,Test Bank for Strategic Management, 7th Edition
Author: Frank T. Rothaermel
Chapter 1: What Is Strategy?
Multiple-Choice Questions (70 Questions)
1. What is the primary definition of strategy in a business context?
A) A set of rules to punish underperforming employees
B) A goal-directed set of actions firms take to gain and sustain superior performance relative to
competitors
C) The process of hiring the cheapest available labor
D) A short-term reaction to a competitor's price change
Correct Answer: B
Rationale: Strategy is a holistic, goal-oriented plan designed to achieve an advantage over rivals in the
long term .
2. What are the three pillars that form the basis of a "Good Strategy"?
A) Profit, Revenue, and Expenses
B) Hiring, Training, and Firing
C) Diagnosis, Guiding Policy, and Coherent Actions
D) Marketing, Sales, and Distribution
Correct Answer: C
Rationale: A good strategy must first identify the challenge (Diagnosis), decide how to deal with it
(Guiding Policy), and then take coordinated steps to fix it (Coherent Actions) .
3. In the three elements of a good strategy, what is the primary purpose of the "Diagnosis"?
A) To set the budget for the next fiscal year
B) To identify the core competitive challenge through internal and external analysis
C) To design the company's logo and branding
D) To predict the exact movements of the stock market
Correct Answer: B
Rationale: Diagnosis is the analytical phase where a firm uses tools to understand what specific
obstacles are preventing it from achieving superior performance .
4. Which element of a good strategy provides an overall approach to address the competitive challenge
and provides direction for the firm?
A) Coherent Actions
B) Diagnosis
C) Strategic Positioning
D) Guiding Policy
Correct Answer: D
Rationale: The Guiding Policy is the "map" that follows the diagnosis. It outlines the specific strategic
approach the firm will take to overcome the identified hurdles .
,5. What does the "Coherent Actions" element of a good strategy represent?
A) The aspirational future of the company
B) Random tasks performed by different departments
C) Specific, coordinated steps taken to execute the guiding policy
D) The legal contracts signed with suppliers
Correct Answer: C
Rationale: Strategy is useless without execution. Coherent Actions are the implementation phase where
the firm aligns its resources and departments to act in unison .
6. A firm achieves "Competitive Advantage" when it exhibits:
A) Performance that is equal to its closest rival
B) Superior performance relative to other competitors in the same industry or the industry average
C) The ability to pay its employees the highest wages in the country
D) A high level of internal conflict between departments
Correct Answer: B
Rationale: Competitive advantage is always relative, not absolute. A firm must perform better than the
average of its peers to claim an advantage .
7. If two firms in the same industry perform at roughly the same level, they are said to be in a state of:
A) Competitive Advantage
B) Competitive Disadvantage
C) Competitive Parity
D) Monopoly
Correct Answer: C
Rationale: Competitive Parity occurs when there is no significant difference in performance or value
creation between rivals; they are essentially "on even ground" .
8. When a firm underperforms its rivals or the industry average, it is experiencing:
A) Competitive Advantage
B) Competitive Disadvantage
C) Sustainable Advantage
D) Stakeholder Strategy
Correct Answer: B
Rationale: A disadvantage exists when a firm's strategy fails to create as much value as its competitors .
9. What is a "sustainable competitive advantage"?
A) An advantage that can be easily replicated by competitors
B) An advantage that is unique and cannot be easily duplicated
C) An advantage based solely on financial resources
D) An advantage that lasts only for a short period
Correct Answer: B
Rationale: A sustainable competitive advantage is something a firm does better than competitors that is
difficult to duplicate .
10. For a competitive advantage to be sustainable, it must be:
A) Easily imitated by competitors
B) Temporary in nature
, C) Valuable, rare, costly to imitate, and the firm must be organized to capture value (VRIO)
D) Based solely on cost leadership
Correct Answer: C
Rationale: The VRIO framework is used to evaluate whether a firm's resources and capabilities can lead
to sustainable competitive advantage .
11. Which of the following scenarios best illustrates a good stakeholder strategy?
A) ASI Inc. follows a strategy in which maximization of shareholder's wealth is the primary concern
B) Ben's Buttons Inc. ensures that its employees are paid the least in the industry
C) Nowadays Corp. distributes only 40 percent of annual profit to shareholders, while the remaining is
invested for research and distributed among employees and the local community
D) Knights for Lights Corp. ensures that it fully exploits free natural resources so that most profits go to
shareholders
Correct Answer: C
Rationale: A good stakeholder strategy balances the interests of all stakeholders, not just shareholders .
12. Louise owns a large portion of Sturdy Appliance's stock. However, she is not employed by the
company. In this scenario, Louise is the company's:
A) external stakeholder
B) internal stakeholder
C) employee
D) category captain
Correct Answer: A
Rationale: Shareholders who are not employees are external stakeholders .
13. Green and Good Inc. relies on its media partner OmniSignal to regularly advertise its offers.
OmniSignal is invested in this relationship because it generates most of its revenue from advertising
Green and Good's products. In this scenario, OmniSignal is Green and Good Inc.'s:
A) stockholder
B) workforce
C) internal stakeholder
D) external stakeholder
Correct Answer: D
Rationale: Suppliers and partners are external stakeholders .
14. The first step in stakeholder impact analysis involves which of the following?
A) identifying the social responsibilities to stakeholders
B) identifying the opportunities that stakeholders present
C) identifying the interests of the stakeholders
D) identifying who the stakeholders are
Correct Answer: D
Rationale: The first step is to identify who the stakeholders are .
15. After a firm has recognized its key stakeholders in stakeholder impact analysis, the immediate next
step is to:
A) recognize the opportunities and threats the stakeholders present
B) identify stakeholders' interests and claims
Author: Frank T. Rothaermel
Chapter 1: What Is Strategy?
Multiple-Choice Questions (70 Questions)
1. What is the primary definition of strategy in a business context?
A) A set of rules to punish underperforming employees
B) A goal-directed set of actions firms take to gain and sustain superior performance relative to
competitors
C) The process of hiring the cheapest available labor
D) A short-term reaction to a competitor's price change
Correct Answer: B
Rationale: Strategy is a holistic, goal-oriented plan designed to achieve an advantage over rivals in the
long term .
2. What are the three pillars that form the basis of a "Good Strategy"?
A) Profit, Revenue, and Expenses
B) Hiring, Training, and Firing
C) Diagnosis, Guiding Policy, and Coherent Actions
D) Marketing, Sales, and Distribution
Correct Answer: C
Rationale: A good strategy must first identify the challenge (Diagnosis), decide how to deal with it
(Guiding Policy), and then take coordinated steps to fix it (Coherent Actions) .
3. In the three elements of a good strategy, what is the primary purpose of the "Diagnosis"?
A) To set the budget for the next fiscal year
B) To identify the core competitive challenge through internal and external analysis
C) To design the company's logo and branding
D) To predict the exact movements of the stock market
Correct Answer: B
Rationale: Diagnosis is the analytical phase where a firm uses tools to understand what specific
obstacles are preventing it from achieving superior performance .
4. Which element of a good strategy provides an overall approach to address the competitive challenge
and provides direction for the firm?
A) Coherent Actions
B) Diagnosis
C) Strategic Positioning
D) Guiding Policy
Correct Answer: D
Rationale: The Guiding Policy is the "map" that follows the diagnosis. It outlines the specific strategic
approach the firm will take to overcome the identified hurdles .
,5. What does the "Coherent Actions" element of a good strategy represent?
A) The aspirational future of the company
B) Random tasks performed by different departments
C) Specific, coordinated steps taken to execute the guiding policy
D) The legal contracts signed with suppliers
Correct Answer: C
Rationale: Strategy is useless without execution. Coherent Actions are the implementation phase where
the firm aligns its resources and departments to act in unison .
6. A firm achieves "Competitive Advantage" when it exhibits:
A) Performance that is equal to its closest rival
B) Superior performance relative to other competitors in the same industry or the industry average
C) The ability to pay its employees the highest wages in the country
D) A high level of internal conflict between departments
Correct Answer: B
Rationale: Competitive advantage is always relative, not absolute. A firm must perform better than the
average of its peers to claim an advantage .
7. If two firms in the same industry perform at roughly the same level, they are said to be in a state of:
A) Competitive Advantage
B) Competitive Disadvantage
C) Competitive Parity
D) Monopoly
Correct Answer: C
Rationale: Competitive Parity occurs when there is no significant difference in performance or value
creation between rivals; they are essentially "on even ground" .
8. When a firm underperforms its rivals or the industry average, it is experiencing:
A) Competitive Advantage
B) Competitive Disadvantage
C) Sustainable Advantage
D) Stakeholder Strategy
Correct Answer: B
Rationale: A disadvantage exists when a firm's strategy fails to create as much value as its competitors .
9. What is a "sustainable competitive advantage"?
A) An advantage that can be easily replicated by competitors
B) An advantage that is unique and cannot be easily duplicated
C) An advantage based solely on financial resources
D) An advantage that lasts only for a short period
Correct Answer: B
Rationale: A sustainable competitive advantage is something a firm does better than competitors that is
difficult to duplicate .
10. For a competitive advantage to be sustainable, it must be:
A) Easily imitated by competitors
B) Temporary in nature
, C) Valuable, rare, costly to imitate, and the firm must be organized to capture value (VRIO)
D) Based solely on cost leadership
Correct Answer: C
Rationale: The VRIO framework is used to evaluate whether a firm's resources and capabilities can lead
to sustainable competitive advantage .
11. Which of the following scenarios best illustrates a good stakeholder strategy?
A) ASI Inc. follows a strategy in which maximization of shareholder's wealth is the primary concern
B) Ben's Buttons Inc. ensures that its employees are paid the least in the industry
C) Nowadays Corp. distributes only 40 percent of annual profit to shareholders, while the remaining is
invested for research and distributed among employees and the local community
D) Knights for Lights Corp. ensures that it fully exploits free natural resources so that most profits go to
shareholders
Correct Answer: C
Rationale: A good stakeholder strategy balances the interests of all stakeholders, not just shareholders .
12. Louise owns a large portion of Sturdy Appliance's stock. However, she is not employed by the
company. In this scenario, Louise is the company's:
A) external stakeholder
B) internal stakeholder
C) employee
D) category captain
Correct Answer: A
Rationale: Shareholders who are not employees are external stakeholders .
13. Green and Good Inc. relies on its media partner OmniSignal to regularly advertise its offers.
OmniSignal is invested in this relationship because it generates most of its revenue from advertising
Green and Good's products. In this scenario, OmniSignal is Green and Good Inc.'s:
A) stockholder
B) workforce
C) internal stakeholder
D) external stakeholder
Correct Answer: D
Rationale: Suppliers and partners are external stakeholders .
14. The first step in stakeholder impact analysis involves which of the following?
A) identifying the social responsibilities to stakeholders
B) identifying the opportunities that stakeholders present
C) identifying the interests of the stakeholders
D) identifying who the stakeholders are
Correct Answer: D
Rationale: The first step is to identify who the stakeholders are .
15. After a firm has recognized its key stakeholders in stakeholder impact analysis, the immediate next
step is to:
A) recognize the opportunities and threats the stakeholders present
B) identify stakeholders' interests and claims
