All of the following are assumptions of the industrial organization (I/O) model EXCEPT

Pratik Poudel

Pratik Poudel

Currently studying Phd at the Asian Institute of Technology(AIT), Bangkok, Thailand

Published Mar 1, 2016

A strategy is the combination of actions to exploit core competencies through
which a company creates its own competitive edge. Every firm has or must make
a strategy. A strategy is the only way that gives a clear cut path for a company
or firm to excel. Similarly a person should also have a strategy, isn’t it? How can
somebody excel without strategy? But for strategy you need to have your core
competencies first. What are your core competencies? For this you need to keep
exploring yourself. Don’t be afraid from exploring yourself.
Well, let’s focus on two particular theories to make strategies. The first theory is
called the I/O Model or Industrial organization model. This model explains it is the external environment which you should take care of before you make your
strategy. This model explains that the industry in which a firm chooses to
compete has a stronger influence on the firm’s performance than do the choices
managers make inside the organization. The I/O model has four assumptions.
The first assumption is that it is the external environment that creates pressures
and constraints for a firm to make its strategy. The second assumption is that
the firms competing within a particular industry has similar resources under their control. Therefore the firms under these industries are more or less equal. The third assumption is that the resources that are under their control are highly
mobile. And the fourth assumption is that the organizational people are rational
human beings.
The resource based model on the other hand gives us a different aspect than the
I/O model. The resource based model assumes that each organization is a
collection of unique resource and capabilities that provides the basis for its
strategy and that is the primary source of their return. According to this model,
differences in firms’ performances across time are due primarily to their unique
resources and capabilities rather than the industry’s structural characteristics.
So, this model focuses on unique resources and capabilities. If you have those
unique resources, then you can develop the capabilities to gain competitive
advantage.
So, which is the model that you should follow to make personal strategy? I think
you need to have the amalgamation of both models to make strategies. First, as I
have already stated earlier, don’t hesitate to explore various things. As an
entrepreneur you should not stick your own personal tastes and preferences. You should try to explore the market (external environment) to determine your
resources (develop unique resources) to gain competitive advantage. Every firm
has its own uniqueness. But the uniqueness does not have any value unless that
uniqueness leads you to competitive advantage. Therefore, explore your core
competencies (Resource based model) and keep it updated with the external
environment (I/O Model).

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1. Above-average returns are:
a. higher profits than the firm earned last year.
b. higher profits than the industry average over the last 10 years.
c. profits in excess of what an investor expects to earn from a historical pattern of performance of the firm.
d. profits in excess of what an investor expects to earn from other investments with a similar level of risk.
Answer: d. profits in excess of what an investor expects to earn from other investments with a similar level of risk.

3. The strategic management process is
a. a set of activities that will assure a temporary advantage and average returns for the firm.
b. a decision-making activity concerned with a firm's internal resources, capabilities, and competencies, independent of the conditions in its external environment.
c. a process directed by top-management with input from other stakeholders that seeks to achieve above-average returns for investors through effective use of the organization's resources.
d. the full set of commitments, decisions, and actions required for the firm to achieve above-average returns and strategic competitiveness.
Answer: d. the full set of commitments, decisions, and actions required for the firm to achieve above-average returns and strategic competitiveness.

All of the following are assumptions of the industrial organization (I/O) model EXCEPT
a. Organizational decision makers are rational and committed to acting in the firm's best interests.
b. Resources to implement strategies are firm-specific and attached to firms over the long-term.
c. The external environment is assumed to impose pressures and constraints that determine the strategies that result in above-average returns.
d. Firms in given industries, or given industry segments, are assumed to control similar strategically relevant resources.
Answer: b. Resources to implement strategies are firm-specific and attached to firms over the long-term.

All of the following are assumptions of the resource-based model EXCEPT
a. Each firm is a unique collection of resources and capabilities.
b. The industry's structural characteristics have little impact on a firm's performance over time.
c. Capabilities are highly mobile across firms.
d. Differences in resources and capabilities are the basis of competitive advantage.
Answer: c. Capabilities are highly mobile across firms.

In the resource-based model, which of the following factors would be considered a key to organizational success?
a. unique market niche
b. weak competition
c. economies of scale
d. skilled employees
Answer: d. skilled employees

All of the following are resources of an organization EXCEPT
a. an hourly production employee's ability to catch subtle quality defects in products.
b. oil drilling rights in a promising region.
c. weak competitors in the industry.
d. a charity's endowment of $400 million.
Answer: c. weak competitors in the industry.

The resource-based model of the firm argues that
a. all resources have the potential to be the basis of sustained competitive advantage.
b. all capabilities can be a source of sustainable competitive advantage.
c. the key to competitive success is the structure of the industry in which the firm competes.
d. resources and capabilities that are valuable, rare, costly to imitate, and non-substitutable form the basis of a firm's core competencies.
Answer: d. resources and capabilities that are valuable, rare, costly to imitate, and non-substitutable form the basis of a firm's core competencies.

The goal of the organization's ____ is to capture the hearts and minds of employees, challenge them, and evoke their emotions and dreams.
a. vision
b. mission
c. culture
d. strategy
Answer: a. vision

A firm's mission
a. is a statement of a firm's business in which it intends to compete and the customers which it intends to serve.
b. is an internally-focused affirmation of the organization's financial, social, and ethical goals.
c. is mainly intended to emotionally inspire employees and other stakeholders.
d. is developed by a firm before the firm develops its vision.
Answer: a. is a statement of a firm's business in which it intends to compete and the customers which it intends to serve.

The environmental segments that comprise the general environment typically will NOT include
a. demographic factors.
b. sociocultural factors.
c. substitute products or services.
d. technological factors.
Answer: c. substitute products or services.

An analysis of the economic segment of the external environment would include all of the following EXCEPT
a. interest rates.
b. international trade.
c. the strength of the U.S. dollar.
d. the move toward a contingent workforce.
Answer: d. the move toward a contingent workforce.

Product differentiation refers to the:
a. ability of the buyers of a product to negotiate a lower price.
b. response of incumbent firms to new entrants.
c. belief by customers that a product is unique.
d. fact that as more of a product is produced the cheaper it becomes per unit.
Answer: c. belief by customers that a product is unique.

Which of the following is NOT an entry barrier to an industry?
a. expected competitor retaliation
b. economies of scale
c. customer product loyalty
d. bargaining power of suppliers
Answer: d. bargaining power of suppliers

Switching costs refer to the:
a. cost to a producer to exchange equipment in a facility when new technologies emerge.
b. cost of changing the firm's strategic group.
c. one-time costs suppliers incur when selling to a different customer.
d. one-time costs customers incur when buying from a different supplier.
Answer: d. one-time costs customers incur when buying from a different supplier.

New entrants to an industry are more likely when (i.e., entry barriers are low when...)
a. it is difficult to gain access to distribution channels.
b. economies of scale in the industry are high.
c. product differentiation in the industry is low.
d. capital requirements in the industry are high.
Answer: c. product differentiation in the industry is low.

Suppliers are powerful when:
a. satisfactory substitutes are available.
b. they sell a commodity product.
c. they offer a credible threat of forward integration.
d. they are in a highly fragmented industry.
Answer: c. they offer a credible threat of forward integration.

The highest amount a firm can charge for its products is most directly affected by
a. expected retaliation from competitors.
b. the cost of substitute products.
c. variable costs of production.
d. customers' high switching costs.
Answer: b. the cost of substitute products.

All of the following are forces that create high rivalry within an industry EXCEPT
a. numerous or equally balanced competitors.
b. high fixed costs.
c. fast industry growth.
d. high storage costs.
Answer: c. fast industry growth.

According to the five factors model, an attractive industry would have all of the following characteristics EXCEPT:
a. low barriers to entry.
b. suppliers with low bargaining power.
c. a moderate degree of rivalry among competitors.
d. few good product substitutes.
Answer: a. low barriers to entry.

Internal analysis enables a firm to determine what the firm
a. can do.
b. should do.
c. will do.
d. might do.
Answer: a. can do.

An external analysis enables a firm to determine what the firm
a. can do.
b. should do.
c. will do.
d. might do.
Answer: d. might do.

____ is/are the source of a firm's ____, which is/are the source of the firm's ____.
a. Resources, capabilities, core competencies
b. Capabilities, resources, core competencies
c. Capabilities, resources, above average returns
d. Core competencies, resources, competitive advantage
Answer: a. Resources, capabilities, core competencies

In the airline industry, frequent-flyer programs, ticket kiosks, and e-ticketing are all examples of capabilities that are
a. rare.
b. causally ambiguous.
c. socially complex.
d. valuable.
Answer: d. valuable.

Compared to tangible resources, intangible resources are
a. of less strategic value to the firm.
b. not the focus of strategic analysis.
c. a more potent source of competitive advantage.
d. more likely to be reflected on the firm's balance sheet.
Answer: c. a more potent source of competitive advantage.

Which of the following is a true statement about capabilities?
a. Capabilities emerge over time through complex interactions of tangible and intangible resources.
b. Valuable capabilities are based almost entirely on tangible resources.
c. Capabilities based on human capital are more vulnerable to obsolescence than other intangible capabilities because of the tendency for employee knowledge to become outdated.
d. The link between firm financial performance and capabilities is dependent on whether the capabilities are based on tangible or intangible resources.
Answer: a. Capabilities emerge over time through complex interactions of tangible and intangible resources.

To be a core competency, a capability must satisfy all of the following criteria EXCEPT:
a. be technologically innovative.
b. be hard for competing firms to duplicate.
c. be without good substitutes.
d. be valuable to customers.
Answer: a. be technologically innovative.

Capabilities that other firms cannot develop easily are classified as
a. costly to imitate.
b. rare.
c. valuable.
d. nonsubstitutable.
Answer: a. costly to imitate.

Costly-to-imitate capabilities can emerge for all of the following reasons EXCEPT
a. lack of scientific transference.
b. social complexity.
c. unique historical conditions.
d. causal ambiguity.
Answer: a. lack of scientific transference.

Gamma, Inc., has struggled for industry dominance with Ardent, Inc., its main competitor, for years. Gamma has gathered and analyzed large amounts of competitive intelligence about Ardent. It has observed as much of the firm's internal functioning and technology as it can legally, yet Gamma cannot understand why ABC has a competitive advantage over it. The source of ABC's success is
a. impregnable.
b. causally ambiguous.
c. rationally obscure.
d. elusive.
Answer: b. causally ambiguous.

Firms that achieve competitive parity can expect to:
a. earn below-average returns.
b. earn average returns.
c. earn above-average returns.
d. initially earn above-average returns, declining to average returns.
Answer: b. earn average returns.

Business-level strategies detail commitments and actions taken to provide value to customers and gain competitive advantage by exploiting core competencies in
a. the selection of industries in which the firm will compete.
b. specific product markets.
c. primary value chain activities.
d. particular geographic locations.
Answer: b. specific product markets.

The three dimensions of a firm's relationships with customers include all the following EXCEPT
a. exclusiveness.
b. affiliation.
c. richness.
d. reach.
Answer: a. exclusiveness.

The effectiveness of any of the generic business-level strategies is contingent upon
a. customer needs and competitors' strategies.
b. the match between the opportunities and threats in its external market and the strengths and weaknesses of its internal environment.
c. the trends in the general consumer base and the robustness of the global and industry economy.
d. the firm's competitive scope and its competitive advantage.
Answer: b. the match between the opportunities and threats in its external market and the strengths and weaknesses of its internal environment.

Business-level strategies are concerned specifically with:
a. creating differences between the firm's position and its rivals.
b. selecting the industries in which the firm will compete.
c. how functional areas will be organized within the firm.
d. how a business with multiple physical locations will operate one of those locations.
Answer: a. creating differences between the firm's position and its rivals.

A cost leadership strategy targets the industry's ____ customers.
a. most typical
b. poorest
c. least educated
d. most frugal
Answer: a. most typical

When the costs of supplies increase in an industry, the low-cost leader
a. may continue competing with rivals on the basis of product features.
b. will lose customers as a result of price increases.
c. will be unable to absorb higher costs because cost-leaders operate on very narrow profit margins.
d. may be the only firm able to pay the higher prices and continue to earn average or above- average returns.
Answer: d. may be the only firm able to pay the higher prices and continue to earn average or above- average returns.

When a product's unique attributes provide value to customers, the firm is implementing
a. a differentiation strategy.
b. a cost leadership strategy.
c. an integrated cost leadership/differentiation strategy.
d. a single-product strategy.
Answer: a. a differentiation strategy.

A company pursuing a differentiation or focused differentiation strategy would
a. have highly efficient systems linking suppliers' products with the firm's production processes.
b. use economies of scale.
c. have strong capabilities in basic research.
d. make investments in easy-to-use manufacturing technologies.
Answer: c. have strong capabilities in basic research.

T or F? A firm using a differentiation strategy can charge a premium price.
Answer: T

A differentiation strategy can be effective in controlling the power of substitutes in an industry because
a. customers have low switching costs.
b. substitute products are lower quality.
c. a differentiating firm can always lower prices.
d. customers develop brand loyalty.
Answer: d. customers develop brand loyalty.

The typical risks of a differentiation strategy do NOT include which of the following?
a. Customers may find the price differential between the low-cost product and the differentiated product too large.
b. Customers' experience with other products may narrow customers' perception of the value of a product's differentiated features.
c. Counterfeit goods are widely available and acceptable to customers.
d. Suppliers of raw materials erode the firm's profit margin with price increases.
Answer: d. Suppliers of raw materials erode the firm's profit margin with price increases.

Competitive rivalry has the most effect on the firm's ____ strategies than the firm's other strategies.
a. business-level
b. corporate-level
c. acquisition
d. international
Answer: a. business-level

Multimarket competition occurs when firms
a. sell different products to the same customer.
b. have a high level of awareness of their competitors' strategic intent.
c. simultaneously enter into an attack strategy.
d. compete against each other in several geographic or product markets.
Answer: d. compete against each other in several geographic or product markets.

Competitive dynamics refers to the
a. circumstances where competitors are aware of the degree of their mutual interdependence resulting from market commonality and resource similarity.
b. set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position.
c. total set of actions and responses taken by all firms competing within a market.
d. ongoing set of competitive actions and competitive responses between competitors as they maneuver for advantageous market position.
Answer: c. total set of actions and responses taken by all firms competing within a market.

Firms with few competitive resources are more likely
a. to not respond to competitive actions.
b. respond quickly to competitive actions.
c. delay responding to competitive actions.
d. respond to strategic actions, but not to tactical actions.
Answer: c. delay responding to competitive actions.

Which of the following would be an example of a strategic action?
a. a "two movies for the price of one" campaign by Blockbuster Video
b. use of product coupons by a local grocer
c. entry into the European market by Home Depot
d. fare increases by Southwest Airlines
Answer: c. entry into the European market by Home Depot

The chief disadvantage of being a first mover is the
a. high degree of risk.
b. high level of competition in the new marketplace.
c. inability to earn above-average returns unless the production process is very efficient.
d. difficulty of obtaining new customers.
Answer: a. high degree of risk.

On the whole there are more competitive responses to
a. strategic actions than to tactical actions.
b. tactical actions than to strategic actions.
c. buyer pressures than to supplier pressures.
d. the demands of the top management team than to industry structural pressures.
Answer: b. tactical actions than to strategic actions.

Competitors are more likely to respond to competitive actions that are taken by
a. differentiators.
b. larger companies.
c. first movers.
d. market leaders.
Answer: d. market leaders.

Ninety percent of Wm. Wrigley Company's total revenue comes from chewing gum. This is an example of
a. market commonality.
b. standard-cycle markets.
c. economies of scale.
d. market dependence.
Answer: d. market dependence.

All competitive advantages do not accrue to large sized firms. A major advantage of smaller firms is that they
a. are more likely to have organizational slack.
b. can launch competitive actions more quickly.
c. have more loyal and diverse workforces.
d. can wait for larger firms to make mistakes in introducing innovative products.
Answer: b. can launch competitive actions more quickly.


Which are the assumptions you will make while applying i/o Model?

The I/O model is based on the following assumptions: The external environment-the general, industry and competitive environments imposes pressures and constraints on companies and determines strategies that will result in superior returns.

What is the main argument of the I o perspective quizlet?

The industrial organization (I/O) model argues that: the key factor in success is choosing the correct industry in which to compete. most directly attributable to: the profitability of the industry in which the firm competes.

What does the i/o Model argue?

The I/O (Industrial Organization) model argues that core competencies are the basis of a firm's competitive advantage. 3. Firms can easily control the elements of the six segments of the general environment.

What is industrial organization model?

called the I/O Model or Industrial organization model. This model explains it is the external environment which you should take care of before you make your. strategy. This model explains that the industry in which a firm chooses to. compete has a stronger influence on the firm's performance than do the choices.