CH-11-12 Strategic Leadership: Creating a Learning Organization and an Ethical Organization – Strategic Management: Text and Cases : Exam Guide

This Document Contains Chapters 11 to 12 Chapter 11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization True/False Questions 1. Three key interdependent strategic leadership activities are: designing the organization; determining its direction; and nurturing a culture dedicated to excellence and ethical behavior. Answer: True Rationale: Many authors contend that successful leaders must recognize three interdependent activities that must be continually reassessed for organizations to succeed. These are: (1) setting a direction, (2) designing the organization, and (3) nurturing a culture dedicated to excellence and ethical behavior. 2. Setting a direction is the leadership activity that involves developing a strategic vision of what the organization could become. Answer: True Rationale: A holistic understanding of the organization stakeholders requires an ability to scan the environment to develop a knowledge of all of the company stakeholders and other salient environmental trends and events. Managers must integrate this knowledge into a vision of what the organization could become. 3. Designing the organization is the leadership activity that involves building structures, teams, systems, and processes that facilitate the implementation of leader vision. Answer: True Rationale: When designing the organization, successful leaders are actively involved in building structures, teams, systems, and organizational processes that facilitate the implementation of their vision and strategies. 4. Leaders play an important role in sustaining organization culture, but they are powerless to change it. Answer: False Rationale: Leaders play a key role in changing, developing, and sustaining organization culture. 5. Leaders are not expected to accept personal responsibility for ethical behavior in an organization, because ethics is a matter of individual choice. Answer: False Rationale: Managers and top executives must accept personal responsibility for developing and strengthening ethical behavior throughout the organization. They must consistently demonstrate that such behavior is central to the vision and mission of the organization. 6. Visionary leadership is only the domain of the CEO, as suggested by the example of Joe Ling at 3M who developed the Pollution Prevention Pays (3P) program. Answer: False Rationale: Joe Ling was a vice president of environmental engineering and pollution control at 3M, when he started the Pollution Prevention Pays (3P) program that brought about creative change in the organization. The 3P program not only encourages top executives to rethink products and processes, but also empowers lower-level employees to generate sustainability improvements. The program continues to this day and is an example of visionary leadership that was brought about beyond the domain of the CEO. 7. The tendency of many individuals to throw good money at bad decisions despite negative performance feedback is referred to as escalation. Answer: True Rationale: Many people have vested interests in the status quo. People tend to be risk averse and resistant to change. There is a broad stream of research on escalation, wherein certain individuals continue to throw good money at bad decisions despite negative performance feedback. 8. Systemic barriers to change refer to elements of organization design, structure, and reporting relationships that impede the flow of information. Answer: True Rationale: Organizations at all levels are prone to inertia and are slow to learn, adapt, and change because there are systemic barriers. The design of organization structure, information processing, reporting relationships, and so forth impede the proper flow and evaluation of information. 9. Behavioral barriers to change occur because of conflicts between departments, conflicts arising from power relationships, and refusal to share information. Answer: False Rationale: Behavioral barriers cause managers to look at issues from a biased or limited perspective due to their education, training, work experiences, and so forth. Political barriers refer to conflicts arising from power relationships. 10. According to the Gresham law of planning, operational decisions do not drive out the time necessary for strategic thinking and reflection. Answer: False Rationale: According to the Gresham law of planning, operational decisions do drive out the time necessary for strategic thinking and reflection. This tendency is accentuated in organizations experiencing severe price competition or retrenchment, wherein managers and employees are spread rather thin. 11. Political barriers to change can be overcome by promoting collaboration throughout the organization, as seen in the case study on Natura Cosmeticos of Brazil in which CEO Carlucci implemented a comprehensive engagement process across the organization. Answer: True Rationale: Natura Cosmeticos of Brazil provides another example of overcoming barriers to change by addressing political barriers. Alessandro Carlucci, CEO of the large manufacturer and marketer of beauty products, has implemented a comprehensive engagement process that promotes a collaborative mindset at all levels of the organization. 12. Leaders must draw on a range of personal skills as well as organizational mechanisms to move their organizations forward in the face of barriers to change. Answer: True Rationale: Leaders must draw on a range of personal skills as well as organizational mechanisms to move their organizations forward in the face of such barriers to change. One of the most important tools a leader has for overcoming barriers to change is their personal and organizational power. 13. The two broad bases of leader power are organizational and hierarchical. Answer: False Rationale: A leader derives his or her power from several sources or bases. The simplest way to understand the bases of power is by classifying them as organizational and personal. 14. Referent power refers to manager identification with his or her employees. Answer: False Rationale: The source of referent power is subordinate identification with the leader. Leader personal attributes or charisma might influence subordinates and make them devoted to that leader. 15. Coercive power is the power exercised by use of fear of punishment for errors of either omission or commission by employees. Answer: True Rationale: Coercive power is the power a manager exercises over employees using fear of punishment for errors of omission or commission. 16. When Peter Loscher took over as CEO at Siemens in 2007, he lacked internal connections. He used formal bases of power to bring about organizational change and increase a customer orientation. Answer: False Rationale: As an outsider Mr. Loscher found it challenging to establish himself as a strong leader inside the bureaucratic Siemens organization. Naturally, in the early stage of his tenure, he lacked internal connections and the bases of power associated with inside knowledge of people and processes. Absent a more formal power base, he turned to more informal means to accomplish his mandate of organizational change and increasing customer orientation. 17. Emotional intelligence (EI) is one of the components of a high intelligence quotient (IQ). Answer: False Rationale: The five components of EI are: self-awareness, self-regulation, motivation, empathy, and social skill. Findings indicate that EI is a better predictor of life success (economic well-being, satisfaction with life, friendship, family life), including occupational attainments, than IQ. 18. Emotional intelligence (EI) is generally a better predictor of life success than intelligence quotient (IQ). Answer: True Rationale: Findings indicate that EI is a better predictor of life success (economic well-being, satisfaction with life, friendship, family life), including occupational attainments, than IQ. 19. Empathy, one of the components of emotional intelligence (EI), refers to personal proficiency in managing relationships and building networks. Answer: False Rationale: Empathy is the ability to understand the emotional makeup of other people, and skill in treating people according to their emotional reactions. Social skill is proficiency in managing relationships and building networks and an ability to find common ground and build rapport. 20. People with strong self-awareness are overly critical and unrealistically optimistic and are well suited to run organizations, because they will make good judgment calls. Answer: False Rationale: Self-awareness involves a person having a deep understanding of his or her emotions, strengths, weaknesses, and drives. People with strong self-awareness are neither overly critical nor unrealistically optimistic. Instead, they are honest with themselves and others. People who assess themselves honestly (i.e., self-aware people) are well suited to do the same for the organizations they run. 21. Self-regulated people are unable to create an environment of trust and fairness, where political behavior and infighting are sharply reduced and productivity tends to be high. Answer: False Rationale: Self-regulated people are able to create an environment of trust and fairness where political behavior and infighting are sharply reduced and productivity tends to be high. People who have mastered their emotions are better able to bring about and implement change in an organization. When a new initiative is announced, they are less likely to panic; they are able to suspend judgment, seek out information, and listen to executives explain the new program. 22. Socially skilled people tend to have a wide circle of acquaintances as well as a knack for finding common ground and building support. This means that they are less likely to be effective in leading change or in having expertise in building and leading teams. Answer: False Rationale: Socially skilled people tend to have a wide circle of acquaintances as well as a knack for finding common ground and building rapport. They recognize that nothing gets done alone, and they have a network in place when the time for action comes. 23. Organizational learning works best when an organization leader gathers information and teaches it to employees who are like their students. Answer: False Rationale: According to leading expert on learning organizations, Peter Senge, the days when Henry Ford, Alfred Sloan, and Tom Watson learned for the organization are gone. In an increasingly dynamic, interdependent, and unpredictable world, it is simply no longer possible for anyone to figure it all out at the top. The old model, in which the top thinks and the local acts, must now give way to integrating thinking and acting at all levels. 24. Successful learning organizations have a proactive, creative approach to the unknown. Answer: True Rationale: Successful learning organizations create a proactive, creative approach to the unknown. They actively solicit the involvement of employees at all levels. They enable all employees to use their intelligence and apply their imagination. Higher-level skills are required of everyone, not just those at the top. 25. A key function of the leaders in a learning organization is to generate an organization-wide commitment to the status quo. Answer: False Rationale: A learning environment involves organization-wide commitment to change, an action orientation, and applicable tools and methods. It must be viewed by everyone as a guiding philosophy and not simply as another change program. 26. Inspiring and motivating people with a mission or purpose is a necessary and sufficient condition for developing a learning organization. Answer: False Rationale: Inspiring and motivating people with a mission or purpose is a necessary but not sufficient condition for developing an organization that can learn and adapt to a rapidly changing, complex, and interconnected environment. 27. To successfully empower employees to achieve organizational goals, leaders must perform the tasks of resource allocation and power brokering. Answer: False Rationale: To empower employees at all levels, the manager role becomes one of creating an environment where employees can achieve their potential as they help move the organization toward its goals. Instead of viewing themselves as resource controllers and power brokers, leaders must envision themselves as flexible resources willing to assume numerous roles as coaches, information providers, teachers, decision makers, facilitators, supporters, or listeners, depending on the needs of their employees. 28. Internal benchmarking is discouraged in most organizations, because it creates competition and internal rivalries that are counterproductive. Answer: False Rationale: An important benefit of the sharing of internal information at Whole Foods becomes the active process of internal benchmarking. Competition is intense at Whole Foods. Teams compete against their own goals for sales, growth, and productivity; they compete against different teams in their stores; and they compete against similar teams at different stores and regions. There is an elaborate system of peer reviews through which teams benchmark each other. 29. In order to gather information from informal sources, successful executives must be good listeners. Answer: True Rationale: Leaders have to develop means to tap into some of the more informal sources of internal information. In a recent survey, respondents were asked what differentiated the successful candidates for promotion. The consensus was that the executive was seen as a person who listens. According to Peter Meyer, the author of the study, the value of listening is clear. He states that you cannot succeed in running a company if you do not hear what your people, customers, and suppliers are telling you. Listening and understanding well are key to making good decisions. 30. Competitive benchmarking is a method of seeking the best examples of practices or processes that have essentially the same function regardless of industry. Answer: False Rationale: Benchmarking is used to seek out the best examples of a particular practice as part of an ongoing effort to improve the corresponding practice in their own organization. Competitive benchmarking restricts the search for best practices to competitors, while functional benchmarking endeavors to determine best practices regardless of industry. 31. Establishing a culture of dissent can be an effective means of questioning the status quo. Answer: True Rationale: Establishing a culture of dissent can be an effective means of questioning the status quo and serving as a spur toward creativity. Here norms are established whereby dissenters can openly question the perspective of a superior without fear of retaliation or retribution. 32. Although many organizations encourage creativity and risk taking, few successful companies tolerate failure. Answer: False Rationale: Companies that cultivate cultures of experimentation and curiosity make sure that failure is not, in essence, an obscene word. They encourage mistakes as a key part of their competitive advantage. 33. Leaders who fail to institute proper systems and controls that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds. Answer: True Rationale: Ethics is as much an organizational as a personal issue. Leaders who fail to provide proper leadership to institute proper systems and controls that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds. 34. Ethics is a question of personal scruples, a confidential matter between employees and their consciences and therefore for a leader it is acceptable to assume the company should not bear any responsibility for individual misdeeds. Answer: False Rationale: Ethics is as much an organizational as a personal issue. Leaders who fail to provide proper leadership to institute proper systems and controls that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds. 35. Ethical crises are bad for organization reputation, but they rarely have any financial consequences. Answer: False Rationale: Ethical crises can be very expensive, both in terms of financial costs and in the erosion of human capital and overall firm reputation. Merely adhering to the minimum regulatory standards may not be enough to remain competitive in a world that is becoming more socially conscious. 36. There are many advantages of an ethical organization, but it generally has little to do with employee commitment and motivation to excel. Answer: False Rationale: The advantages of a strong ethical orientation can have a positive effect on employee commitment and motivation to excel. This is particularly important today in knowledge-intensive organizations, where human capital is critical in creating value and competitive advantages. 37. A compliance-based approach to ethics management combines a concern for law with an emphasis on managerial responsibility for ethical behavior. Answer: False Rationale: Integrity-based ethics programs combine a concern for law with an emphasis on managerial responsibility for ethical behavior. It is broader, deeper, and more demanding than a legal compliance initiative. 38. There can be a high-integrity organization, without high-integrity individuals. Answer: False Rationale: There cannot be high-integrity organizations without high-integrity individuals; however, individual integrity is rarely self-sustaining. 39. In integrity-based ethics programs, organizational ethics is seen as the responsibility of the employees. Answer: False Rationale: In integrity-based ethics programs, organizational ethics is seen as the responsibility of management. 40. In an integrity-based approach to ethics management, ethos is concerned with conformity with externally imposed standards. Answer: False Rationale: Ethos, in an integrity-based approach to ethics management, is concerned with conformity with externally imposed standards. 41. In a compliance-based approach to ethics management, the objective is to enable responsible conduct. Answer: False Rationale: In a compliance-based approach to ethics management, the objective is to prevent criminal misconduct. 42. Methods used for ethics management in a compliance-based approach include education, reduced discretion, auditing and controls, and penalties. Answer: True Rationale: Methods used for ethics management in a compliance-based approach include education, reduced discretion, auditing and controls, and penalties. These are based on the fear of punishment for doing something unlawful. 43. In the integrity-based approach to ethics management, behavioral assumptions include that social beings are guided by material self-interest, values, ideals, and peers. Answer: True Rationale: Integrity-based approaches to ethics management are driven by a personal and organizational commitment to ethical behavior. 44. If leaders do not believe in the ethical standards that they are trying to inspire, they will not be effective as good role models. Answer: True Rationale: When leaders do not believe in the ethical standards that they are trying to inspire, they will not be effective as good role models. Being an effective leader often includes taking responsibility for ethical lapses within the organization, even though the executives themselves are not directly involved. 45. The example of Dennis Bakke, CEO of AES, in which he and his team took responsibility for employees who lied to the EPA about water quality at the plant, suggests that for an ethical organization, it is not necessary to do more than just take strong punitive action against those who act contrary to the company-established expected behavior. Answer: False Rationale: Many would believe that it would have been much easier and personally less expensive for Bakke and his management team to merely take strong punitive action against the nine individuals who were acting contrary to the behavior expected in the AES ethical culture. By sharing responsibility, however, for the misdeeds, the top executives made it clear that responsibility and penalties for ethical lapses go well beyond the guilty parties. Such courageous behavior by leaders helps to strengthen the organizational ethical environment. 46. Corporate codes of conduct provide norms and expectations for employees to not commit unethical acts. Answer: True Rationale: Corporate credos and codes of conduct are mechanisms that provide statements of norms and beliefs, as well as guidelines for decision making. They provide employees with a clear understanding of the organization policies and ethical position. Such guidelines also provide the basis for employees to refuse to commit unethical acts and help to make them aware of issues before they are faced with the situation. 47. Codes of conduct help employees from diverse backgrounds to work more effectively across cultural backgrounds. Answer: True Rationale: Corporate credos and codes of conduct are mechanisms that provide statements of norms and beliefs, as well as guidelines for decision making. They provide employees with a clear understanding of the organization policies and ethical position. Such guidelines also provide the basis for employees to refuse to commit unethical acts and help to make them aware of issues before they are faced with the situation. 48. Codes of conduct have no role in attracting individuals who might want to work for a business that embraces high standards. Answer: False Rationale: Corporate credos and codes of conduct are mechanisms that provide statements of norms and beliefs, as well as guidelines for decision making. They provide employees with a clear understanding of the organization policies and ethical position. Such guidelines also provide the basis for employees to refuse to commit unethical acts and help to make them aware of issues before they are faced with the situation. They help to attract individuals who want to work for a business that embraces high standards. 49. Many of the scandals on Wall Street might have been eliminated if corporate codes of conduct had outlined more clearly the consequences of unethical behavior. Answer: True Rationale: With recent scandals on Wall Street, many corporations are trying to put more teeth into their codes of conduct. NASDAQ now requires that listed companies distribute a code to all employees. German software giant, SAP, has a code statement that informs employees that violations of the code can result in consequences that affect employment, and could possibly lead to external investigation, civil law proceedings, or criminal charges. Clearly, codes of conduct are an important part of maintaining an ethical organization. 50. An effective way to instill ethical behavior in an organization is to distribute rewards strictly on the basis of outcomes. Answer: False Rationale: A flaw in an organization reward structure may inadvertently cause individuals to act in an inappropriate manner, if rewards are seen as being distributed on the basis of outcomes, rather than the means by which goals and objectives are achieved. 51. Inappropriate reward systems seldom cause individuals at all levels throughout an organization to commit unethical acts, since people are either unethical or ethical in their behavior. Answer: False Rationale: Inappropriate reward systems may cause individuals at all levels throughout an organization to commit unethical acts that they might not otherwise commit. 52. Policies and procedures guide employee behavior, but are effective only if they are reinforced with specific corporation action such as enforcement and monitoring. Answer: True Rationale: Carefully developed policies and procedures guide behavior so that all employees will be encouraged to behave in an ethical manner. They must be reinforced, however, with effective communication, enforcement, and monitoring, as well as sound corporate governance practices. 53. The Sarbanes-Oxley Act of 2002 does not provide legal protection to employee whistleblowers of publicly traded companies. Answer: False Rationale: The Sarbanes-Oxley Act of 2002 provides considerable legal protection to employees of publicly traded companies who report unethical or illegal practices. Multiple Choice Questions 54. Which of the following is an important characteristic of a leader? A. goal-oriented B. satisfied with the status quo C. reactive D. focused on past performance Answer: A. goal-oriented Rationale: Leadership is proactive, goal-oriented, and focused on the creation and implementation of a creative vision. Leadership is the process of transforming organizations from what they are to what the leader would have them become. This definition implies a lot: dissatisfaction with the status quo, a vision of what should be, and a process for bringing about change. 55. Which of the following statements about leadership is not true? A. Leadership is focused on the creation and implementation of a creative vision. B. Leadership is the process of transforming organizations from what they are to what the leader would have them become. C. Leaders support the status quo and seek control mechanisms to maintain it. D. Effective implementation of strategy is essential for successful leadership. Answer: C. Leaders support the status quo and seek control mechanisms to maintain it. Rationale: Leadership is proactive, goal-oriented, and focused on the creation and implementation of a creative vision. Leadership is the process of transforming organizations from what they are to what the leader would have them become. This definition implies a lot: dissatisfaction with the status quo, a vision of what should be, and a process for bringing about change. 56. Effective leadership is like a three-legged stool. Which of the following is not represented by one of the stool legs? A. dedication to maintaining the status quo B. nurturing a culture dedicated to excellence and ethical behavior C. determining a direction D. designing the organization Answer: A. dedication to maintaining the status quo Rationale: Many authors contend that successful leaders must recognize three interdependent activities that must be continually reassessed for organizations to succeed. These activities include: (1) setting a direction, (2) designing the organization, and (3) nurturing a culture dedicated to excellence and ethical behavior. 57. A strategic vision provides many benefits. Which of the following is not one of those benefits: A. a clear future direction B. a framework for their organization mission and goals C. enhanced employee communication and commitment D. diminished employee participation Answer: D. diminished employee participation Rationale: A strategic vision provides many benefits: a clear future direction; a framework for the organization mission and goals; and enhanced employee communication, participation, and commitment. 58. Poor organizational design by leaders can result in all of the following except _____________. A. insufficient mechanisms that integrate and coordinate activities across the firm B. inadequate accountability among managers and employees C. inappropriate budgeting and control systems D. teams, systems, and organizational processes that facilitate implementation Answer: D. teams, systems, and organizational processes that facilitate implementation Rationale: Many leaders have difficulty implementing their vision and strategies. Such problems may stem from a variety of issues in the design of the organization, such as: a lack of understanding of responsibility and accountability among managers, reward systems that do not motivate individuals (or collectives such as groups and divisions) toward desired organizational goals, inadequate or inappropriate budgeting and control systems, or insufficient mechanisms to integrate activities across the organization. 59. The CEO scraps the company commission-based reward system, because it rewards employees for inappropriate behavior. This is an example of _____________. A. setting a direction B. designing the organization C. unethical behavior D. failure to maintain the status quo Answer: B. designing the organization Rationale: In designing the organization, successful leaders are actively involved in building structures, teams, systems, and organizational processes that facilitate the implementation of their vision and strategies. 60. Leaders play a key role in developing and sustaining organization _____________. A. status quo B. culture C. reporting relationships D. rules and regulations Answer: B. culture Rationale: Leaders play a key role in changing, developing, and sustaining organization culture. 61. Barriers in which the design of organization structure, information processing, and reporting relationships, impede the proper flow and evaluation of information are known as _____________. A. systemic barriers B. behavioral barriers C. political barriers D. barriers to entry Answer: A. systemic barriers Rationale: Organizations at all levels are prone to inertia and are slow to learn, adapt, and change because there are systemic barriers. The design of organization structure, information processing, reporting relationships, and so forth impede the proper flow and evaluation of information. 62. Barriers associated with a managers tendency to look at issues from a biased or limited perspective are known as _____________. A. systemic barriers B. behavioral barriers C. political barriers D. barriers to exit Answer: B. behavioral barriers Rationale: Behavioral barriers cause managers to look at issues from a biased or limited perspective due to their education, training, work experiences, and so forth. 63. Refusal to share information, conflicts over resources, conflicts between departments and divisions, and petty interpersonal differences are symptoms of which type of barrier to change? A. systemic barriers B. political barriers C. behavioral barriers D. entry barriers Answer: B. political barriers Rationale: Political barriers refer to conflicts arising from power relationships. This can be the outcome of a myriad of symptoms such as vested interests, refusal to share information, conflicts over resources, conflicts between departments and divisions, and petty interpersonal differences. 64. Which of the following does not explain why organizations are prone to inertia and slow to change? A. personal time constraints B. political barriers C. vested interests in the status quo D. entry barriers Answer: D. entry barriers Rationale: Organizations at all levels are prone to inertia and are slow to learn, adapt, and change because many people have vested interests in the status quo; there are systemic, behavioral, and political barriers; and some people have personal time constraints. 65. To overcome barriers to organizational change, companies work more collaboratively than in the past. In companies such as Microsoft, an important obstacle to effective collaboration is _____________. A. higher-level political battles B. competition C. effective leadership D. poor organization Answer: A. higher-level political battles Rationale: Take Microsoft as an example. Before Apple released its tablet smash hit iPad, Microsoft had developed a viable tablet more than a decade earlier. However, entrenched interests and turf fights between competing Microsoft divisions eventually killed the project. This illustrates that one obstacle to effective collaboration is higher-level political battles. 66. When faced with barriers to change, leaders can create a good climate for advancing the aims of the organization and making progress towards its goals by building ______________ and _____________. A. a learning organization; an ethical organization B. a following organization; an ethical organization C. a learning organization; an efficient organization D. an efficient organization; a learning organization Answer: A. a learning organization; an ethical organization Rationale: Leaders must draw on a range of personal skills as well as organizational mechanisms to move their organizations forward in the face of such barriers. Two factors mentioned are building a learning organization and building an ethical organization. These provide the kind of climate within which a leader can advance organization aims and make progress toward its goals. 67. Which of the following does not constitute organizational bases of leader power? A. legitimate power B. reward power C. referent power D. coercive power Answer: C. referent power Rationale: Organizational bases of power refer to the power that a person wields because of holding a formal management position. These include legitimate power, reward power, coercive power, and information power. The personal bases of power include referent power and expert power. 68. Expert power _____________. A. is derived from organizationally conferred decision-making authority B. arises from manager access, control, and distribution of information that is not freely available to everyone in an organization C. is derived from referent power D. is derived from leader capability and knowledge in a particular field Answer: D. is derived from leader capability and knowledge in a particular field Rationale: The source of expert power is leader expertise and knowledge in a particular field. The leader is the expert on whom subordinates depend for information that they need to do their jobs successfully. 69. Coercive power is _____________. A. the power exercised by use of fear of punishment for errors of omission or commission by employees B. the power of persuasion exercised by a charismatic leader to get compliance from reluctant subordinates C. the type that arises from manager access, control, and distribution of information that is not freely available to everyone in an organization D. the ability of the leader or manager to confer rewards for positive behaviors or outcomes Answer: A. the power exercised by use of fear of punishment for errors of omission or commission by employees Rationale: Coercive power is the power a manager exercises over employees using fear of punishment for errors of omission or commission. 70. The source of referent power is _____________. A. subordinate identification with the leader B. leader identification with the subordinates C. derived from the fact that the manager can potentially act as a reference when the employee applies for another job D. derived from manager ability to provide effective incentives to employees Answer: A. subordinate identification with the leader Rationale: The source of referent power is subordinate identification with the leader. Personal attributes or charisma of a leader might influence subordinates and make them devoted to that leader. 71. Which of the following is not a part of the three broad sets of capabilities that a leader should possess? A. technical skills B. cognitive abilities C. physical abilities D. emotional intelligence Answer: C. physical abilities Rationale: Leadership traits may be grouped into three broad sets of capabilities: purely technical skills (like accounting or operations research), cognitive abilities (like analytical reasoning or quantitative analysis), and emotional intelligence (like self-management and managing relationships). 72. All of the following are components of emotional intelligence (EI) except _____________. A. self-awareness B. self-regulation C. self-promotion D. empathy Answer: C. self-promotion Rationale: The five components of EI are: self-awareness, self-regulation, motivation, empathy, and social skill. 73. Which component of emotional intelligence (EI) enables a manager to have a deep understanding of the existence and importance of cultural and ethnic differences? A. self-awareness B. empathy C. social skills D. self-regulation Answer: B. empathy Rationale: Empathy means thoughtfully considering employee feelings, along with other factors, in the process of making intelligent decisions. Globalization typically involves cross-cultural dialogue that can easily lead to miscues. Empathetic people are attuned to the subtleties of body language; they can hear the message beneath the words being spoken. They have a deep understanding of the existence and importance of cultural and ethnic differences. 74. The following two components of emotional intelligence (EI) deal with personal ability to manage relationships with others. A. motivation and self-awareness B. self-regulation and empathy C. empathy and social skill D. motivation and empathy Answer: C. empathy and social skill Rationale: While the first three components of EI are all self-management skills, the last two, empathy and social skill, concern the ability of a person to manage relationships with others. 75. Which of the following is not a characteristic of a successful learning organization? A. It creates a proactive, creative approach to the unknown. B. It actively solicits the involvement of employees at all levels. C. It regularly engages in activities to reinforce the status quo. D. It enables everyone to use their intelligence and apply their imagination. Answer: C. It regularly engages in activities to reinforce the status quo. Rationale: A learning organization is one that creates a proactive, creative approach to the unknown, characterized by: (1) inspiring and motivating people with a mission and purpose, (2) empowering employees at all levels, (3) accumulating and sharing internal knowledge, (4) gathering and integrating external information, and (5) challenging the status quo and enabling creativity. 76. Inspiring and motivating people with a mission or purpose is a ______________ for developing an organization that can learn and adapt. A. necessary and sufficient condition B. necessary, but not a sufficient condition C. goal, but not a necessary condition D. goal and a required precondition Answer: B. necessary, but not a sufficient condition Rationale: Inspiring and motivating people with a mission or purpose is a necessary but not sufficient condition for developing an organization that can learn and adapt to a rapidly changing, complex, and interconnected environment. 77. In order to create an environment where employees can achieve their potential as they move the organization towards its goals, the manager role needs to be that of _____________. A. resource allocator B. resource controller C. a flexible resource D. an advocator of the status quo Answer: C. a flexible resource Rationale: Instead of viewing themselves as resource controllers and power brokers, leaders must envision themselves as flexible resources willing to assume numerous roles as coaches, information providers, teachers, decision makers, facilitators, supporters, or listeners, depending on the needs of their employees. 78. When important decisions need to be made at WBG Construction, CEO Greg Burrill asks all employees with relevant knowledge or a stake in the outcome for their thoughts. This collaborative approach recently led to a decision that not only sold a house but also inspired a new floor plan that appealed to a whole new segment of buyers. This is an example of _____________. A. hierarchical control B. knowledge management C. enabling heroes and drones D. employee empowerment Answer: D. employee empowerment Rationale: This is an example of empowering employees, enabling them to feel that their ideas and initiatives will be valued and will enhance firm performance. 79. Functional benchmarking _____________. A. is not very useful for organizations with a divisional organizational structure B. endeavors to determine best practices regardless of industry C. restricts the search for best practices to competitors D. is useful when researching industry-specific standards Answer: B. endeavors to determine best practices regardless of industry Rationale: There are two primary types of benchmarking. Competitive benchmarking restricts the search for best practices to competitors, while functional benchmarking endeavors to determine best practices regardless of industry. 80. Which of the following is not a guideline an organization can use to promote the challenging of the status quo? A. establishing a culture of dissent B. forcefully creating a sense of urgency C. fostering a culture that encourages risk taking D. creating a results-based reward system Answer: D. creating a results-based reward system Rationale: Perhaps the best way to challenge the status quo is for the leader to forcefully create a sense of urgency. Establishing a culture of dissent can be another effective means of questioning the status quo and serving as a spur toward creativity. Closely related to the culture of dissent is the fostering of a culture that encourages risk taking. 81. Companies that cultivate cultures of experimentation and curiosity make sure that ______________ is not, in essence, to be avoided at all costs. A. experimentation B. failure C. authority D. risk taking Answer: B. failure Rationale: Companies that cultivate cultures of experimentation and curiosity make sure that failure is not, in essence, an obscene word. They encourage mistakes as a key part of their competitive advantage. 82. Which of the following statements about ethics is not true? A. Ethics may be defined as a system of right and wrong. B. Ethics assists individuals in deciding when an act is moral or immoral. C. Ethics is not concerned with whether or not an act is socially desirable. D. Business ethics is the application of ethical standards to commercial enterprises. Answer: C. Ethics is not concerned with whether or not an act is socially desirable. Rationale: Ethics may be defined as a system of right and wrong. Ethics assists individuals in deciding when an act is moral or immoral, socially desirable or not. Business ethics is the application of ethical standards to commercial enterprise. 83. As a manager, when faced with ethical crises you should _____________. A. focus on issues most relevant to stockholders B. wait for the other party to make the first move C. take the initiative to address the problem D. cover up as much as possible Answer: C. take the initiative to address the problem Rationale: Ethical leaders must take personal, ethical responsibility for their actions and decision making. Leaders who exhibit high ethical standards become role models for others and raise overall organization level of ethical behavior. 84. Which of the following statements about ethical organizations is not true? A. The potential benefits of an ethical organization are few but direct. B. Ethical values shape the search for opportunities. C. Organizational ethics define what a company is and what it stands for. D. Ethics provide a common frame of reference that serves as a unifying force. Answer: A. The potential benefits of an ethical organization are few but direct. Rationale: The ethical organization is characterized by a conception of ethical values and integrity as a driving force of the enterprise. Ethical values shape the search for opportunities, the design of organizational systems, and the decision-making process used by individuals and groups. They provide a common frame of reference that serves as a unifying force across different functions, lines of business, and employee groups. Organizational ethics helps to define what a company is and what it stands for. There are many potential benefits of an ethical organization, but they are often indirect. 85. Proactive measures to prevent organizational ethics problems do not include _____________. A. instituting a reward system which considers outcomes as its primary criterion B. using leaders as role models of ethical behavior C. issuing statements describing organization commitment to certain standards of behavior D. using organization information systems as a control system Answer: A. instituting a reward system which considers outcomes as its primary criterion Rationale: A flaw in the organization reward structure may inadvertently cause individuals to act in an inappropriate manner, if rewards are seen as being distributed on the basis of outcomes rather than the means by which goals and objectives are achieved. 86. Which of the following statements would least likely be found in a corporate credo? A. maximize financial benefits for stakeholders at any cost B. provide secure and stable employment for employees C. establish an environment that enhances professional growth D. support community organizations and projects Answer: A. maximize financial benefits for stakeholders at any cost Rationale: Corporate credos and codes of conduct are mechanisms that provide statements of norms and beliefs as well as guidelines for decision making. They provide employees with a clear understanding of organization policies and ethical position. Financial maximization is least likely to be included in such statements. Essay Questions 87. Briefly discuss the three interdependent activities that are critical for effective leadership. Answer: Effective leadership involves three critical interdependent activities: • Setting Direction: Clarifying goals and vision. • Aligning People: Ensuring resources and efforts are coordinated. • Motivating and Inspiring: Engaging and empowering individuals toward common objectives. 88. Explain how a leader might use informal means to accomplish organizational change. Provide an example. Answer: Informal means for organizational change can include building alliances, using informal networks, and leveraging personal influence. For instance, a leader may initiate change by garnering support through informal conversations and fostering grassroots enthusiasm among team members. 89. Discuss the organizational and personal bases of leader power. Answer: Leader power derives from organizational roles (formal authority) and personal qualities such as expertise, charisma, and interpersonal skills. Organizational bases include hierarchical position and control over resources, while personal bases encompass trust, respect, and influence cultivated through relationships and reputation. 90. Identify the five components of emotional intelligence (EI). Discuss how each of these factors contributes to the success of a leader or manager. Answer: Components of emotional intelligence (EI) include self-awareness, self-regulation, motivation, empathy, and social skills. Each factor contributes to a leader's success by enhancing self-management, interpersonal relationships, and decision-making, fostering a positive organizational climate and effective teamwork. 91. What are some of the potential drawbacks of emotional intelligence? Answer: Drawbacks of emotional intelligence may include manipulation if used unethically, emotional bias in decision-making, and potential overemphasis on interpersonal skills over task competence. Leaders must balance EI with critical thinking and objective assessment to mitigate these risks and maintain effective leadership. 92. What are the five elements of a learning organization? What is the value of a learning organization in the current global marketplace? Answer: Elements of a learning organization include fostering a shared vision, promoting systems thinking, encouraging personal mastery, supporting team learning, and embracing mental models. Such organizations adapt quickly, innovate continuously, and leverage collective knowledge to navigate challenges in the global marketplace, enhancing competitiveness and sustainability. 93. How does the ethical orientation of a leader affect the ability to promote ethical behavior in the organization? Answer: Ethical orientation of a leader influences organizational culture by setting norms, values, and expectations. Ethical leaders model integrity, fairness, and transparency, fostering a climate where ethical behavior is prioritized and reinforced through policies and practices, promoting trust and stakeholder confidence. 94. How can developing and maintaining a high ethical standard benefit an organization? Give examples and describe the effects the examples have had on the organization and/or its stakeholders. Answer: Developing and maintaining high ethical standards benefits organizations by building reputation, fostering customer loyalty, attracting top talent, and mitigating risks. For example, companies like Patagonia have gained customer trust and loyalty by prioritizing ethical practices in sourcing, manufacturing, and environmental stewardship, enhancing brand value and stakeholder relationships. 95. Explain the following statement and provide examples to support your argument: Merely adhering to the minimum regulatory standards may not be enough to remain competitive in a world that is becoming more socially conscious. Answer: Adhering to minimum regulatory standards may not suffice as societal expectations evolve towards sustainability, diversity, and corporate responsibility. Companies like Starbucks, through ethical sourcing and community engagement, exceed regulatory requirements to strengthen brand loyalty and align with consumer values, gaining competitive advantage in a socially conscious market. 96. Discuss the differences between integrity-based and compliance-based approaches to organizational ethics. Answer: Integrity-based ethics focus on core values and principles guiding ethical behavior, fostering a culture of responsibility and trust. In contrast, compliance-based ethics emphasize adherence to laws and regulations to avoid legal repercussions, often lacking proactive ethical leadership and may lead to ethical lapses if only driven by compliance without internalized values. 97. Leaders are role models in their organizations. Explain how this can be used to build an ethical organization. Provide examples of successful leaders whose organizations are known to be ethically rigorous. Answer: Leaders as role models can build an ethical organization by exemplifying integrity, fairness, and ethical decision-making. For example, Indra Nooyi of PepsiCo prioritized sustainability and diversity, influencing corporate values and fostering a culture of ethical responsibility and social accountability within the organization. 98. What is a corporate credo? How can it be helpful in shaping the moral dimensions of an organization? Answer: A corporate credo is a statement of values and principles that guides ethical behavior and decision-making throughout the organization. It helps shape the moral dimensions by providing a moral compass, aligning actions with organizational values, and inspiring trust among stakeholders. Companies like Johnson & Johnson's credo emphasizes patient safety and integrity, guiding ethical conduct across global operations. 99. Briefly discuss how organization reward and evaluation systems can be used to promote organizational ethics. Answer: Organization reward and evaluation systems can promote ethics by linking performance metrics to ethical behavior, reinforcing desired values through recognition and incentives, and holding individuals accountable for ethical lapses. For instance, IBM integrates ethical considerations into performance appraisals, fostering a culture where ethical conduct is valued and rewarded. 100. Discuss the potential benefits of using company policies and procedures to encourage ethical behavior. Answer: Company policies and procedures encourage ethical behavior by setting clear expectations, providing guidelines for decision-making, and establishing mechanisms for reporting ethical concerns. Effective policies, such as whistleblower protection and ethical training programs, create a supportive environment for ethical decision-making and reduce risks associated with unethical behavior, enhancing organizational reputation and stakeholder trust. Chapter 12 Managing Innovation and Fostering Corporate Entrepreneurship True/False Questions 1. The term innovation refers primarily to an invention that uses the latest technologies. Answer: False Rationale: Innovation involves using new knowledge to transform organizational processes or create commercially viable products and services. The sources of new knowledge may include the latest technology, the results of experiments, creative insights, or competitive information. 2. The Dutch Boy twist and pour paint container is an example of a high tech source of innovation. Answer: False Rationale: Innovation involves introducing or changing to something new, but technology is not the only source of innovations. Even though the Dutch Boy innovation was simple, non-technological, and had nothing to do with the core product, the launch of the new packaging led to articles in 30 national consumer magazines and 60 major newspapers as well as a story on Good Morning America. 3. Process innovations are often associated with a low cost leadership strategy. Answer: True Rationale: Process innovations are more likely to occur in the later stages of the industry life cycle as companies seek ways to remain viable in markets where demand has flattened out and competition is more intense. As a result, process innovations are often associated with overall cost leader strategies, because the aim of many process improvements is to lower the costs of operations. 4. Product innovations are commonly associated with a differentiation strategy. Answer: True Rationale: Product innovations tend to be more common during the earlier stages of the life cycle of the industry. Product innovations are also commonly associated with a differentiation strategy. Firms that differentiate by providing customers with new products or services that offer unique features or quality enhancements often engage in product innovation. 5. As an industry matures, there are greater opportunities for change and so innovations tend to be more radical. Answer: False Rationale: Incremental innovations are more likely in mature industries. Because they often sustain a company by extending or expanding its product line or manufacturing skills, incremental innovations can be a source of competitive advantage by providing new capabilities that minimize expenses or speed productivity. 6. Radical innovations are evolutionary applications of novel ideas within existing paradigms. Answer: False Rationale: Radical innovations produce fundamental changes by evoking major departures from existing practices. They tend to be highly disruptive and can transform a company or revolutionize a whole industry. Incremental innovations enhance existing practices or make small improvements in products and processes. They may represent evolutionary applications within existing paradigms of earlier, more radical innovations. 7. Disruptive innovations are those that overturn markets by providing an altogether new approach to meeting customer needs. Answer: True Rationale: Disruptive innovations are those that overturn markets by providing an altogether new approach to meeting customer needs. Walmart and Southwest Airlines are cited as two disruptive examples. 8. Aereo enters the broadcasting market with a new offer that streams the local broadcast signals to customers so that they can watch content on their PCs or tablet computers in real time or save for another viewing time. This is an example of disruptive innovation. Answer: True Rationale: Disruptive innovations are those that overturn markets by providing an altogether new approach to meeting customer needs. Aereo is striving to disrupt the TV market by bringing a simpler and cheaper alternative to cable television. 9. Proctor and Gamble is centralizing twenty to thirty percent of its research efforts in a new corporate-level business creation and innovation unit. They believe that this will assist them only with developing incremental innovations that will help the overall bottom line. Answer: False Rationale: Having a corporate effort at innovation separates the budget for product development from divisional profit numbers, enhancing willingness of the firm to invest in long-term product development efforts. Also, the corporate unit will be able to foster collaboration between units to develop blockbuster products. 10. Research indicates that leaders of innovative firms spend fifty percent more time on discovery activities than the leaders of less innovative firms. Answer: True Rationale: The leaders of innovative firms have exhibited discovery skill that allow them to see the potential in innovations and to move the organization forward in leveraging the value of those innovations. These leaders spend fifty percent more time on these discovery activities than the leaders of less innovative firms. 11. The term strategic envelope refers to the scope of innovation efforts of a firm. Answer: True Rationale: Firms must have a means to focus their innovation efforts. By defining the strategic envelope, the scope of innovation efforts of a firm, firms ensure that their innovation efforts are not wasted on projects that are outside the domain of interest of the firm. Strategic enveloping defines the range of acceptable projects. 12. Radical innovation often involves open-ended experimentation which can be very time consuming. Answer: True Rationale: The project time line of a radical innovation is typically long term, 10 years or more. Radical innovations often begin with a long period of exploration in which experimentation makes strict timelines unrealistic. 13. For innovation team members to work enthusiastically on innovation projects, it is important to separate the performance of individual team members from the performance of the innovation itself. Answer: True Rationale: Strategy experts Rita Gunther McGrath and Thomas Keil researched the types of human resource management practices that effective firms use to capture value from their innovation efforts. One practice that is especially important is to separate the performance of individuals from the performance of the innovation; otherwise, strong players may feel stigmatized, if the innovation effort they worked on fails. 14. Innovation efforts of the firm rarely benefit from partnering with non-business entities such as universities and government agencies. Answer: False Rationale: Innovation partners may come from many sources, including research universities and the federal government. Each year, the federal government issues requests for proposals (RFPs) asking private companies for assistance in improving services or finding solutions to public problems. Universities are another type of innovation partner. Chip-maker Intel, for example, has benefited from underwriting substantial amounts of university research. 15. Collaborating with innovation partners can provide missing resources necessary to make innovation projects successful, such as the Coca-Cola and DEKA partnership to produce the Slingshot water purification system. Answer: True Rationale: Coca-Cola and DEKA each have an innovative vision. Apart, they are unlikely to reach their visions. Together, they just may make it happen. Combined, these two firms appear to have all the resources needed to make the Slingshot an innovative and valuable solution in the quest for clean water. 16. Crowdsourcing technologies, such as used by IBM when it hosted an Innovation Jam, do not foster collaboration between employees, customers, suppliers, and other stakeholders in their efforts to enhance innovation. Answer: False Rationale: IBM is using crowdsourcing technologies to foster collaboration between employees, customers, suppliers, and other stakeholders to enhance its innovation efforts. Based on the jam sessions, IBM launched 10 new businesses using 100 million U.S. dollars in funding. 17. APC (formerly known as the American Productivity and Quality Center) recognizes companies for exemplary practices that increase entrepreneurship as was demonstrated by awardee Air Products and Chemicals, Inc. who was recognized for the importance of staffing for achieving success. Answer: False Rationale: When it comes to implementing its innovation efforts, Air Products and Chemicals, Inc. (APCI) recognizes the importance of staffing for achieving success. Innovation teams are created to manage the intellectual assets of a company and to determine which technologies have the most potential value. A key benefit of this approach has been to more effectively leverage its human resources to achieve innovative outcomes without increasing its R and D expenses. These efforts resulted in an innovation award from APQC (formerly known as the American Productivity and Quality Center) which recognizes companies for exemplary practices that increase productivity. 18. Strategic renewal and the pursuit of new venture opportunities are the two primary aims of corporate entrepreneurship. Answer: True Rationale: Corporate entrepreneurship has two primary aims: the pursuit of new venture opportunities and strategic renewal. The innovation process keeps firms alert by exposing them to new technologies, making them aware of marketplace trends, and helping them evaluate new possibilities. 19. Corporate entrepreneurship is sometimes called intrapreneurship. Answer: True Rationale: Corporate new venture creation was labeled intrapreneuring by Gifford Pinchot, because it refers to building entrepreneurial businesses within existing corporations. 20. Corporate venturing that is focused permeates all parts of the organization and involves every member of the organization. Answer: False Rationale: Two distinct approaches to corporate venturing are found among firms that pursue entrepreneurial aims. The first is focused corporate venturing, in which CE activities are isolated from existing operations of the firm and worked on by independent work units. The second approach is dispersed, in which all parts of the organization and every organization member are engaged in intrapreneurial activities. 21. Firms using a focused approach to corporate entrepreneurship typically separate corporate venturing activities from ongoing operations of the firm. Answer: True Rationale: Firms using a focused approach typically separate the corporate venturing activity from the other ongoing operations of the firm. CE is usually the domain of autonomous work groups that pursue entrepreneurial aims independent of the rest of the firm. 22. Business incubators are designed to support fledgling entrepreneurial ventures until they can operate as stand-alone businesses. Answer: True Rationale: Business incubators are designed to hatch new businesses. They have a specialized purpose, to support and nurture fledgling entrepreneurial ventures until they can thrive on their own as stand-alone businesses. 23. Corporate business incubators often provide physical space and business services to internal ventures, but not funding. Answer: False Rationale: Incubators typically provide some or all of the following four functions: funding, physical space, business services, and mentoring. 24. Dispersed approaches to corporate entrepreneurship are often found in organizations with a strong spirit of entrepreneurship. Answer: True Rationale: Three related aspects of dispersed entrepreneurship include entrepreneurial cultures that have an overarching commitment to CE activities, resource allotments to support entrepreneurial actions, and the use of product champions in promoting entrepreneurial behaviors. 25. Product champions are the employees who identify new product ideas or services. Answer: False Rationale: Product (or project) champions are those individuals working within a corporation who bring entrepreneurial ideas forward, identify what kind of market exists for the product or service, find resources to support the venture, and promote the venture concept to upper management. 26. According to the text, new venture ideas must pass through two critical stages to be implemented by corporations: project definition and project impetus. Answer: True Rationale: No matter how an entrepreneurial idea comes to light, however, a new venture concept must pass through two critical stages or it may never get off the ground: project definition and project impetus. 27. Product champions are critical during the period after a new venture project has been defined but before it has gained momentum and achieved project impetus. Answer: True Rationale: For a project to advance through the stages of definition and impetus, a product champion is often needed to generate support and encouragement. Champions are especially important during the time after a new project has been defined but before it gains momentum. They form a link between the definition and impetus stages of internal development, which they do by procuring resources and stimulating interest for the product among potential customers. 28. Only about fifty percent of corporate venturing efforts reach profitability within six years of their launch. Answer: True Rationale: Not all corporate venturing efforts are financially rewarding. In terms of financial performance, slightly more than fifty percent of corporate venturing efforts reach profitability (measured by ROI) within six years of their launch. 29. The strategic goals of corporate entrepreneurship are often just as important as the financial goals. Answer: True Rationale: In a successful venture, not only are financial and market acceptance (customer) goals met but so are the internal business and innovation and learning goals. Thus, when assessing the success of corporate venturing, it is important to look beyond simple financial returns and consider a well-rounded set of criteria. 30. Exit champions are often reluctant to gather hard data about a venture because it might kill the project. Answer: False Rationale: One way to avoid costly and discouraging defeats is to support a key role in the CE process that of exit champions. In contrast to product champions and other entrepreneurial enthusiasts within the corporation, exit champions are willing to question the viability of a venture project. By demanding hard evidence and challenging the belief system that is carrying an idea forward, exit champions hold the line on ventures that appear shaky. 31. Real options logic is useful when corporations consider stock options as a way to finance entrepreneurial ventures. Answer: False Rationale: Real options logic is applied in situations where decisions are made to invest in new ventures or other business activities. Many strategic decisions have the characteristic of containing a series of options. The phenomenon is called embedded options, a series of investments in which at each stage of the investment there is a go or no-go decision. 32. Corporate ventures that use real options logic in decision making tend to keep total investment low in order to minimize the downside risk of a project. Answer: True Rationale: The real options logic process of evaluating ideas, separates winning ideas from losing ones in a way that keeps investments low. Using real options logic to advance the development process is a key way that firms reduce uncertainty and minimize innovation-related failures. 33. Real options analysis helps managers make investment decisions involving large irreversible commitments of financial resources. Answer: False Rationale: ROA is appropriate to use when investments can be staged whereby a smaller investment up front can be followed by subsequent investments. Real options can be applied to an investment decision that gives the company the right, but not the obligation, to make follow-on investments. 34. One of the potential pitfalls of real options analysis is that managers may have the incentive and know-how to game the system. Answer: True Rationale: Managers using ROA may have an incentive and the know-how to game the system. If managers know that a certain option value must be met in order for the proposal to get approved, they can back-solve the model to find a variance estimate needed to arrive at the answer that upper management desires. 35. The term skunkworks is used to refer to a type of in-house facility that corporations use to develop entrepreneurial ideas. Answer: False Rationale: Skunk works are independent work units, often physically separate from corporate headquarters. They allow employees to get out from under the pressures of their daily routines to engage in creative problem solving. 36. First movers in an industry often capture above-average profits, but usually find it difficult to maintain early market share gains. Answer: False Rationale: First movers have several advantages. They often capture unusually high profits, because there are no competitors to drive prices down. First movers that establish brand recognition are usually able to retain their image and hold on to the market share gained by being first. Generally, first movers have an advantage that can be sustained until the maturity phase of the industry life cycle. 37. Competitive aggressiveness is a response to threats whereas proactiveness is a response to opportunities. Answer: True Rationale: Proactiveness is a response to opportunities, the O in SWOT. Competitive aggressiveness, by contrast, is a response to threats, the T in SWOT. A competitively aggressive posture is important for firms that seek to enter new markets in the face of intense rivalry. 38. Business risk taking refers to the risk associated with entering untested markets or committing to unproven technologies. Answer: True Rationale: Business risk taking involves venturing into the unknown without knowing the probability of success. This is the risk associated with entering untested markets or committing to unproven technologies. 39. Financial risk taking involves the risk an executive assumes in taking a stand in favor of a strategic course of action. Answer: False Rationale: Personal risk taking refers to the risks that an executive assumes in taking a stand in favor of a strategic course of action. Executives who take such risks stand to influence the course of their whole company, and their decisions also can have significant implications for their careers. 40. Risk taking can lead to competitive advantage, but it needs to be managed carefully. Answer: True Rationale: Risk taking, by its nature, involves potential dangers and pitfalls. Only carefully managed risk is likely to lead to competitive advantages. Actions that are taken without sufficient forethought, research, and planning may prove to be very costly. Therefore, strategic managers must always remain mindful of potential risks. 41. According to Peter Drucker, successful entrepreneurs typically are risk takers. Answer: False Rationale: In his book Innovation and Entrepreneurship, Peter Drucker argued that successful entrepreneurs are typically not risk takers. Instead, they take steps to minimize risks by carefully understanding them. This is how they avoid focusing on risk and remain focused on opportunity. Multiple Choice Questions 42. ______________ refers to efforts to create designs and applications of technology to develop new products, while ______________ refers to efforts to improve the efficiency of organizational systems such as manufacturing and operations. A. Radical innovation; incremental innovation B. Breakthrough innovation; instrumental innovation C. Product innovation; process innovation D. Product innovation; service innovation Answer: C. Product innovation; process innovation Rationale: Product innovation refers to efforts to create product designs and applications of technology to develop new products for end users. Process innovation, by contrast, is typically associated with improving the efficiency of an organizational process, especially manufacturing systems and operations. 43. Whereas ______________ are often associated with a low cost leader strategy, ______________ are frequently an important aspect of a differentiation strategy. A. process innovations; product innovations B. product innovations; service innovations C. radical innovations; instrumental innovations D. marketing innovations; management innovations Answer: A. process innovations; product innovations Rationale: Process innovations are often associated with overall cost leader strategies, because the aim of many process improvements is to lower the costs of operations. Product innovations are commonly associated with a differentiation strategy. Firms that differentiate by providing customers with new products or services that offer unique features or quality enhancements often engage in product innovation. 44. Incremental innovations _____________. A. are usually highly disruptive B. usually represent technological breakthroughs C. are usually small improvements in products and processes D. nearly always can be patented Answer: C. are usually small improvements in products and processes Rationale: Incremental innovations enhance existing practices or make small improvements in products and processes. They may represent evolutionary applications within existing paradigms of earlier, more radical innovations. 45. Radical innovations _____________. A. often result in quick profits B. often represent technological breakthroughs C. usually apply to products and processes simultaneously D. usually cannot be patented Answer: B. often represent technological breakthroughs Rationale: Radical innovations produce fundamental changes by evoking major departures from existing practices. These breakthrough innovations usually occur because of technological change. They tend to be highly disruptive and can transform a company or even revolutionize a whole industry. 46. ______________ produce fundamental changes that can transform a company or even revolutionize an industry, while ______________ enhance existing practices and often represent evolutionary applications of fundamental breakthroughs. A. Technological breakthroughs; product-market breakthroughs B. New technologies; new paradigms C. Incremental innovations; radical innovations D. Radical innovations; incremental innovations Answer: D. Radical innovations; incremental innovations Rationale: Radical innovations tend to be highly disruptive and can transform a company or even revolutionize a whole industry. Incremental innovations enhance existing practices or make small improvements in products and processes. They may represent evolutionary applications within existing paradigms of earlier, more radical innovations. 47. Innovations that extend sales in an existing market, usually by enabling new products or services to be sold at higher margins are known as _____________. A. radical innovations B. disruptive innovations C. technology innovations D. sustaining innovations Answer: D. sustaining innovations Rationale: Sustaining innovations are those that extend sales in an existing market, usually by enabling new products or services to be sold at higher margins. 48. Which of the following is not characteristic of a disruptive innovation? A. It is usually more sophisticated technologically. B. It appeals to less demanding customers. C. It is typically a less expensive solution for meeting a need. D. It usually takes root in a new market or the low-end of an existing market. Answer: A. It is usually more sophisticated technologically. Rationale: Disruptive innovations are technologically simpler and less sophisticated than currently available products or services. They appeal to less demanding customers who are seeking more convenient, less expensive solutions. They take time to take effect and only become disruptive once they have taken root in a new market or low-end part of an existing market. 49. Which of the following is not a dilemma faced by corporations trying to manage the innovation process? A. launching incremental rather than preemptive innovations B. emphasizing marketing over management innovations C. preferring experience over initiative D. choosing internal rather than external staffing Answer: B. emphasizing marketing over management innovations Rationale: Innovation is difficult in part because the process involves so many choices. These choices present five dilemmas that companies must wrestle with when pursuing innovation. These include decisions such as: seeds versus weeds, experience versus initiative, internal versus external staffing, building capabilities versus collaborating, and incremental versus preemptive launch. 50. The innovation dilemma known as building capabilities versus collaborating refers to _____________. A. developing innovation skills internally versus partnering with qualified outsiders B. building innovative products in-house versus outsourcing C. building credibility by launching products ahead of potential collaboration partners D. launching a product incrementally Answer: A. developing innovation skills internally versus partnering with qualified outsiders Rationale: Innovation projects often require new sets of skills. The decision to build capabilities versus collaborating with others means that firms can seek help from other departments or partner with other companies that bring resources and experience as well as share costs of development. 51. The innovation dilemma known as seeds versus weeds refers to _____________. A. choosing to pursue radical rather than incremental innovations B. choosing to pursue product rather than process innovations C. promoting organizational stars onto innovation teams rather than involving all employees in innovation efforts D. choosing to pursue investment in one innovative idea over another Answer: D. choosing to pursue investment in one innovative idea over another Rationale: Most companies have an abundance of innovative ideas. They must decide which of these is most likely to bear fruit (Seeds) and which should be cast aside (Weeds). 52. Creative intelligence involves the ability to see patterns in data, integrating data, and making insights. Which of the following are the four patterns of action managers should take in order to develop more creative and higher potential innovations? A. observing, experimenting, cataloging, and networking B. questioning, observing, integrating, and networking C. questioning, observing, experimenting, and networking D. observing, experimenting, cataloging, and integrating Answer: C. questioning, observing, experimenting, and networking Rationale: The key attribute that firms need to develop in their managers in order to improve their innovative potential is creative intelligence. Creative intelligence is driven by a core skill of associating (the ability to see patterns in data and integrating different questions, information, and insights) and four patterns of action: questioning, observing, experimenting, and networking. 53. Individuals with highly innovative DNA traits have the ability to connect seemingly unrelated questions, problems, and ideas from different fields that allows them the opportunity to creatively see opportunities others miss. This is referred to as _____________. A. associating B. integrating C. visioning D. allocating Answer: A. associating Rationale: Those with the innovator DNA trait called associating have the ability to connect seemingly unrelated questions, problems, and ideas from different fields. This allows them to creatively see opportunities that others miss. 54. In the 1990s, DuPont used its knowledge of plastics to develop biodegradable plastic products. This is an example of _____________. A. focusing on process rather than product innovation B. defining its innovation efforts within the context of its strategic envelope C. radical innovation D. public relations, since plastics are not biodegradable Answer: B. defining its innovation efforts within the context of its strategic envelope Rationale: By defining the strategic envelope, the scope of the innovation efforts of a firm, firms ensure that their innovation efforts are not wasted on projects that are outside their domain of interest. In the early 1990s, DuPont sought to use its knowledge of plastics to identify products to meet a growing market demand for biodegradable products. By trying different applications and formulations demanded by customers, the company was finally able to create a product that could be produced economically and had market appeal. 55. Which of the following is not an advantage of collaborating with strategic partners in order to innovate? A. obtaining skills and new knowledge from outside sources B. making firms identify their own strengths and weaknesses C. managers clarifying what an innovation project requires to be successful and who will accomplish it D. decreasing economies of scale Answer: D. decreasing economies of scale Rationale: Innovation partners provide the skills and insights that are needed to make innovation projects succeed. Strategic partnering requires firms to identify their strengths and weaknesses and make choices about which capabilities to leverage, which need further development, and which are outside the current or projected scope of operations of the firm. To choose partners, firms need to ask what competencies they are looking for and what the innovation partner will contribute. 56. McGrath and Keil researched the types of human resource management practices that effective firms use to capture value from their innovation efforts. Which of the following is not one of their findings? A. Create innovation teams with experienced players. B. Require that employees serve in the new venture group as part of their career climb. C. Transfer people to mainstream management positions after they have experience in the new venture group. D. Integrate the performance of individuals with the performance of the innovation. Answer: D. Integrate the performance of individuals with the performance of the innovation. Rationale: Separate the performance of individuals from the performance of the innovation. Otherwise, strong players may feel stigmatized if the innovation effort they worked on fails. 57. In a typical corporation, which of the following factors does not determine how entrepreneurial projects will be pursued? A. structural features that guide and constrain action B. corporate culture C. organizational systems that foster learning and manage rewards D. number of innovation projects in the pipeline Answer: D. number of innovation projects in the pipeline Rationale: In a typical corporation, many factors determine how entrepreneurial projects will be pursued, including: corporate culture, leadership, structural features that guide and constrain action, and organizational systems that foster learning and manage rewards. 58. Two common forms of a focused approach to corporate entrepreneurship include ______________ and _____________. A. internal collaboration; internal venturing B. social capital; collaboration capital C. business incubators; new venture groups D. focus groups; business incubators Answer: C. business incubators; new venture groups Rationale: Firms using a focused approach typically separate the corporate venturing activity from the other ongoing operations of the firm. CE is usually the domain of autonomous work groups that pursue entrepreneurial aims independent of the rest of the firm. Two forms, new venture groups (NVGs) and business incubators, are among the most common types of focused approaches. 59. According to the text, _____________, which support fledgling startups are often used to pursue specific entrepreneurial ventures developed by _____________. A. collaboration partners; strategic partners B. business incubators; new venture groups C. product champions; corporate venture capitalists D. lower-level managers; upper-level managers Answer: B. business incubators; new venture groups Rationale: Business incubators are designed to hatch new businesses. They are a type of corporate new venture group with a somewhat more specialized purpose, to support and nurture fledgling entrepreneurial ventures until they can thrive on their own as stand-alone businesses. 60. Which of the following do corporate business incubators typically not provide? A. physical space B. mentoring C. funding D. student interns Answer: D. student interns Rationale: Incubators typically provide some or all of the following five functions: funding, physical space, business services, mentoring, and networking. 61. Which of the following is not part of a culture of entrepreneurship? A. The search for venture opportunities permeates every part of the organization. B. Every value chain activity is viewed as a source of entrepreneurial value creation. C. Employees at every level are attuned to opportunities to help create new businesses. D. Only those directly involved in the innovation effort are attuned to new opportunities to create business. Answer: D. Only those directly involved in the innovation effort are attuned to new opportunities to create business. Rationale: A culture of entrepreneurship is one in which the search for venture opportunities permeates every part of the organization. The key to creating value successfully is viewing every value-chain activity as a source of competitive advantage. In companies with an entrepreneurial culture, everyone in the organization is attuned to opportunities to help create new businesses. 62. Common features of a dispersed approach to corporate entrepreneurship include all of the following except _____________. A. semi-autonomous new venture groups B. use of product champions C. a top-down approach to supporting entrepreneurial behavior D. an entrepreneurial culture Answer: A. semi-autonomous new venture groups Rationale: A new venture group is characteristic of a focused approach to entrepreneurship, while the dispersed approach often utilizes an entrepreneurial culture and the use of product champions. The latter may also use a top-down approach to provide support and incentives for entrepreneurship. 63. In corporations with a strong entrepreneurial culture, the willingness and ability to change _____________. A. is imposed from the top-down B. is considered a core capability C. often leads to instability D. often worries stakeholders such as suppliers and creditors Answer: B. is considered a core capability Rationale: With the dispersed approach to entrepreneurship, the ability to change is considered to be a core capability. This leads to a second advantage. Because of the entrepreneurial reputation of the firm, stakeholders such as vendors, customers, or alliance partners can bring new ideas or venture opportunities to anyone in the organization and expect them to be well-received. Such opportunities make it possible for the firm to stay ahead of the competition. 64. Product champions _____________. A. are typically senior executives B. are usually inventors of some sort C. scavenge for resources and encourage others to back promising new ideas D. are strong supporters of the status quo Answer: C. scavenge for resources and encourage others to back promising new ideas Rationale: Product (or project) champions are those individuals working within a corporation who bring entrepreneurial ideas forward, identify what kind of market exists for the product or service, find resources to support the venture, and promote the venture concept to upper management. 65. Project ______________ involves justifying whether an opportunity is attractive in the marketplace; project ______________ involves evaluating the strategic and economic impact of a new venture. A. impetus; definition B. definition; impetus C. reward; development D. development; focus Answer: B. definition; impetus Rationale: In the project definition stage, an opportunity has to be justified in terms of its attractiveness in the marketplace and how well it fits with the other strategic objectives of the corporation. For a project to gain impetus, its strategic and economic impact must be supported by senior managers who have experience with similar projects. It then becomes an embryonic business with its own organization and budget. 66. On average, approximately what percentage of corporate ventures reaches profitability within six years? A. 80 percent B. 65 percent C. 50 percent D. 35 percent Answer: C. 50 percent Rationale: Not all corporate venturing efforts are financially rewarding. In terms of financial performance, slightly more than 50 percent of corporate venturing efforts reach profitability (measured by ROI) within six years of their launch. 67. Financial reasons for undertaking internal corporate venturing include _____________. A. strengthening competitive position B. obtaining above average returns C. adding to the resource base of the corporation D. reducing stakeholder commitment Answer: B. obtaining above average returns Rationale: Corporations expect a higher return from corporate venturing projects than from normal operations. But there are other important strategic considerations as well that are not financial. These include undertaking a corporate venture to strengthen the competitive position, enter into new markets, expand capabilities by learning and acquiring new knowledge, and build the base of corporation resources and experience. 68. Strategic reasons for undertaking a corporate venture do not include _____________. A. entering into new markets B. expanding capabilities by acquiring new knowledge C. building the base of corporation resources D. reducing stakeholder commitment Answer: D. reducing stakeholder commitment Rationale: Corporations expect a higher return from corporate venturing projects than from normal operations. But there are other important strategic considerations as well that are not financial. These include undertaking a corporate venture to strengthen the competitive position, enter into new markets, expand capabilities by learning and acquiring new knowledge, and build the base of resources and experience of the corporation. 69. One of the following is not a question that should be answered when evaluating the performance of corporate venturing efforts. Which is it? A. Is the venture attracting external venture funding? B. Is the venture considered to be a market success? C. Does the venture add to the worth of the firm internally? D. Does the value proposition offered by the venture insulate it from competitive attack? Answer: A. Is the venture attracting external venture funding? Rationale: Three questions should be used to assess the effectiveness of the venturing initiatives of the firm: Are the products or services offered by the venture accepted in the marketplace?; Are the contributions of the venture to the internal competencies and experience of the corporation valuable?; Is the venture able to sustain its basis of competitive advantage? External funding may not be critical to success. 70. A manager whose role is to question the viability of corporate venture projects is known as a(n) A. product champion B. exit champion C. rising star D. mentor Answer: B. exit champion Rationale: In contrast to product champions and other entrepreneurial enthusiasts within the corporation, exit champions are willing to question the viability of a venture project. By demanding hard evidence and challenging the belief system that is carrying an idea forward, exit champions hold the line on ventures that appear shaky. 71. Whereas ______________ are willing to violate procedures and operate outside normal channels, ______________ gather hard data and develop a strong case for why a project should be killed. A. senior managers; entrepreneurial leaders B. strategic managers; financial managers C. exit champions; product champions D. product champions; exit champions Answer: D. product champions; exit champions Rationale: Product champions are often thought to be willing to violate procedures and operate outside normal channels. Exit champions reduce ambiguity by gathering hard data and developing a strong case for why a project should be killed. 72. Options exist when the owner of the option has _____________. A. the obligation, but not the right to engage in a transaction B. the right, but not the obligation to engage in a transaction C. the right and obligation to engage in a transaction D. neither the right, nor the obligation to engage in a transaction Answer: B. the right, but not the obligation to engage in a transaction Rationale: Options exist when the owner of the option has the right but not the obligation to engage in certain types of transactions. The most common are stock options. A stock option grants the holder the right to buy (call option) or sell (put option) shares of the stock at a fixed price (strike price) at some time in the future. 73. Real options analysis is most appropriate when _____________. A. the total investment required is small, but the environment is uncertain B. the investment required can be justified by Discounted Cash Flow (DCF) techniques C. a small investment up front can be followed by a series of subsequent investments D. there is no prospect of obtaining additional knowledge before making subsequent investments Answer: C. a small investment up front can be followed by a series of subsequent investments Rationale: ROA is appropriate to use when investments can be staged; a smaller investment up front can be followed by subsequent investments. Real options can be applied to an investment decision that gives the company the right, but not the obligation, to make follow-on investments. 74. One of the pitfalls of real options analysis is that managers may have an incentive and know-how to game the system and back-solve a formula to get a proposal approved. This can give rise to _____________. A. managerial conceit B. the illusion of control C. escalation of commitment D. agency problems Answer: D. agency problems Rationale: Managers may have an incentive and the know-how to game the system. If managers know that a certain option value must be met in order for the proposal to get approved, they can back-solve the model to find a variance estimate needed to arrive at the answer that upper management desires. This is an example of an agency problem that is typically inherent in investment decisions. A manager may have something to gain by not acting in owner best interests, or the interests of managers and owners are not co-aligned. 75. Which of the following is not one of the dimensions of entrepreneurial orientation? A. proactiveness B. risk taking C. autonomy D. opportunism Answer: D. opportunism Rationale: An entrepreneurial orientation has five dimensions that permeate the decision-making styles and practices of the members of the firm: autonomy, innovativeness, proactiveness, competitive aggressiveness, and risk taking. These factors work together to enhance the entrepreneurial performance of a firm. 76. Which of the following statements about skunkworks is false? A. They are independent work units. B. They are used to encourage creative thinking and brainstorming. C. They refer to a specialized type of outside contractor that corporations use to develop entrepreneurial ideas. D. They help managers set aside their usual routines and practices. Answer: C. They refer to a specialized type of outside contractor that corporations use to develop entrepreneurial ideas. Rationale: Skunkworks are independent work units, often physically separate from corporate headquarters. They allow employees to get out from under the pressures of their daily routines to engage in creative problem solving. 77. After 15 teams created 128 different phones, Chris Galvin, former CEO of Motorola, recently eliminated the autonomous teams being used to develop new wireless phones. This was necessary because such teams _____________. A. often lack coordination B. never waste resources on projects with questionable feasibility C. always create inefficiencies through duplication of effort D. never duplicate efforts of the rest of the firm Answer: A. often lack coordination Rationale: Autonomous teams often lack coordination. Excessive decentralization has a strong potential to create inefficiencies, such as duplication of effort and wasting resources on projects with questionable feasibility. For example, Chris Galvin, former CEO of Motorola, scrapped the skunkworks approach the company had been using to develop new wireless phones. Fifteen teams had created 128 different phones, which led to spiraling costs and overly complex operations. 78. Which of the following dimensions of entrepreneurial orientation is described as a forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities? A. proactiveness B. risk taking C. autonomy D. competitive aggressiveness Answer: A. proactiveness Rationale: Proactiveness is a forward-looking perspective characteristic of a marketplace leader that has the foresight to seize opportunities in anticipation of future demand. 79. Which of the following dimensions of entrepreneurial orientation is described as an independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion? A. autonomy B. innovativeness C. competitive aggressiveness D. risk taking Answer: A. autonomy Rationale: Autonomy is an independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion. 80. One of the following statements about innovativeness is not true. Which is it? A. It refers to making decisions and taking risks without certain knowledge of probable outcomes. B. It refers to efforts of a firm to find new opportunities and novel solutions. C. It involves creativity and experimentation. D. It is aimed at developing new products, services, and processes. Answer: A. It refers to making decisions and taking risks without certain knowledge of probable outcomes. Rationale: Innovativeness refers to efforts of a firm to find new opportunities and novel solutions. It involves creativity and experimentation that result in new products, new services, or improved technological processes. 81. According to the text, which of the following is not one of the methods companies can use to enhance their competitive position via innovativeness? A. fostering creativity and experimentation B. investing in new technology, R and D, and continuous improvement C. copying the business practices or techniques of successful competitors D. departing from existing technologies to develop products and practices that go beyond the current state of the art Answer: C. copying the business practices or techniques of successful competitors Rationale: Innovativeness requires that firms depart from existing technologies and practices and venture beyond the current state of the art. Two innovation techniques that can be used are: foster creativity and experimentation, and invest in new technology, R and D, and continuous improvement. 82. The benefits gained by firms that are the first to enter new markets, establish brand identity, and/or adopt new technologies are known as _____________. A. competitive aggressiveness B. technological capabilities C. first mover advantages D. breakthrough innovations Answer: C. first mover advantages Rationale: The benefit gained by firms that are the first to enter new markets, establish brand identity, implement administrative techniques, or adopt new operating technologies in an industry is called first mover advantage. 83. Amazon was able to define the online bookselling market by entering the market early and defining the user experience. This is an example of _____________. A. innovativeness B. proactiveness C. competitive aggressiveness D. autonomy Answer: B. proactiveness Rationale: Being a first mover provides companies with an ability to shape the playing field and shift competitive advantages in their favor. Amazon was able to define the online bookselling market by entering the market early and defining the user experience. They further leveraged their position as an early mover when moving into other retailing ventures and later into cloud computing. This proactiveness technique involves introducing new products or technological capabilities ahead of the competition. 84. According to the text, firms that want to enhance their entrepreneurial position by being competitively aggressive should _____________. A. enter markets with drastically lower prices B. foster creativity and experimentation C. continuously seek out new products or services D. research risk factors to minimize uncertainty Answer: A. enter markets with drastically lower prices Rationale: One competitive aggressiveness technique is to enter markets with drastically lower prices. An example is California-based Zimbra, Inc. By using open-source software, it has become a leader in messaging and collaboration software. Its product costs about one third less than its direct competitor Microsoft Exchange. Zimbra now has over 60 million users. 85. One of the following is not a type of risk that executives must address. Which is it? A. business risk taking B. financial risk taking C. personal risk taking D. product-market risk taking Answer: D. product-market risk taking Rationale: Three types of risk that organizations and their executives face are business risk, financial risk, and personal risk. 86. Which kind of risk taking requires that a company borrow heavily or commit a large portion of its resources in order to grow? A. business risk taking B. financial risk taking C. personal risk taking D. technological risk taking Answer: B. financial risk taking Rationale: Financial risk taking requires that a company borrow heavily or commit a large portion of its resources in order to grow. In this context, risk is used to refer to the risk/return trade-off that is familiar in financial analysis. Essay Questions 87. Innovation is an important source of growth opportunity. Explain this statement, providing examples to support your argument. Answer: Innovation as a growth opportunity involves creating new products, services, or processes that meet market needs or create new demands. For instance, Apple's introduction of the iPhone revolutionized the mobile phone industry, driving significant revenue growth and establishing new market standards for smartphones. 88. What are the differences between product and process innovation? What are the strategic implications of each approach to innovation? Answer: Product innovation involves developing new or improved products that offer unique features or benefits, enhancing competitive differentiation. Process innovation, on the other hand, focuses on improving operational efficiencies and reducing costs. Strategic implications include enhancing market competitiveness through product differentiation (product innovation) and achieving cost leadership and operational excellence (process innovation). 89. What is meant by the terms radical innovation and incremental innovation? Describe the advantages and disadvantages of each type of innovation and provide examples. Answer: Radical innovation introduces entirely new products or technologies that disrupt existing markets, offering potential for high rewards but also high risks. Incremental innovation involves iterative improvements to existing products or processes, minimizing risk but potentially limiting growth. Examples include the introduction of electric vehicles (radical) and iterative updates to smartphone features (incremental). 90. What are the characteristics of a disruptive innovation? In what way is a disruptive innovation similar to and different than a radical innovation? What are the strategic implications of those differences and similarities? Answer: Disruptive innovation introduces simpler, more affordable solutions that initially appeal to niche markets but eventually disrupt established markets. Similar to radical innovation, disruptive innovations can reshape industries; however, they differ by targeting underserved segments with simpler solutions rather than completely new technologies. Strategic implications include entering new markets, challenging incumbents with lower-cost alternatives, and fostering market growth by expanding accessibility and affordability. 91. What are the five dilemmas that most firms face, when trying to determine the best way to manage the innovation process? Answer: The five dilemmas firms face in managing the innovation process include balancing exploration and exploitation, managing risk and uncertainty, aligning short-term and long-term goals, integrating new and existing technologies, and fostering creativity while maintaining operational efficiency. 92. Compare and contrast the concepts of focused versus dispersed approaches to corporate entrepreneurship. Provide examples of each approach. Answer: Focused corporate entrepreneurship involves concentrated efforts within existing business units to innovate and develop new ventures, such as Google's Area 120 focusing on internal projects. Dispersed approaches, like 3M's innovation structure, encourage innovation across diverse units, fostering a broader range of ideas and potential breakthroughs. 93. What are the five types of support that corporate business incubators provide to entrepreneurial ventures? Answer: Corporate business incubators support entrepreneurial ventures through funding, mentoring, networking, access to resources (like office space and equipment), and strategic guidance. These supports help startups navigate challenges, accelerate growth, and increase their chances of success. 94. What are product champions and why are they important to corporate entrepreneurship? Answer: Product champions are individuals within organizations who advocate for new ideas or products, overcoming resistance and driving initiatives forward. They are crucial to corporate entrepreneurship by championing innovation, securing resources, and ensuring projects align with strategic goals, facilitating innovation uptake and success. 95. Compare and contrast the financial and strategic objectives of corporate entrepreneurship. Provide examples of each type of objective and discuss their benefits and/or costs. Answer: Financial objectives of corporate entrepreneurship focus on generating profits and achieving financial returns, such as increasing revenue or maximizing return on investment. For example, a company may launch new products to capture market share and boost profitability. Strategic objectives aim to align ventures with long-term goals, like entering new markets or diversifying offerings, even if immediate financial gains are lower. Benefits include diversification and market expansion (strategic), but costs can involve higher initial investment and longer timeframes to profitability (financial). 96. By some accounts, only about 50 percent of corporate ventures reach profitability after six years. Is corporate venturing worth it? Discuss the advantages and disadvantages of internal venturing in relation to the extent of its financial success. Answer: Corporate venturing, despite risks, offers advantages like fostering innovation, accessing new markets, and enhancing competitiveness. However, the downside includes high failure rates, resource drain, and potential conflicts with core business priorities, questioning its financial viability. 97. What are exit champions and how do they further the internal corporate venturing process? Answer: Exit champions advocate for divesting or exiting unsuccessful ventures within corporate venturing processes. They promote strategic decision-making to discontinue underperforming projects, redirect resources, and mitigate financial losses. Their role is crucial in optimizing portfolio management and maintaining organizational focus on profitable opportunities. 98. Discuss how real options logic can be applied in the context of corporate entrepreneurship. Are there any disadvantages to using this approach to make decision about launching corporate ventures? Answer: Real options logic in corporate entrepreneurship involves treating business decisions as options, allowing flexibility to delay, expand, or abandon ventures based on market conditions. This approach enhances strategic agility and risk management by valuing flexibility over fixed commitments. Disadvantages include complexity in valuation and potential underestimation of costs, requiring robust analytics and clear decision criteria. 99. What are some of the pitfalls of real options analysis (ROA)? Answer: Pitfalls of real options analysis (ROA) include overestimating flexibility benefits, misjudging market volatility, and underestimating costs of maintaining options. Additionally, implementation complexity and challenges in quantifying uncertainties can lead to suboptimal decision-making, necessitating careful analysis and scenario planning. 100. Discuss the five dimensions of entrepreneurial orientation. What are the benefits and risks associated with using each of these? Answer: Entrepreneurial orientation includes dimensions like innovativeness, risk-taking, proactiveness, competitive aggressiveness, and autonomy. Benefits include fostering innovation and market leadership, but risks include resource strain, market volatility exposure, and potential for strategic drift without alignment to core competencies and market needs. Test Bank for Strategic Management: Text and Cases Gregory Dess, G.T. (Tom) Lumpkin, Alan Eisner, Gerry Mcnamara 9780077862527, 9781259278211, 9781259813955