MBA 705 Exam 1 – Advanced Business
Administration Study Guide & Practice
Mission - -- answer --is a broadly defined but enduring statement of purpose that
identifies the scope of an organization's operations and its offerings to the various
stakeholders
Strategy - -- answer --refers to top management's plans to develop and sustain
competitive advantage so that the organization's mission is fulfilled.
Herfindahl-Hirschman Index (HHI) - -- answer --is a commonly accepted, more
sophisticated measure of market concentration. The HHI is calculated by summing
the squares of the market shares for each firm competing in an industry.
Intensity of Rivalry Factor #2 - -- answer --}High fixed or storage costs
}Firms with high fixed costs are most likely to cut prices when excess capacity
exists because they must operate near capacity to be able to spread their
overhead over more units of production.
Intensity of Rivalry Factor #3 - -- answer --}Slow industry growth
,}Firms in industries that grow slowly are more likely to be highly competitive than
those in fast-growing industries because one firm's increase in market share must
come primarily at the expense of rivals.
Intensity of Rivalry Factor #4 - -- answer --}Lack of differentiation or low
switching costs
}The more similar the offerings among competitors, the more likely customers are
to shift from one to another.
}Switching costs are incurred by buyers if they switch from one competitor to
another. When they are low, firms are under more pressure to satisfy customers.
}When products or services are less differentiated, purchase decisions are often
based on price, thereby increasing rivalry.
switching costs - -- answer --are incurred by buyers if they switch from one
competitor to another. When they are low, firms are under more pressure to
satisfy customers.
Intensity of Rivalry Factor #5 - -- answer --}Capacity augmented in large
increments
}If economies of scale or other factors dictate that production be augmented in
large blocks, then capacity additions may lead to temporary overcapacity in the
industry, and firms may cut prices to clear inventories.
Intensity of Rivalry Factor #6 - -- answer --}Diversity of competitors
, }Companies that are diverse in their origins, cultures, and strategies often have
different goals and means of competition. Such firms may have a difficult time
agreeing on a set of "rules of combat" and increase rivalry.
Intensity of Rivalry Factor #7 - -- answer --}High strategic stakes
}Competitive rivalry is likely to be high if firms also have high stakes in achieving
success in a particular industry.
High strategic stakes - -- answer --}Competitive rivalry is likely to be high if firms
also have high stakes in achieving success in a particular industry.
Threat of Entry - -- answer --}New entrants threaten the hold existing firms have
on an industry and thereby tend to lower profits. The likelihood that prospective
competitors will join an industry depends on barriers to entry.
}Firms often erect entry barriers to keep potential competitors out of the
industry.
}Seven factors that affect the threat of entry are presented in the following slides.
barriers to entry - -- answer --factors that make it difficult and costly for an
organization to enter a particular task environment or industry
Threat of Entry Factor #1 - -- answer --}Economies of scale
}Substantial economies of scale deter new entrants by forcing them either to
enter an industry at a large scale or suffer substantial cost disadvantages
associated with a small-scale operation.
Administration Study Guide & Practice
Mission - -- answer --is a broadly defined but enduring statement of purpose that
identifies the scope of an organization's operations and its offerings to the various
stakeholders
Strategy - -- answer --refers to top management's plans to develop and sustain
competitive advantage so that the organization's mission is fulfilled.
Herfindahl-Hirschman Index (HHI) - -- answer --is a commonly accepted, more
sophisticated measure of market concentration. The HHI is calculated by summing
the squares of the market shares for each firm competing in an industry.
Intensity of Rivalry Factor #2 - -- answer --}High fixed or storage costs
}Firms with high fixed costs are most likely to cut prices when excess capacity
exists because they must operate near capacity to be able to spread their
overhead over more units of production.
Intensity of Rivalry Factor #3 - -- answer --}Slow industry growth
,}Firms in industries that grow slowly are more likely to be highly competitive than
those in fast-growing industries because one firm's increase in market share must
come primarily at the expense of rivals.
Intensity of Rivalry Factor #4 - -- answer --}Lack of differentiation or low
switching costs
}The more similar the offerings among competitors, the more likely customers are
to shift from one to another.
}Switching costs are incurred by buyers if they switch from one competitor to
another. When they are low, firms are under more pressure to satisfy customers.
}When products or services are less differentiated, purchase decisions are often
based on price, thereby increasing rivalry.
switching costs - -- answer --are incurred by buyers if they switch from one
competitor to another. When they are low, firms are under more pressure to
satisfy customers.
Intensity of Rivalry Factor #5 - -- answer --}Capacity augmented in large
increments
}If economies of scale or other factors dictate that production be augmented in
large blocks, then capacity additions may lead to temporary overcapacity in the
industry, and firms may cut prices to clear inventories.
Intensity of Rivalry Factor #6 - -- answer --}Diversity of competitors
, }Companies that are diverse in their origins, cultures, and strategies often have
different goals and means of competition. Such firms may have a difficult time
agreeing on a set of "rules of combat" and increase rivalry.
Intensity of Rivalry Factor #7 - -- answer --}High strategic stakes
}Competitive rivalry is likely to be high if firms also have high stakes in achieving
success in a particular industry.
High strategic stakes - -- answer --}Competitive rivalry is likely to be high if firms
also have high stakes in achieving success in a particular industry.
Threat of Entry - -- answer --}New entrants threaten the hold existing firms have
on an industry and thereby tend to lower profits. The likelihood that prospective
competitors will join an industry depends on barriers to entry.
}Firms often erect entry barriers to keep potential competitors out of the
industry.
}Seven factors that affect the threat of entry are presented in the following slides.
barriers to entry - -- answer --factors that make it difficult and costly for an
organization to enter a particular task environment or industry
Threat of Entry Factor #1 - -- answer --}Economies of scale
}Substantial economies of scale deter new entrants by forcing them either to
enter an industry at a large scale or suffer substantial cost disadvantages
associated with a small-scale operation.
