, etc.)
and make it appear as if the key to their success was an intentional plan all the time.
the way of measuring firm performance with the situation or condition where that metric will be
most useful to a strategic analyst: Accounting Value - CORRECT ANSWER - Firms value
is mostly in tangible assets
the way of measuring firm performance with the situation or condition where that metric will be
most useful to a strategic analyst: Shareholder Value - CORRECT ANSWER - Firm is
rapidly growing in several markets
the way of measuring firm performance with the situation or condition where that metric will be
most useful to a strategic analyst: Balanced Scorecard - CORRECT ANSWER - Firm sells
a product where prand and status are important
, Balanced scorecard is about understanding and evaluating value as a function of customer's (and
other's) perceptions of the value. For a firm that sells status or a brand image, the greatest value
will be in the perceived value people give to the goods and services the firm sells.
True or False: Theories about firm performance ought to be constructed by studying both firms
that succeed and firms that fail. - CORRECT ANSWER - True
If you only study firms that succeed, you cannot decide what elements are related to success, and
what elements are not. Only when you compare them to failed firms is it possible to identify the
elements that are only associated with success, or that don't seem to matter at all.
What is the halo effect? - CORRECT ANSWER - It is attributing performance of a firm to
the skill of the top manager.
Why is the halo effect an irrational bias of perception -- that is, why is the halo effect wrong? -
CORRECT ANSWER - The top manager has authority over the firm, but doesn't control
the entire firm.
One person does not control the outcome of an entire firm, even though they might be held
responsible for those outcomes.
What is the main reason to do an industry analysis? - CORRECT ANSWER - Identify all
firms that can take profits generated by the firm.
Industry analysis is about finding all the forces that diminish (or take) profits from a firm -- not
just competitors, but everyone.
What is the second, critical step in doing an industry analysis? (Note: you may have to iterate on
this step as your analysis leads you to refine this step and you do the analysis again). -
CORRECT ANSWER - Identify relevant competitors that define your industry or industry
group.
