Preview Extract
Chapter 6 Management and Entrepreneurship
1) Entrepreneurship refers to the identification, evaluation, and exploitation of opportunities.
Answer: True
Rationale:
Entrepreneurship involves recognizing opportunities, assessing their viability, and taking action
to capitalize on them. This process encompasses identifying potential ideas, evaluating their
feasibility, and eventually exploiting them to create value.
2) Opportunities may sometimes arise from the discovery of new geographical markets in which
new customers will value the new product or service.
Answer: True
Rationale:
Yes, new opportunities can arise from identifying untapped markets where there is demand for a
new product or service. Expanding into new geographical areas can lead to the discovery of such
opportunities.
3) Entrepreneurial alertness refers to an individual's ability to notice and be sensitive to new
information about objects, incidents, and patterns of behavior in the environment.
Answer: True
Rationale:
Entrepreneurial alertness is the ability to perceive and recognize new opportunities that others
may overlook. It involves being attentive to changes and trends in the environment that could
indicate potential business opportunities.
4) Information asymmetry refers to an individual's ability to notice and be sensitive to new
information about objects, incidents, and patterns of behavior.
Answer: False
Rationale:
Information asymmetry actually refers to a situation where one party in a transaction has more or
better information than the other. It does not relate to an individual's ability to notice or be
sensitive to new information.
5) Opportunity evaluation is the first stage of the entrepreneurial process.
Answer: False
Rationale:
The first stage of the entrepreneurial process is opportunity identification, where potential
opportunities are recognized and defined. Opportunity evaluation comes later in the process,
after opportunities have been identified.
6) When analyzing entrepreneurial opportunities, the opportunity identification step is where the
rubber meets the road and often presents a difficult challenge.
Answer: False
Rationale:
While opportunity identification is crucial, it is not necessarily the most challenging step.
Evaluating and deciding which opportunities to pursue, as well as successfully exploiting them,
can often be more challenging.
7) Feasibility analysis helps entrepreneurs understand whether an idea is practical.
Answer: True
Rationale:
Feasibility analysis helps entrepreneurs assess the viability and practicality of a business idea. It
considers factors such as market demand, competition, and resource requirements to determine if
the idea is feasible.
8) Downside loss refers to the resources that an entrepreneur could lose if an opportunity does
not succeed.
Answer: True
Rationale:
Downside loss refers to the potential negative outcomes or losses that an entrepreneur could
experience if an opportunity fails to materialize or is not successful. It includes the resources,
such as time, money, and effort, that could be lost.
9) Illusion of control refers to the activities and investments committed to gain returns from the
new product or service arising from an opportunity.
Answer: False
Rationale:
Illusion of control refers to the belief that individuals have more control over outcomes than they
actually do. It does not specifically relate to activities and investments committed to gaining
returns from a new product or service.
10) Exploitation exists when entrepreneurs overestimate the extent to which they can control the
outcome of an opportunity.
Answer: False
Rationale:
Exploitation in entrepreneurship refers to the act of leveraging an opportunity to create value. It
does not necessarily involve overestimating control but rather taking action to capitalize on the
opportunity.
11) All entrepreneurs completely fund operations with their own money or credit cards.
Answer: False
Rationale:
While some entrepreneurs may use their own funds or credit cards to finance their ventures,
many also seek external sources of funding, such as loans, investments, or grants, to support their
operations.
12) Venture capitalists generally make more investments than angel investors.
Answer: False
Rationale:
Angel investors typically make more investments than venture capitalists. Angel investors are
individuals who invest their own money in early-stage startups, often providing funding to
multiple startups. Venture capitalists, on the other hand, tend to make fewer but larger
investments in more established companies.
13) Venture capitalists generally make larger investments than angel investors.
Answer: True
Rationale:
Yes, venture capitalists typically invest larger amounts of money than angel investors. Venture
capital firms manage funds from multiple investors and invest these funds in high-potential
startups or companies in exchange for equity.
14) Bank financing occurs when an entrepreneur obtains financing from a financial institution in
the form of a loan.
Answer: True
Rationale:
Bank financing refers to obtaining funds from a bank or other financial institution in the form of
a loan. The entrepreneur agrees to repay the loan amount plus interest over a specified period.
15) With respect to corporate entrepreneurship, sustained regeneration occurs when firms
develop new culture, processes, or structures to support new product innovations.
Answer: True
Rationale:
Sustained regeneration in corporate entrepreneurship refers to the ongoing development and
implementation of new cultural norms, processes, or structures within a firm to support
continuous innovation and growth.
16) Organizational rejuvenation occurs when a firm attempts to alter its own competitive
strategy.
Answer: False
Rationale:
Organizational rejuvenation typically involves more than just altering competitive strategy. It
often includes revitalizing the organization's culture, processes, and structures to adapt to
changing market conditions and improve performance.
17) An example of organizational rejuvenation is when Meryl Computers Inc., a computer
hardware company, changes policies and procedures within the company to support innovation.
Answer: True
Rationale:
Yes, changing policies and procedures to support innovation is an example of organizational
rejuvenation. By making these changes, Meryl Computers Inc. is aiming to revitalize its
operations and adapt to a more innovative approach.
18) Strategic renewal occurs when a firm proactively seeks to create a new product market
position that competitors have not recognized.
Answer: False
Rationale:
Strategic renewal involves more than just creating a new product market position. It
encompasses a broader process of revitalizing the firm's overall strategy, which may include
entering new markets, developing new products, or repositioning existing offerings.
19) Social value refers to the basic longstanding needs of society and has little to do with profits.
Answer: True
Rationale:
Social value refers to the benefits that a business or organization creates for society beyond its
financial profits. It focuses on meeting societal needs and improving well-being, rather than
solely on generating financial returns.
20) One distinction between commercial and social entrepreneurship involves the availability of
resources such as funding and employees.
Answer: True
Rationale:
Yes, one distinction between commercial and social entrepreneurship is the availability of
resources. Social entrepreneurs often face challenges in accessing funding and recruiting
employees compared to commercial entrepreneurs, as their focus is on creating social impact
rather than financial returns.
21) ________ refers to the identification, evaluation, and exploitation of opportunities.
A) Entrepreneur
B) Entrepreneurial opportunity
C) Entrepreneurial alertness
D) Entrepreneurship
E) Entrepreneurial risk
Answer: D
Rationale:
Entrepreneurship encompasses the entire process of recognizing, assessing, and taking advantage
of opportunities to create value. This includes identifying potential opportunities, evaluating their
feasibility, and ultimately exploiting them.
22) Which of the following demonstrates the correct sequence in the stages of entrepreneurship?
A) opportunity identification, opportunity evaluation, opportunity exploitation
B) opportunity identification, opportunity exploitation, opportunity evaluation
C) opportunity evaluation, opportunity identification, opportunity exploitation
D) opportunity evaluation, opportunity exploitation, opportunity identification
E) opportunity exploitation, opportunity evaluation, opportunity identification
Answer: A
Rationale:
The correct sequence in the stages of entrepreneurship is first identifying opportunities, then
evaluating their feasibility, and finally exploiting the chosen opportunities.
23) Entrepreneurial opportunity is ________.
A) the activities and investments committed to gain returns from the new product or service
arising from the opportunity
B) resources (i.e., money, relationships, etc.) the entrepreneur could lose if the opportunity does
not succeed
C) an occasion to bring into existence new products and services that allow outputs to be sold at
a price greater than their cost of production
D) an individual's ability to notice and be sensitive to new information about objects, incidents,
and patterns of behavior in the environment
E) the process in which an individual or group of individuals in an existing corporation create a
new organization or instigate renewal or innovation within that corporation
Answer: C
Rationale:
An entrepreneurial opportunity is a situation in which new products or services can be introduced
to the market, allowing for selling at a price higher than the cost of production.
24) A(n) ________ is an individual who identifies, evaluates, and exploits opportunities.
A) leader
B) entrepreneur
C) supplier
D) distributor
E) opportunist
Answer: B
Rationale:
An entrepreneur is someone who recognizes and takes advantage of opportunities, often by
creating new products or services or improving existing ones.
25) Research suggests that organizations started by entrepreneurial teams tend to perform better
than those started by individual entrepreneurs working by themselves. What is this attributed to?
A) The new, fresh mindset of entrepreneurs.
B) Organizations started by teams have more money.
C) Individual organizations do not have the manpower to help.
D) The combination of diverse skills, experiences, and relationships of the entrepreneurial team
members.
E) Entrepreneurial teams use more research for start-up decisions.
Answer: D
Rationale:
Organizations started by entrepreneurial teams tend to perform better because the team members
bring diverse skills, experiences, and relationships to the table, which can lead to more
comprehensive and effective decision-making.
26) Opportunities may arise from the creation or discovery of ________.
A) new research
B) new raw materials
C) ethics
D) more capital
E) social networks
Answer: B
Rationale:
New opportunities can arise from the discovery or creation of new raw materials, which can lead
to the development of new products or services.
27) ________ allow entrepreneurs to produce goods or services at lower costs, which allows the
entrepreneurs to satisfy the needs of customers more effectively.
A) New markets
B) New raw materials
C) New methods of production
D) New methods of organizing
E) New products
Answer: C
Rationale:
New methods of production can help entrepreneurs reduce costs, making their goods or services
more competitive and satisfying customer needs more effectively.
28) The Internet allowed Netflix to offer customers a new way to rent DVDs and video games.
This is an example of ________.
A) new markets
B) new raw materials
C) new methods of production
D) new methods of organizing
E) new products
Answer: D
Rationale:
The Internet enabled Netflix to innovate its organizational approach by offering a new method of
organizing its rental services, which transformed the industry.
29) When Nintendo Crescendo, an electronics company, develops and markets the Wii gaming
system, it is an opportunity that has arisen from a ________.
A) new product or service
B) new geographical market
C) new method of production
D) new raw material
E) new method of organizing
Answer: A
Rationale:
The development and marketing of the Wii gaming system by Nintendo Crescendo represent an
opportunity arising from a new product or service.
30) Which type of opportunity is Citibank pursuing if it provides services in China?
A) new products or services
B) new geographical markets
C) new raw materials
D) new methods of production
E) new methods of organizing
Answer: B
Rationale:
Providing services in China represents an opportunity arising from entering a new geographical
market.
31) Which of the following is an example of an opportunity that has arisen from new uses for
raw materials?
A) the invention of the heart stent
B) an American bank providing services in Canada
C) raising chickens without using any antibiotics
D) using the Internet to sell a product
E) using corn to produce ethanol
Answer: E
Rationale:
Using corn to produce ethanol represents a new use for the raw material (corn) that has led to an
entrepreneurial opportunity in the form of producing ethanol as a biofuel.
32) If a food manufacturer raises chickens for commercial use, without using antibiotics, which
type of opportunity is this?
A) new products or services
B) new geographical markets
C) new raw materials
D) new methods of production
E) new methods of organizing
Answer: D
Rationale:
Raising chickens without using antibiotics represents a new method of production, which is an
entrepreneurial opportunity for the food manufacturer.
33) Which of the following is an example of an opportunity that arose from the use of a new
method of organizing?
A) using corn to produce ethanol
B) using the Internet to sell a product
C) raising chickens without antibiotics
D) an American bank providing services in Australia
E) the invention of the heart stent
Answer: B
Rationale:
Using the Internet to sell a product represents a new method of organizing sales and distribution,
which has created an entrepreneurial opportunity for businesses to reach customers online.
34) ________ is the first step of the entrepreneurial process.
A) Opportunity identification
B) Opportunity evaluation
C) Risk identification
D) Opportunity feedback
E) Risk evaluation
Answer: A
Rationale:
Opportunity identification is the initial step where entrepreneurs recognize potential
opportunities for new products, services, or markets.
35) Although an opportunity may exist, it needs to be recognized first. This is ________.
A) opportunity feedback
B) opportunity evaluation
C) opportunity exploitation
D) opportunity identification
E) opportunity cost
Answer: D
Rationale:
Opportunity identification is the process of recognizing and defining potential entrepreneurial
opportunities.
36) ________ refers to an individual's ability to notice and be sensitive to new information about
objects, incidents, and patterns of behavior in the environment.
A) Social networking
B) Entrepreneurial opportunity
C) Entrepreneurial alertness
D) Feasibility analysis
E) Entrepreneurial risk
Answer: C
Rationale:
Entrepreneurial alertness is the capacity to recognize and respond to new entrepreneurial
opportunities in the environment.
37) Which of the following is true of an individual who has a low level of entrepreneurial
alertness?
A) They are more likely to identify potential entrepreneurial opportunities.
B) They spend most of their time giving feedback to employers.
C) They are more likely to dismiss or ignore new information and overlook potential
opportunities.
D) They are more likely to follow the new market opportunities.
E) They have low entrepreneurial risk.
Answer: C
Rationale:
An individual with low entrepreneurial alertness is less likely to recognize or respond to new
information about potential opportunities, often overlooking them.
38) Rick and Jose gain new market information regarding a potential entrepreneurial
opportunity. Despite the fact that both of them have gained access to this new information, only
one of these individuals has access to additional information suggesting that other competitors
are already moving to exploit this opportunity. What is this an example of?
A) information asset
B) information assurance
C) social networking
D) information asymmetry
E) information reliability
Answer: D
Rationale:
This is an example of information asymmetry, where one individual has access to additional
information that the other does not, leading to an imbalance in knowledge about the opportunity.
39) Martha has recently created a Facebook account. She also understands that she can utilize
this to advertise her growing recycling business. This is an example of ________.
A) information symmetry
B) market research
C) information asset
D) social networks
E) entrepreneurial risk
Answer: D
Rationale:
Martha is using her social network (Facebook) as a resource to promote her business,
demonstrating the utilization of social networks in entrepreneurship.
40) The ability of entrepreneurs to understand how to turn a new technology into a product or
service that will be valued by consumers refers to the ability to assess ________.
A) information symmetry
B) market research
C) means-end relationships
D) social networks
E) entrepreneurial risk
Answer: C
Rationale:
Means-end relationships refer to the understanding of how to link a new technology or
innovation with the desired outcomes or benefits that consumers seek, which is crucial for
creating value and success in entrepreneurship.
41) ________ is the second step of the entrepreneurial process.
A) Opportunity identification
B) Opportunity selection
C) Opportunity evaluation
D) Opportunity feedback
E) Opportunity success
Answer: C
Rationale:
Opportunity evaluation is the second step, where entrepreneurs assess the feasibility and viability
of identified opportunities to determine if they are worth pursuing.
42) What occurs when an entrepreneur decides whether he or she has just a good idea or a viable
opportunity that will provide the desired outcomes?
A) opportunity identification
B) opportunity selection
C) opportunity evaluation
D) opportunity feedback
E) opportunity success
Answer: C
Rationale:
This is the essence of opportunity evaluation, where entrepreneurs determine if an idea has the
potential to be a successful opportunity.
43) ________ is a type of evaluation that helps entrepreneurs understand whether an idea is
practical.
A) Illusion of control
B) Entrepreneurial risk management
C) Strategic planning
D) Feasibility analysis
E) Entrepreneurial alertness
Answer: D
Rationale:
Feasibility analysis helps entrepreneurs assess the practicality and viability of an idea,
considering factors such as market demand and resource availability.
44) What will entrepreneurs study in a feasibility analysis?
A) customer demands, structure of the industry, ability to provide the new product or service
B) ways to increase production and cut corners on costs
C) strategic planning
D) the likelihood of a product or service affecting the generation gap
E) entrepreneurial alertness
Answer: A
Rationale:
A feasibility analysis examines various aspects of an idea, including market demand, industry
structure, and the feasibility of providing the product or service.
45) Mike wants to start his own laundry service. However, he intends to first study the market
and consider factors like who his competitors are, how they function, their market shares, how he
can attract prospective customers, etc., before he decides whether his plan is viable. Mike is
engaging in ________.
A) benchmarking
B) entrepreneurial risk management
C) feasibility analysis
D) exploitation
E) angel investing
Answer: C
Rationale:
Mike is conducting a feasibility analysis by studying the market and competitors to assess the
viability of his business idea.
46) ________ is the likelihood and magnitude of the opportunity's downside loss.
A) Illusion of control
B) Entrepreneurial risk
C) Entrepreneurial alertness
D) Exploitation
E) Entrepreneurial opportunity
Answer: B
Rationale:
Entrepreneurial risk refers to the potential downside loss associated with pursuing an
opportunity.
47) ________ refers to the resources that the entrepreneur could lose if the opportunity does not
succeed.
A) Downside loss
B) Entrepreneurial risk
C) Feasibility analysis
D) Information asymmetry
E) Illusion of control
Answer: A
Rationale:
Downside loss is the potential loss of resources (e.g., time, money, effort) if an entrepreneurial
opportunity fails.
48) Betty and David decide to conduct a survey to observe people's reaction to their innovative
idea for a new product. With the help of an organization that conducts primary research, the
couple are able to get the responses of people from their town. The results are very encouraging
and they decide to start their company. What error have they committed?
A) hypercorrection
B) cognitive distortion
C) law of small numbers
D) defense mechanism
E) overregularization
Answer: C
Rationale:
The law of small numbers refers to the tendency to draw conclusions from small sample sizes,
which can lead to biased or inaccurate perceptions of the opportunity's potential.
49) Which of the following is true about factors that adversely influence the accuracy of an
entrepreneur's risk perceptions?
A) An entrepreneur's belief in the law of small numbers increases the risk he or she perceives
with an opportunity.
B) Because individuals are more likely to obtain good information and less likely to obtain bad
information, small samples of information are likely biased negatively.
C) Most entrepreneurs have access to large databases.
D) The control that an entrepreneur feels with respect to the opportunity's outcome may
influence perceptions of the idea's risk.
E) Law of small numbers and the illusion of control positively influence the accuracy of risk
perceptions when evaluating opportunities.
Answer: D
Rationale:
The control an entrepreneur feels over an opportunity can influence their perception of its risk, as
more perceived control may lead to underestimating risk.
50) Jerry starts his own business even when he is advised by family and friends that it is not a
suitable opportunity. His friends feel that the market is uncertain and a new entry at this juncture
is inadvisable. Jerry soon realizes that his friends were right and he should have taken their
advice. In spite of himself, he is forced to admit that the market situation is such that it would
take more than being a good entrepreneur to survive. Which of the following is Jerry
experiencing?
A) exploitation
B) anchoring
C) information bias
D) illusion of control
E) reactance
Answer: D
Rationale:
Jerry is experiencing the illusion of control, where he overestimated his ability to control the
outcome of his business venture, leading to an unfavorable result.
51) ________ is the third step of the entrepreneurial process.
A) Opportunity identification
B) Opportunity evaluation
C) Opportunity exploitation
D) Opportunity selection
E) Opportunity improvement
Answer: C
Rationale:
Opportunity exploitation is the third step where entrepreneurs take action to capitalize on the
identified opportunity, such as developing and launching a product or service.
52) ________ refers to the activities and investments committed to gain returns from the new
product or service arising from the opportunity.
A) Exploitation
B) Information asymmetry
C) Entrepreneurial risk
D) Illusion of control
E) Social value
Answer: A
Rationale:
Exploitation involves the actual implementation and utilization of the opportunity to generate
returns.
53) Entrepreneurs are most likely to exploit an opportunity when ________.
A) customers are likely to continue using the same product
B) there is no market demand, but an opportunity to create market demand
C) they perceive that they have the support of important stakeholders
D) they want to enhance the prospects of the opportunity by training an incapable management
team
E) they feel they do not have access to the resources needed to ensure high levels of
organizational performance
Answer: C
Rationale:
Entrepreneurs are more likely to exploit an opportunity when they believe they have the support
and resources necessary for success, as indicated by stakeholder support.
54) ________ are wealthy individuals who provide capital to new companies.
A) Angel investors
B) Venture capitalists
C) Bank financiers
D) Crowd funders
E) Private equity investors
Answer: A
Rationale:
Angel investors are individuals who invest their own money into start-up companies in exchange
for ownership equity.
55) Jose has successfully initiated a business of repairing cars. However, without immediate
income to sustain the business, he may have to shut his shop. His friend, Adam, invests in the
company and gives the company a much-required boost. In this situation, Adam is a(n)
________.
A) bank financier
B) venture capitalist
C) angel investor
D) crowd funder
E) private equity investor
Answer: C
Rationale:
Adam is an angel investor because he is providing capital to a new company (Jose's car repair
business) to help it grow.
56) ________ are firms that raise money from investors and then use this money to make
investments in new firms.
A) Angel investors
B) Venture capitalists
C) Banking institutions
D) Entrepreneurs
E) Insurance companies
Answer: B
Rationale:
Venture capitalists raise funds from various sources and then invest this capital into promising
start-up and small companies in exchange for equity stakes.
57) Which of the following is true about the differences between angel investors and venture
capitalists?
A) Venture capitalists are wealthy individuals who provide capital to new companies.
B) Angel investors raise money and then use this money to make investments in new firms.
C) Venture capitalists make more investments than angel investors.
D) Angel investors tend not to focus on particular industries.
E) Venture capitalists typically provide the initial financing to start-up ventures.
Answer: D
Rationale:
The key difference is that angel investors are individuals who invest their own money, while
venture capitalists raise funds from various sources and invest on behalf of those sources.
Additionally, angel investors often invest in a wider range of industries compared to venture
capitalists.
58) Which of the following best describes an angel investor?
A) Families and friends of an entrepreneur are not angel investors.
B) Angel investors raise money and then use this money to make investments in new firms.
C) Angel investors make fewer investments than venture capitalists.
D) Angel investors focus on a small number of industries.
E) Angel investors provide the initial financing to start-up ventures.
Answer: E
Rationale:
Angel investors are individuals who provide capital to start-up companies, typically in exchange
for ownership equity.
59) When an entrepreneur obtains financing from a financial institution in the form of a loan, it is
termed as ________.
A) angel investing
B) capital investments
C) bank financing
D) loan sharking
E) corporate funding
Answer: C
Rationale:
Bank financing involves obtaining funds from a financial institution, usually in the form of a
loan, to support business operations or growth.
60) Which of the following is true about bank financing?
A) Like angel investors and venture capitalists, banks invest in a business.
B) Banks are more interested in ensuring that the entrepreneur's opportunity will survive long
enough to ensure repayment.
C) Banks typically focus on investing in a small number of industries.
D) Banks are concerned with the long-term potential for returns.
E) Banks typically provide more capital as the new venture becomes more established.
Answer: B
Rationale:
Banks are primarily concerned with the entrepreneur's ability to repay the loan, so they focus on
the viability and sustainability of the opportunity to ensure repayment.
61) ________ is the process in which an individual or group of individuals in an existing
corporation create a new organization or instigate renewal or innovation within that corporation.
A) Corporate social entrepreneurship
B) Intrapreneurship
C) Entrepreneurship
D) Corporate entrepreneurship
E) Social entrepreneurship
Answer: D
Rationale:
Corporate entrepreneurship refers to the process where individuals within an existing corporation
create new ventures or drive innovation and renewal within the organization.
62) Beth heads the team of designers at La Belle, Inc., a well-known brand of designer bags. She
is an extraordinary designer and manages her team excellently. In the past, La Belle has
successfully implemented many of Beth's innovative ideas to their benefit. The company has
now decided that Beth should be given the responsibility of managing their new business unit
that specializes in clothes, shoes, and other accessories. What type of entrepreneurship is
displayed in this scenario?
A) intrapreneurship
B) creative destruction
C) corporate social entrepreneurship
D) social entrepreneurship
E) corporate entrepreneurship
Answer: E
Rationale:
This scenario demonstrates corporate entrepreneurship, where Beth is being tasked with
managing a new business unit within an existing corporation, indicating a focus on internal
innovation and growth.
63) Which of the following is true about corporate entrepreneurship?
A) Corporate entrepreneurs focus on less quantitative performance measures that are not related
to money.
B) The purpose of corporate entrepreneurship is to create value for the public.
C) Corporate entrepreneurs face more difficulties attracting capital from angel investors, venture
capitalists, or banks.
D) Corporate entrepreneurship results in new companies that often continue to work closely with
the parent company.
E) Corporate entrepreneurs often face difficulties in the form of hiring and compensating
employees.
Answer: D
Rationale:
Corporate entrepreneurship often results in the creation of new ventures that remain closely tied
to the parent company, leveraging its resources and capabilities.
64) Which of the following is an example of corporate entrepreneurship?
A) creating new products, services, or technologies
B) editing papers and reports
C) reinvesting funds in other companies
D) contracting work to consultants
E) reducing corporate organization
Answer: A
Rationale:
Creating new products, services, or technologies within an existing corporation is an example of
corporate entrepreneurship, as it involves internal innovation and the development of new
ventures within the organization.
65) ________ occurs when firms develop new culture, processes, or structures to support new
product innovations in current markets as well as with existing products in new markets.
A) Domain definition
B) Organized rejuvenation
C) Strategic renewal
D) Sustained regeneration
E) Project hosting
Answer: D
Rationale:
Sustained regeneration involves developing new organizational structures or processes to support
innovation and growth, both in current markets and with new products in new markets.
66) Which of the following is the most frequently used type of corporate entrepreneurship?
A) sustained regeneration
B) organized rejuvenation
C) domain definition
D) strategic renewal
E) project hosting
Answer: A
Rationale:
Sustained regeneration, which focuses on developing new processes and structures to support
innovation, is often the most common form of corporate entrepreneurship.
67) ________ involves improving the firm's ability to execute strategies and focuses on new
processes instead of new products.
A) Sustained regeneration
B) Project hosting
C) Organizational rejuvenation
D) Strategic renewal
E) Domain definition
Answer: C
Rationale:
Organizational rejuvenation focuses on improving the firm's ability to execute strategies through
new processes and structures, rather than developing new products or services.
68) ________ occurs when a firm attempts to alter its own competitive strategy.
A) Public hosting
B) Sustained regeneration
C) Organized rejuvenation
D) Strategic renewal
E) Domain definition
Answer: D
Rationale:
Strategic renewal involves changing the firm's competitive strategy to adapt to changing market
conditions or to capitalize on new opportunities.
69) ________ occurs when a firm tries to offer a new strategy altogether, unlike introducing a
new product or service.
A) Public hosting
B) Sustained regeneration
C) Organized rejuvenation
D) Strategic renewal
E) Domain definition
Answer: D
Rationale:
Strategic renewal involves offering a new competitive strategy, which may involve entering new
markets or pursuing different approaches to existing markets.
70) ________ occurs when a firm proactively seeks to create a new product market position that
competitors have not recognized.
A) Sustained regeneration
B) Organized rejuvenation
C) Public hosting
D) Strategic renewal
E) Domain definition
Answer: E
Rationale:
Domain definition involves creating a new market position that competitors have not yet
recognized, often through innovative products or services.
71) When pursuing domain definition, what should firms hope for?
A) to be moderately competitive in the market segment
B) organized rejuvenation
C) to become the first competitor in a market segment
D) strategic renewal
E) to be one of many competitors in the market segment
Answer: C
Rationale:
Domain definition involves seeking to create a new product market position that competitors
have not recognized, aiming to become the first competitor in a market segment.
72) The success of corporate entrepreneurship efforts will depend on many factors. Which of the
following are examples of dependent factors?
A) organization's culture, practices, tolerance level for uncertainty
B) stakeholders and investors
C) Dow and NASDAQ
D) individual profits
E) competition
Answer: A
Rationale:
The success of corporate entrepreneurship efforts is dependent on internal factors such as the
organization's culture, practices, and tolerance for uncertainty, as well as external factors like
competition and market conditions.
73) The pursuit of entrepreneurial opportunities for the purpose of generating sales and profits is
called ________.
A) commercial entrepreneurship
B) intrapreneurship
C) intrepreneurship
D) corporate entrepreneurship
E) social entrepreneurship
Answer: A
Rationale:
Commercial entrepreneurship focuses on generating sales and profits through entrepreneurial
activities.
74) ________ involves the recognition, evaluation, and exploitation of opportunities that create
social value as opposed to personal or shareholder wealth.
A) Corporate social entrepreneurship
B) Intrapreneurship
C) Intrepreneurship
D) Corporate entrepreneurship
E) Social entrepreneurship
Answer: E
Rationale:
Social entrepreneurship focuses on creating social value rather than solely on generating personal
or shareholder wealth.
75) Bryan has started a nonprofit organization that places the visually impaired in suitable jobs.
What type of entrepreneurship is Bryan displaying?
A) corporate social entrepreneurship
B) intrapreneurship
C) commercial entrepreneurship
D) corporate entrepreneurship
E) social entrepreneurship
Answer: E
Rationale:
Bryan is displaying social entrepreneurship by creating a nonprofit organization to address a
social issue.
76) ________ refers to the basic longstanding needs of society and has little to do with profits.
A) Commercial value
B) Social value
C) Economic value
D) Psychological value
E) International value
Answer: B
Rationale:
Social value refers to the basic longstanding needs of society, such as health, education, and
environmental sustainability, and is not primarily driven by profit motives.
77) Which of the following is true about the differences between commercial and social
entrepreneurship?
A) The purpose of commercial entrepreneurship is to create value for the public.
B) Social entrepreneurs are not required to consider issues surrounding sales and costs since they
have enough funding from angel investors.
C) Most commercial entrepreneurs rely on donations as sources of funding.
D) Commercial entrepreneurs focus on less quantitative performance measures that are not
related to money.
E) Although profits remain somewhat important, social value dominates the goal structure of
social entrepreneurship.
Answer: E
Rationale:
Social entrepreneurship places a greater emphasis on creating social value, while commercial
entrepreneurship focuses more on generating profits.
78) Which of the following is true about social entrepreneurship?
A) Social entrepreneurs often do not have the capital necessary to pay attractive salaries; they
must focus on hiring employees who share the organization's purpose.
B) Social entrepreneurs are not required to consider issues surrounding sales and costs since they
have enough funding from angel investors.
C) Social entrepreneurs do not rely on donations as sources of funding.
D) Social entrepreneurs focus on more quantitative performance measures that are related to
money.
E) Social entrepreneurs do not rely on volunteers to help their organizations.
Answer: A
Rationale:
Social entrepreneurs often face challenges in funding and may need to focus on hiring employees
who are motivated by the organization's purpose rather than high salaries.
79) How do large social networks affect entrepreneurs?
A) Social networks do not affect entrepreneurs.
B) Social networks do not improve the performance of social entrepreneurs.
C) Social networks can help identify potential employees and volunteers.
D) Social networks provide no sources of capital.
E) Social networks have access to commercial entrepreneurs.
Answer: C
Rationale:
Large social networks can help entrepreneurs identify and recruit potential employees and
volunteers, expanding their pool of talent and resources.
80) Why is an organization's capital base important for social entrepreneurs?
A) Capital helps entrepreneurs improve social networking.
B) Capital helps management make better decisions.
C) Capital creates opportunity for philanthropy.
D) Social entrepreneurs do not have access to the venture capital and bank financing available to
commercial entrepreneurs.
E) Capital helps identify potential employees and volunteers.
Answer: D
Rationale:
An organization's capital base is important for social entrepreneurs because they often have
limited access to traditional sources of financing, such as venture capital and bank loans, and rely
on alternative sources of funding to support their initiatives.
81) Explain the fundamentals of entrepreneurship.
Answer: Entrepreneurship refers to the identification, evaluation, and exploitation of
opportunities. Opportunities, in a general sense, are appropriate or favorable occasions. In the
entrepreneurship context, though, the definition of opportunity is slightly different from this
general definition. Specifically, an entrepreneurial opportunity is an occasion to bring into
existence new products and services that allow outputs to be sold at a price greater than their cost
of production. In other words, entrepreneurial opportunities exist when individuals are able to
sell new products and services at a price that produces a profit.
Although entrepreneurship has a broad definition, the term still involves starting new businesses.
82) Who is an entrepreneur?
Answer: An entrepreneur is an individual who identifies, evaluates, and exploits opportunities.
Many associate the term "entrepreneur" with one individual starting a new business, but it is not
always the case. Many entrepreneurs work with others when identifying, evaluating, and
exploiting entrepreneurial opportunities. Research suggests that organizations started by
entrepreneurial teams tend to perform better than those started by individual entrepreneurs
working by themselves. Many attribute this "team advantage" to the combination of diverse
skills, experiences, and relationships of the entrepreneurial team members. In addition, as new
organizations grow, they require leaders with new skills. Consequently, assembling a team
makes it easier for entrepreneurs to add team members with these new skills as the venture
expands.
83) What is entrepreneurial opportunity? Which are the types of opportunities as described by
Schumpeter?
Answer: Entrepreneurship refers to the identification, evaluation, and exploitation of
opportunities. Specifically, an entrepreneurial opportunity is an occasion to bring into existence
new products and services that allow outputs to be sold at a price greater than their cost of
production.
In his classic formulation of opportunities, Schumpeter described five different types of
opportunities.
1. Opportunities arise from the creation of new products or services. When a new type of medical
device is created, for example, an opportunity exists in the form of convincing doctors to use the
new device in their practices.
2. Opportunities arise from the discovery of new geographical markets in which new customers
will value the new product or service. As an example, suppose an individual has exclusive rights
to produce and distribute action figures based on a popular movie within the United States. After
saturating the domestic market, the individual might begin to distribute the action figures in
China. This scenario would represent an opportunity arising from the discovery of a new
geographical market.
3. Opportunities may arise from the creation or discovery of new raw materials or after
discovering alternative uses for existing raw materials. For example, ethanol, which can be
produced from corn, represents a new use for corn.
4. Opportunities may emerge from the discovery of new methods of production. According to
Schumpeter, new methods of production allow entrepreneurs to produce goods or services at
lower costs, which allows the entrepreneurs to satisfy the needs of customers more effectively.
5. Opportunities may arise from new methods of organizing. The emergence of the Internet
provides an example of opportunities that arose from new methods of organizing.
84) Describe the four factors that influence the ability of individuals to identify opportunities.
Answer: The four factors that influence the ability of individuals to identify opportunities:
entrepreneurial alertness, information asymmetry, social networks, and the ability to establish
means-ends relationships.
1. Individuals vary in terms of entrepreneurial alertness, which refers to an individual's ability to
notice and be sensitive to new information about objects, incidents, and patterns of behavior in
the environment. When individuals have high levels of entrepreneurial alertness, they are more
likely to identify potential entrepreneurial opportunities. In contrast, when individuals have low
levels of entrepreneurial alertness, they are more likely to dismiss or ignore new information and
overlook potential opportunities.
2. Individuals vary in terms of the information to which they have access, which is known as
information asymmetry. This variation in information involves both new information and old
information, and no two people share all of this information at the same time.
3. Individuals vary in terms of their social networks, which represent individuals' patterns of
social relationships. Some individuals have extended social networks (i.e., many social
relationships), while other individuals have narrow social networks (i.e., few social
relationships). Research suggests that individuals with extended networks are more likely to
identify potential entrepreneurial opportunities than those with more narrow social networks.
Moreover, the type of social network may influence opportunity identification. An individual
with entrepreneurial family members, for example, may be better able to identify opportunities
than an individual with family members who are not entrepreneurial.
4. Individuals will vary in terms of their ability to assess means-ends relationships. In this
context, the ability to assess means–end relationships refers to the ability of entrepreneurs to
understand how to turn a new technology into a product or service that will be valued by
consumers.
85) Explain feasibility analysis.
Answer: When evaluating opportunities, entrepreneurs must be honest with themselves. If not,
the entrepreneurs may purposely ignore or accidentally overlook important factors that will limit
the potential success of the opportunity.
To evaluate ideas, entrepreneurs will often engage in feasibility analysis, which is analysis that
helps entrepreneurs understand whether an idea is practical. In such a study, entrepreneurs will
study customer demands, the structure of the industry, and the entrepreneur's ability to provide
the new product or service. Although entrepreneurs have many ideas, not all of them are feasible;
this analysis helps them to better understand the likelihood that their opportunity will provide the
resources required.
86) What is entrepreneurial risk? In this context, explain downside loss.
Answer: When evaluating opportunities, entrepreneurs must be honest with themselves. If not,
the entrepreneurs may purposely ignore or accidentally overlook important factors that will limit
the potential success of the opportunity.
To evaluate ideas, entrepreneurs will often engage in feasibility analysis. Even if an idea is
feasible, opportunities are associated with some risk. One of the central factors that entrepreneurs
will examine in the evaluation stage is the opportunity's entrepreneurial risk, which is the
likelihood and magnitude of the opportunity's downside loss. In this context, downside loss
refers to the resources (i.e., money, relationships, etc.) the entrepreneur could lose if the
opportunity does not succeed. All else being equal, entrepreneurs are more likely to pursue
opportunities with lower levels of entrepreneurial risk and less likely to pursue opportunities
with higher levels of entrepreneurial risk.
87) Describe opportunity exploitation.
Answer: The third step in the entrepreneurship process involves exploiting an opportunity.
Exploitation refers to the activities and investments committed to gain returns from the new
product or service arising from the opportunity. Simply stated, exploitation occurs when an
entrepreneur (or group of entrepreneurs) decides that an opportunity is worth pursuing. When an
entrepreneur, for example, decides that customers would highly value a new product,
exploitation entails all of those activities (i.e., marketing, production, etc.) needed to sell the new
product to consumers.
88) When do entrepreneurs require external capital? Describe the three primary sources of
external capital.
Answer: When entrepreneurs decide that an opportunity is worth exploiting, they often lack the
capital (i.e., money) needed to exploit the opportunity. Although some entrepreneurs fund their
operations with their own money or with credit cards, most entrepreneurs require at least some
external money to fund operations. The three primary sources of external capital for
entrepreneurs: angel investors, venture capitalists, and bank financing.
1. Angel investors are wealthy individuals who provide capital to new companies. Angel
investors may include an entrepreneur's family and friends, but angel investors are also private
individuals who did not know the entrepreneur prior to funding the opportunity. Angel investors
have existed for centuries.
2. Venture capitalists are firms that raise money from investors and then use this money to make
investments in new firms. Many prominent companies such as Intel and Microsoft received
investments from venture capitalists in their early days. The companies then used these funds to
help acquire the resources (i.e., employees, equipment, etc.) that eventually made them the
companies they are today.
3. Bank financing occurs when an entrepreneur obtains financing from a financial institution in
the form of a loan. It is important to note that unlike angel investors or venture capitalists, banks
are not investors. Instead, banks make loans to entrepreneurs and in return expect repayment of
the loans with interest. As such, banks are not concerned with the long-term potential for returns.
Instead, these banks are more interested in ensuring that the entrepreneur's opportunity will
survive long enough to ensure repayment. In other words, investors typically seek risk, but banks
are more likely to minimize risk.
89) What is corporate entrepreneurship?
Answer: Corporate entrepreneurship is the process in which an individual or group of individuals
in an existing corporation create a new organization or instigate renewal or innovation within
that corporation. Although corporate entrepreneurship often involves establishing new
organizations, these new organizations leverage the parent corporation's assets, market position,
or other resources. In other words, when corporate entrepreneurship results in new companies,
these new companies often continue to work closely with the parent company. It is important to
recognize that corporate entrepreneurship does not necessarily require creating a new
organization. Corporate entrepreneurship, for example, also involves creating new products,
services, or technologies.
90) Define social entrepreneurship.
Answer: Social entrepreneurship involves the recognition, evaluation, and exploitation of
opportunities that create social value as opposed to personal or shareholder wealth. In this
context, social value refers to the basic longstanding needs of society and has little to do with
profits. Basic longstanding needs might include providing water, food, and shelter to those
individuals in need. Social value might also refer to more specific needs such as providing
playground equipment to needy school districts or seeing-eye dogs for those who are blind.
Test Bank for Modern Management: Concepts and Skills
Samuel C. Certo, S. Trevis Certo
9780133059922, 9780133254105, 9780135983546
