Chapter 6 Developing an Effective Business Model
1) Stroome, the focus on the opening feature for Chapter 6, has developed a new Web-based
service for editing and remixing video. Stroome's initial business model is based on making
money in the following two ways:
A) subscription fees and licensing its software to film producers
B) a "freemium" pricing model and white labeling its site
C) online advertising and affiliate fees
D) white labeling its site and subscription fees
E) Google AdSense and affiliate fees
Answer: B
Rationale:
Stroome's initial business model focuses on a "freemium" pricing model, where basic services
are provided for free, but additional features require payment (subscription fees). Additionally,
the company plans to offer white labeling, allowing other companies to use Stroome's platform
under their own brand, which can generate revenue through licensing fees.
2) The opening feature in Chapter 6 focuses on Stroome, an exciting new Web-based service for
editing and remixing video. The idea for Stroome emerged in:
A) a graduate communications class at the University of Southern California
B) a student-run incubator at the University of Illinois
C) a technology commercialization class at Cornell
D) a city-owned new business incubator in Cleveland
E) a business plan class at Kansas State
Answer: A
Rationale:
The idea for Stroome originated in a graduate communications class at the University of
Southern California, highlighting the innovative nature of the concept and its roots in academic
exploration.
3) Catherine Smith has just finished writing a business plan for a startup in the medical products
industry. She has now reached the point where she needs to develop a plan for how her firm will
compete, use its resources, structure its relationships, interface with customers, and create value
to sustain itself on the basis of the profits it earns. Jennifer needs to establish her firm's:
A) tactical plan
B) feasibility plan
C) business model
D) business template
E) operating plan
Answer: C
Rationale:
Catherine Smith needs to establish her firm's business model, which defines how the company
will generate revenue, deliver value to customers, and sustain itself over time.
4) In regard to business models, which of the following statements is incorrect?
A) There is a standard business model that most firms follow.
B) A firm's business model is inherently dependent on the collection of resources it controls and
the capabilities it possesses.
C) It is dangerous for a company to assume that it can be successful by simply copying the
business model of another firm.
D) A firm's business model is its plan or diagram for how it competes.
E) It is often difficult to determine what another firm's business model is.
Answer: A
Rationale:
The statement "There is a standard business model that most firms follow" is incorrect. In reality,
business models can vary widely based on industry, market conditions, and individual company
strategies.
5) The term ________ refers to initiatives, such as Netflix in movie rentals and Zipcar in car
sharing, which revolutionize how products are sold in an industry.
A) product model modernism
B) business model innovation
C) feasibility analysis innovation
D) value innovation
E) opportunity innovation
Answer: B
Rationale:
Business model innovation refers to initiatives that fundamentally change how products are sold
or delivered, often leading to disruptive changes in an industry.
6) The Savvy Entrepreneurial Firm feature in Chapter 6 focuses on three business model
innovators: Warby Parker, Shopkick, and SunRun. What is Shopkick's business model
innovation?
A) rewarding shoppers by the number of times they visit a Web site
B) rewarding shoppers by simply walking into a retail store
C) rewarding shoppers by the amount of time they spend in a particular store
D) rewarding shoppers by the number of times they visit a particular store
E) rewarding shoppers by the number of times they "tweet" about a particular store on Twitter
Answer: B
Rationale:
Shopkick's business model innovation involves rewarding shoppers simply for walking into a
retail store, which incentivizes foot traffic and engagement with physical stores.
7) Which of the following is not one of the purposes of a business model?
A) serves as an ongoing extension of feasibility analysis
B) serves as a template for conducting industry analysis
C) focuses attention on how all the elements of a business fit together
D) describes why the network of participants needed to make a business idea viable is willing to
work together
E) articulates a company's core logic to all stakeholders
Answer: A
Rationale:
While a business model may build upon feasibility analysis, its primary purposes are to provide a
framework for how a business operates, creates value, and sustains itself over time, rather than
serving as a direct extension of feasibility analysis.
8) In the WebHouse example included in Chapter 6, WebHouse failed because:
A) it did not complete a feasibility analysis
B) it did not write a complete business plan
C) it couldn't motivate its suppliers or customers to participate at a sufficient scale to support the
overhead of the business
D) it charged too much for its services
E) it failed to focus on developing a core strategy
Answer: C
Rationale:
WebHouse failed because it couldn't motivate its suppliers or customers to participate at a
sufficient scale to support the overhead of the business, indicating a failure in achieving critical
mass and network effects necessary for success.
9) The ________ is the string of activities that moves a product from the raw material stage,
through manufacturing and distribution, and ultimately to the end user.
A) consequence sequence
B) business chain
C) meaning chain
D) value chain
E) worth procession
Answer: D
Rationale:
The value chain describes the series of activities involved in the production and delivery of a
product or service, encompassing everything from raw material acquisition to distribution and
customer service.
10) Which of the following is not a "primary" activity in the value chain?
A) inbound logistics
B) marketing and sales
C) service
D) technology development
E) outbound logistics
Answer: D
Rationale:
Technology development is considered a support activity in the value chain, as it provides
essential support for the primary activities but is not directly involved in the physical creation or
delivery of the product.
11) Which of the following is a "primary" activity in the value chain?
A) resource procurement
B) technology development
C) outbound logistics
D) firm infrastructure
E) human resource management
Answer: C
Rationale:
Outbound logistics is considered a primary activity in the value chain as it involves the activities
related to storing and shipping products to customers.
12) According to the textbook, by studying a product's or service's value chain an organization
can:
A) identify ways to create additional value and assess whether it has the means to do so
B) determine if its business plan needs to be revised
C) determine if it is cost effective to manufacture the product or sell the service
D) determine if an attractive niche market is available
E) determine if a product or service will be successful in the marketplace
Answer: A
Rationale:
Studying a product's or service's value chain helps an organization identify ways to create
additional value and assess whether it has the means to do so by optimizing its operations and
processes.
13) Two fatal flaws can render a business model untenable from the beginning. These are:
A) failure to complete a business plan and failure to get funding
B) a complete misread of the customer and utterly unsound economics
C) failure to copy the industry leader's business plan and a complete misread of the customer
D) failure to complete a business plan and overemphasizing the importance of feasibility analysis
E) overemphasizing the importance of feasibility analysis and utterly unsound economics
Answer: B
Rationale:
Two fatal flaws that can render a business model untenable from the beginning are a complete
misread of the customer and utterly unsound economics, indicating a lack of understanding of
the market and financial viability.
14) Which of the following is a "support" activity in the value chain?
A) inbound logistics
B) service
C) marketing and sales
D) outbound logistics
E) resource procurement
Answer: E
Rationale:
Resource procurement is considered a support activity in the value chain as it supports the
primary activities by ensuring the availability of necessary resources.
15) ________ involves a firm's relationship with its suppliers and involves all the activities of
receiving, storing, and shipping component parts to the place where they will be added to the
final product.
A) Resource procurement
B) Operations
C) Outbound logistics
D) Technology development
E) Inbound logistics
Answer: E
Rationale:
Inbound logistics involves all activities related to receiving, storing, and distributing inputs or
raw materials within a firm's operations.
16) ________ involves all the activities required to manufacture a product.
A) Resource procurement
B) Administration
C) Operations
D) Outbound logistics
E) Inbound logistics
Answer: C
Rationale:
Operations involve all the activities required to manufacture a product or deliver a service,
including production, assembly, and packaging.
17) Two fatal flaws can render a business model untenable from the beginning. These are utterly
unsound economics and:
A) a complete misread of the customer
B) failure to copy the industry leader's business plan
C) overemphasis on the importance of feasibility analysis
D) overemphasis on the importance of industry analysis
E) failure to complete a business plan prior to developing a business model
Answer: A
Rationale:
Utterly unsound economics and a complete misread of the customer are two fatal flaws that can
render a business model untenable from the beginning, highlighting the importance of
understanding market dynamics and financial viability.
18) The four components of a firm's business model are:
A) marketing plan, core strategy, business plan, and customer interface
B) core strategy, strategic resources, partnership network, and customer interface
C) economic environment, social environment, technological environment, and legal-regulatory
environment
D) opportunity recognition, feasibility analysis, business plan, and human resource plan
E) marketing plan, operating plan, financial plan, and human resource plan
Answer: B
Rationale:
The four components of a firm's business model are core strategy, strategic resources,
partnership network, and customer interface, which collectively define how the firm creates,
delivers, and captures value.
19) Which of the following is not one of the components of a firm's business model?
A) core strategy
B) strategic resources
C) partnership network
D) business plan
E) customer interface
Answer: D
Rationale:
The components of a firm's business model do not include the business plan itself, but rather the
strategic elements that form the foundation of the business plan.
20) The What Went Wrong? feature in Chapter 6 focuses on Joost, a company that launched in
2006 as a premier online video service that aggregated and streamed premium video online.
Joost failed just three years after it launched. According to the feature, Joost's most critical
mistake dealt with subtle aspects of its business model. In particular, its:
A) core strategy wasn't focused
B) pricing model was misguided
C) partnership network never came together
D) customer interface was poorly conceived
E) customer service strategy was poorly executed
Answer: A
Rationale:
Joost's most critical mistake was that its core strategy wasn't focused, indicating a lack of clear
direction or differentiation in its approach to the online video market.
21) Jeff Mommer is starting an environmentally friendly lawn and garden service. One thing that
Jeff has worked hard on is determining how his company will compete in the marketplace. This
element of Jeff's business model is referred to as:
A) core strategy
B) strategic resources
C) partnership network
D) fulfillment and support
E) customer interface
Answer: A
Rationale:
The core strategy of a business model defines how a company will compete in the marketplace,
including its target customer, basis for differentiation, and overall approach to delivering value.
22) Which of the following are the primary elements of a startup's core strategy?
A) target customer, fulfillment and support, pricing structure
B) suppliers, partners, other key relationships
C) pricing structure, suppliers, strategic assets
D) core competencies, strategic assets, funding model
E) mission statement, product/market scope, basis for differentiation
Answer: E
Rationale:
The primary elements of a startup's core strategy include its mission statement, which describes
why the company exists; its product/market scope, which defines its target market and
products/services; and its basis for differentiation, which explains how it distinguishes itself from
competitors.
23) Steven Tanner is in the process of putting together the business model for his startup and is
currently working on his mission statement, product/market scope, and basis for differentiation.
Steven is working on the ________ component of his business model.
A) core strategy
B) strategic resources
C) partnership network
D) customer interface
E) feasibility analysis
Answer: A
Rationale:
Steven is working on the core strategy component of his business model, which involves
defining his company's mission, target market, and differentiation strategy.
24) A firm's ________ describes why it exists and what its business model is supposed to
accomplish.
A) mission statement
B) vision statement
C) feasibility statement
D) duty statement
E) responsibility statement
Answer: A
Rationale:
A firm's mission statement describes its purpose, why it exists, and what it seeks to achieve
through its business model.
25) "Organize all the world's information and make it universally accessible and useful" is
Google's:
A) function
B) duty
C) credo
D) purpose statement
E) mission statement
Answer: E
Rationale:
Google's mission statement defines its overarching goal and purpose, highlighting its
commitment to organizing information and making it accessible and useful to everyone.
26) A company's ________ defines the products and markets on which it will concentrate.
A) tactical analysis
B) business mission
C) product/market scope
D) supplier/buyer scope
E) basis of differentiation
Answer: C
Rationale:
A company's product/market scope defines the specific products and markets it will focus on,
helping to clarify its strategic direction and target market.
27) Which of the following statements is incorrect regarding the "core strategy" component of a
firm's business model?
A) A firm's core strategy describes how it competes relative to its competitors.
B) The product a firm chooses has little impact on its core strategy and business model.
C) A company's product/market scope defines the products and markets on which it will
compete.
D) From a broad perspective firms typically choose one of two generic strategies: cost leadership
or differentiation.
E) The generic strategy a firm chooses greatly affects its business model.
Answer: B
Rationale:
The statement "The product a firm chooses has little impact on its core strategy and business
model" is incorrect. The choice of product is closely tied to the core strategy and can
significantly impact a firm's competitive position and business model.
28) From a broad perspective, firms choose one of two generic strategies to position themselves
in the marketplace. These are:
A) high quality and low cost
B) discount pricing and premium pricing
C) value and low cost
D) cost leadership and differentiation
E) cost premium and separation
Answer: D
Rationale:
From a broad perspective, firms choose between cost leadership (competing based on low cost)
and differentiation (competing based on unique features or value) as their generic strategies to
position themselves in the marketplace.
29) Kendra Johnson is starting a firm in the shoe industry. Her shoes will be very high quality
and will be priced at the top end of the market. Kendra has chosen the generic strategy referred
to as:
A) value pricing
B) differentiation
C) competitive superiority
D) separation
E) quality plus
Answer: B
Rationale:
Kendra has chosen the differentiation strategy, which involves offering unique features or value
to justify higher prices and distinguish her products from competitors.
30) Jared King is starting a firm in the electronic games industry. The firm will produce games
similar to popular games on the market, but they won't be as sophisticated and will be priced at
the low end of the market. Jared has chosen the generic strategy referred to as:
A) price reduction
B) differentiation
C) quality plus
D) cost leadership
E) cost differentiation
Answer: D
Rationale:
Jared has chosen the cost leadership strategy, which involves competing based on low prices,
targeting a broad market segment, and minimizing costs to achieve profitability.
31) Firms that have a ________ strategy strive to have the lowest costs in the industry, relative to
competitors' costs, and typically attract customers on that basis. In contrast, firms using a
________ strategy compete on the basis of providing unique or different products and typically
compete on the basis of quality, service, timeliness, or some other important dimension.
A) differentiation, cost leadership
B) cost emphasis, quality leadership
C) cost leadership, differentiation
D) price reduction, quality plus
E) cost differentiation, quality plus
Answer: C
Rationale:
In a competitive market, firms can pursue either a cost leadership strategy, aiming to have the
lowest costs and attract customers with lower prices, or a differentiation strategy, offering unique
products or services that command higher prices. The correct answer pairs "cost leadership" with
the lowest costs and "differentiation" with unique products or services.
32) Match the business model component with its explanation:
A) core strategy/how a firm structures and nurtures its partnerships
B) customer interface/how a firm acquires and uses its resources
C) strategic resources/how a firm acquires and uses its resources
D) partnership network/how a firm competes
E) core strategy/how a firm interfaces with its customers
Answer: C
Rationale:
The component "strategic resources" corresponds to how a firm acquires and uses its resources,
which is explained by the definition of strategic resources.
33) Susan Spector is in the process of putting together the business model for her startup and is
currently working on her core competencies and strategic assets. Which of the components of her
business model is Susan working on?
A) core strategy
B) strategic resources
C) partnership network
D) customer interface
E) feasibility analysis
Answer: B
Rationale:
Core competencies and strategic assets are part of a firm's strategic resources, which are key
components of the business model.
34) A ________ is a resource or capability that serves as a source of a firm's competitive
advantage over its rivals.
A) foundational competency
B) core competency
C) distinctive attribute
D) center attribute
E) core element
Answer: B
Rationale:
A core competency is a unique capability or resource that gives a firm a competitive advantage
over its rivals.
35) Zappo's competence in customer service, Apple's competence in designing consumer
products, and Netflix's competence in supply chain management are examples of ________,
which serve as each of these respective firms' competitive advantage of their rivals.
A) foundational competencies
B) core competencies
C) core elements
D) distinguishing attributes
E) foundational attributes
Answer: B
Rationale:
The examples given represent each firm's core competency, which is a source of competitive
advantage.
36) ________ is the process of adapting a firm's core competencies to exploit new opportunities.
A) Resource leverage
B) Capacity proficiency
C) Ability leverage
D) Aptitude embellishment
E) Capacity extension
Answer: A
Rationale:
Resource leverage involves using a firm's core competencies to take advantage of new
opportunities, thereby maintaining a competitive edge.
37) ________ are anything rare and valuable that a firm owns.
A) Tactical assets
B) Tactical properties
C) Deliberate assets
D) Strategic assets
E) Operational assets
Answer: D
Rationale:
Strategic assets are valuable resources or capabilities that are rare and contribute to a firm's
competitive advantage.
38) In a business model context, the three components of a firm's partnership network are:
A) business mission, partners, and strategic assets
B) core competencies, suppliers, and target customer
C) suppliers, partners, and other key relationships
D) business mission, product/market scope, and basis for differentiation
E) pricing structure, fulfillment and support, and target customer
Answer: C
Rationale:
The partnership network of a business model consists of suppliers, partners, and other key
relationships that are crucial for the firm's operations and success.
39) A supplier is a company that:
A) purchases a company's products
B) helps a firm put together its network of contacts
C) provides startups with funding
D) provides startups with business advice
E) provides parts or services to another company
Answer: E
Rationale:
A supplier is a company that provides parts or services to another company, contributing to the
production process.
40) The network of companies that participate in the production of a product, from the
acquisition of raw materials to the final sale, is referred to as the:
A) input chain
B) participation chain
C) supply chain
D) involvement network
E) contribution chain
Answer: C
Rationale:
The supply chain encompasses all the companies involved in the production process, from raw
materials to the final product, highlighting the interconnected nature of the production network.
41) A hub and wheel configuration with a local firm at the hub organizing the interdependencies
of a complex array of firms is referred to as a:
A) trade association
B) strategic alliance
C) network
D) joint venture
E) consortia
Answer: C
Rationale:
In this configuration, the local firm acts as the hub, organizing and connecting the various firms
in the network. This aligns with the definition of a network, which involves interconnected
entities.
42) An arrangement between two or more firms that establishes an exchange relationship but has
no joint ownership involved is called a:
A) network
B) trade association
C) consortia
D) joint venture
E) strategic alliance
Answer: E
Rationale:
A strategic alliance involves cooperation between firms without the need for joint ownership. It
allows firms to collaborate while maintaining their independence.
43) A ________ is a group of organizations with similar needs that band together to create a new
entity to address those needs.
A) joint venture
B) network
C) consortia
D) strategic alliance
E) trade association
Answer: C
Rationale:
Consortia are formed when organizations with similar needs join forces to create a new entity.
This allows them to pool resources and expertise to address common challenges.
44) Organizations (typically nonprofit) that are formed by firms in the same industry to collect
and disseminate trade information, offer legal and technical advice, furnish industry-related
training, and provide a platform for collective lobbying are called:
A) strategic alliances
B) trade associations
C) networks
D) joint ventures
E) consortia
Answer: B
Rationale:
Trade associations are formed by firms in the same industry to serve common interests, such as
sharing information, providing advice, and engaging in collective advocacy.
45) ________, a relatively new approach to partnering, takes place when a service provided
comes inside a partner's facilities and helps the partner design and manage its supply chain.
A) Permeating
B) Infiltrating
C) Penetrating
D) Fulfilling
E) Insourcing
Answer: E
Rationale:
Insourcing involves a service provider working within a partner's facilities to assist with
designing and managing the supply chain. This approach is becoming more popular as firms seek
to improve efficiency and collaboration.
46) The Partnering for Success feature in Chapter 6 focuses on 99designs, an online company
that features a "crowdsourcing" model for getting design work done. 99designs' approach to
partnering with ________ is the essence of its disruptive business model.
A) professional art studios
B) freelance designers
C) art students
D) Google, Yahoo, and Microsoft
E) art teachers
Answer: B
Rationale:
99designs' disruptive business model relies on partnering with freelance designers, who
contribute their work to the platform. This crowdsourcing approach sets 99designs apart from
traditional design firms.
47) In a business model context, the three components of a firm's customer interface are target
customer, fulfillment and support, and:
A) pricing structure
B) product/market scope
C) basic for differentiation
D) strategic assets
E) business mission
Answer: A
Rationale:
The customer interface includes not only identifying the target customer and providing support
but also setting the pricing structure for the product or service.
48) A firm's ________ is the limited group of individuals or businesses that it goes after or tries
to appeal to.
A) target objective
B) goal objective
C) intention market
D) target market
E) object market
Answer: D
Rationale:
The target market is the specific group of customers that a firm targets with its products or
services. This group is selected based on various factors, including demographics, behavior, and
needs.
49) Gary Smith just launched a firm in the sports drink industry. He has decided to focus his
efforts on appealing to extreme sports enthusiasts (examples include hang gliders, rock climbers,
and parachutists). In Gary's case, extreme sports enthusiasts represent his firm's:
A) target objective
B) target market
C) goal objective
D) intention market
E) object market
Answer: B
Rationale:
Gary's target market consists of extreme sports enthusiasts, as these are the individuals he is
aiming to attract and sell his sports drinks to.
50) Fulfillment and support describes:
A) how a firm manages its customer relationships
B) the way a firm's product or service "goes to market" or how it reaches its customers
C) how a firm manages its employees
D) the products and markets on which a firm will compete
E) how a firm competes relative to its competitors
Answer: B
Rationale:
Fulfillment and support refer to the processes involved in getting a product or service to market
and ensuring that customers receive the necessary support. This includes distribution, logistics,
and customer service.
51) A business plan is a firm's plan or diagram for how it competes, uses its resources, structures
its relationships, interfaces with customers, and creates value to sustain itself on the basis of the
profits it earns.
Answer: False
Rationale:
A business plan is a detailed document that outlines a firm's goals, strategies, and tactics for
achieving them. While it may include elements related to competition, resources, and value
creation, it is not a comprehensive representation of a firm's business model, which encompasses
a broader set of considerations.
52) A firm's business model resides within its own boundaries.
Answer: False
Rationale:
A firm's business model extends beyond its own boundaries to include its relationships with
customers, suppliers, partners, and other external stakeholders. It describes how the firm creates,
delivers, and captures value, which involves interactions both within and outside the firm.
53) Almost all firms partner with others to make their business models work.
Answer: True
Rationale:
Partnerships are common in business and can take many forms, including strategic alliances,
joint ventures, and supplier relationships. These partnerships are often essential for firms to
access resources, capabilities, and markets that they cannot easily obtain on their own.
54) There is no standard business model that dictates how firms in a particular industry should
compete.
Answer: True
Rationale:
Business models can vary widely even within the same industry, as firms adopt different
strategies, structures, and approaches to creating value. While there may be common practices or
trends within an industry, firms have the flexibility to develop unique business models that suit
their specific circumstances and objectives.
55) A clearly articulated business model articulates a company's core logic to all stakeholders,
including the firm's employees.
Answer: True
Rationale:
A well-defined business model helps stakeholders understand how a firm creates, delivers, and
captures value. This clarity is important for aligning internal activities and resources with the
firm's strategic objectives, as well as for communicating its value proposition to external parties.
56) By studying a product's value chain, an organization can identify ways to create additional
value and assess whether it has the means to do so.
Answer: True
Rationale:
The value chain is a useful framework for analyzing the activities involved in producing and
delivering a product or service. By examining each step in the value chain, an organization can
identify opportunities to improve efficiency, reduce costs, and enhance value for customers.
57) The primary activities in a firm's value chain include: inbound logistics, operations,
outbound logistics, marketing and sales, and service.
Answer: True
Rationale:
These are indeed the primary activities in a firm's value chain, as identified by Michael Porter.
Inbound logistics involves receiving, storing, and distributing inputs; operations involve
transforming inputs into finished products; outbound logistics involve delivering products to
customers; marketing and sales involve promoting and selling products; and service involves
providing support to customers after the sale.
58) Two fatal flaws can render a business model untenable from the beginning: a complete
misread of the customer and underutilization of the Internet.
Answer: False
Rationale:
While a misread of the customer and underutilization of the Internet can certainly pose
challenges to a business model, they are not necessarily fatal flaws. Many factors can contribute
to the success or failure of a business model, and addressing these issues through strategic
adaptation and innovation is possible.
59) The four components of an effective business model include: core strategy, strategic
resources, partnership network, and customer interface.
Answer: True
Rationale:
These are indeed key components of a business model. The core strategy outlines how the firm
will compete, the strategic resources are the assets and capabilities necessary to execute the
strategy, the partnership network includes the firm's relationships with other organizations, and
the customer interface describes how the firm interacts with its customers to deliver value.
60) Fortunately, if three of the four components of a firm's business model are in place, the firm
has a high probability of success.
Answer: False
Rationale:
While having three of the four components in place is a positive sign, success depends on many
factors beyond just the presence of these components. Other factors, such as market conditions,
competition, and execution, also play a critical role in determining the success of a business
model.
61) A company's product/market scope defines the products and markets on which it will
concentrate.
Answer: True
Rationale:
The product/market scope defines the specific products or services a company offers and the
markets it targets. It helps focus the company's resources and efforts on areas where it can
compete effectively and create value.
62) Historically, it has been difficult for a new venture to use a differentiation strategy.
Answer: False
Rationale:
While it can be challenging for a new venture to differentiate itself in a crowded market, it is not
historically difficult. New ventures often have the opportunity to innovate and differentiate their
products or services from existing offerings, which can be a source of competitive advantage.
63) A core competency is a resource or capability that serves as a source of a firm's competitive
advantage over its rivals.
Answer: True
Rationale:
Core competencies are unique strengths or capabilities that enable a firm to outperform its
competitors. They are typically difficult for competitors to imitate or replicate, making them a
source of sustained competitive advantage.
64) The process of adapting a company's core competencies to exploit new opportunities is
referred to as resource leverage.
Answer: True
Rationale:
Resource leverage involves using a firm's core competencies to take advantage of new
opportunities in the market. It often requires adapting or reconfiguring existing resources and
capabilities to meet the demands of a changing environment.
65) Strategic assets are anything rare and valuable that a firm owns.
Answer: True
Rationale:
Strategic assets are valuable resources or capabilities that are rare and difficult for competitors to
replicate. They can include physical assets, such as manufacturing facilities, as well as intangible
assets, such as brand reputation or intellectual property.
66) Companies ultimately try to combine their core competencies and strategic assets to create a
sustainable competitive advantage.
Answer: True
Rationale:
By leveraging their core competencies and strategic assets, companies can create a unique value
proposition that sets them apart from competitors. This can lead to a sustainable competitive
advantage that allows the company to outperform its rivals over the long term.
67) A resource chain is the network of all the companies that participate in the production of a
product, from the acquisition of raw materials to the final sale.
Answer: False
Rationale:
A resource chain is not the network of companies involved in production but rather the sequence
of activities involved in creating and delivering a product or service. It includes sourcing raw
materials, manufacturing, distribution, and sales.
68) A network is a hub-and-wheel configuration with a local firm at the hub organizing the
interdependencies of a complex array of firms.
Answer: True
Rationale:
A network refers to a configuration where a central firm (the hub) organizes and coordinates the
activities of a group of interconnected firms. This allows for the sharing of resources and
capabilities to achieve common goals.
69) A firm's target market is the limited group of individuals or businesses that it goes after or
tries to appeal to.
Answer: True
Rationale:
The target market is the specific group of customers that a firm aims to reach with its products or
services. It is defined based on factors such as demographics, behavior, and needs.
70) Fulfillment and support describe the way a firm's product or service "goes to market" or how
it reaches its customers.
Answer: True
Rationale:
Fulfillment and support are part of the customer interface component of a firm's business model.
They involve the processes and activities related to delivering a product or service to customers
and providing ongoing support to ensure customer satisfaction.
71) What is meant by the statement, "A firm's business model takes it beyond its own
boundaries"? Provide an example to illustrate your answer.
Answer: Almost all firms partner with others to make their business models work. For example,
Stroome's business model is based on the idea that users will voluntarily upload video and then
work together to edit and mix the video in a collaborative manner. Stroome plans to partner with
companies and organizations to use its technology to create their own collaborative video editing
platforms. In both instances, Stroome is relying on outsiders to help its business model coalesce
and add value.
72) Why is it important for a firm to have a well-thought-out business model?
Answer: Having a well-thought-out and clearly articulated business model is important for the
following reasons:
∙ Serves as an ongoing extension of feasibility analysis. A business model continually asks the
question, "does the business make sense?"
∙ Focuses attention on how all the elements of a business fit together and constitute a working
whole.
∙ Describes why the network of participants needed to make a business idea viable is willing to
work together.
∙ Articulates a company's core logic to all stakeholders, including the firm's employees.
73) Describe the two potential fatal flaws of business models.
Answer: Two fatal flaws can render a business model untenable from the beginning: a complete
misread of the customer and utterly unsound economics. Business models that fall victim to one
of these two flaws have lost the race before leaving the starting gate.
74) Briefly describe the four main components of a business model. Identify the subcomponents
of each the four main components of a business model.
Answer: The four main components of a business model are as follows:
∙ Core strategy. The first component of a business model is the core strategy, which describes
how a firm competes relative to its competitors. The core strategy's subcomponents are business
mission, product/market scope, and basis for differentiation.
∙ Strategic resources. A firm is not able to implement a strategy without resources, so the
resources a firm has affects its business model substantially. The two main subcomponents of a
firm's strategic resources are core competencies and strategic assets.
∙ Partnership network. A firm's network of partnerships is the third component of its business
model. New ventures, in particular, typically do not have the resources to perform all the tasks
required to make their business models work, so they rely on partners to perform key roles. The
subcomponents in this category are suppliers, partners, and other key relationships.
∙ Customer interface—how a firm interfaces with its customers—is the fourth component of a
business model. The type of customer interface depends on how a firm chooses to compete. The
subcomponents in this category include target market, fulfillment and support, and pricing
strategy.
75) What is a strategic asset? Provide an example of a strategic asset that is utilized by an
entrepreneurial firm.
Answer: Strategic assets are anything rare and valuable that a firm owns. They include plant and
equipment, location, brands, patents, customer data, a highly qualified staff, and distinctive
partnerships. A particularly valuable strategic asset is a company's brand. Starbucks, for
example, has worked hard to build the image of its brand, and it would take an enormous effort
for another coffee retailer to achieve this same level of brand recognition.
Test Bank for Entrepreneurship: Successfully Launching New Ventures
Bruce R. Barringer, R. Duane Ireland
9780132555524, 9780131393905, 9780134729534, 9780133797190
