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Strategic Management, 4e (Rothaermel)
Chapter 7 Business Strategy: Innovation, Entrepreneurship, and Platforms
1) The pace of innovation has slowed in the 21st century.
Answer: FALSE
Explanation: As the adage goes, change is the only constant—and the rate of technological
change has accelerated dramatically over the past hundred years. One determinant is that initial
innovations such as the car, airplane, telephone, and the use of electricity provided the necessary
infrastructure for newer innovations to diffuse more rapidly. Another reason is the emergence of
new business models that make innovations more accessible. The speed of technology diffusion
has accelerated further with the emergence of the internet, social networking sites, and viral
messaging.
Difficulty: 1 Easy
Topic: Entrepreneurship and Innovation
Learning Objective: 07-01 Outline the four-step innovation process from idea to imitation.
Bloom's: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
2) The best way for a firm to keep its proprietary technologies, recipes, or formulas secret is to
obtain a patent.
Answer: FALSE
Explanation: Because patents require full disclosure of the underlying technology and know-
how so that others can use it freely once the patent protection has expired, many firms find it
strategically beneficial not to patent their technology. Instead they use trade secrets, defined as
valuable proprietary information that is not in the public domain and where the firm makes every
effort to maintain its secrecy.
Difficulty: 2 Medium
Bloom's: Remember
1
Copyright ©2019 McGraw-Hill
3) For ideas and inventions to be innovative, they must first be commercialized.
Answer: TRUE
Explanation: Innovation concerns the commercialization of an invention. Innovation is the
competitive weapon entrepreneurs use to exploit opportunities created by change, or to create
change themselves, in order to commercialize new products, services, or business models.
Bloom's: Remember
4) Innovation and strategic entrepreneurship can only occur within new businesses.
Answer: FALSE
Explanation: The fundamental question of strategic entrepreneurship, is how to combine
entrepreneurial actions, creating new opportunities or exploiting existing ones with strategic
actions taken in the pursuit of competitive advantage. This can take place within new ventures
such as Tesla or within established firms such as Apple. Apple's continued innovation in mobile
devices is an example of strategic entrepreneurship.
Learning Objective: 07-02 Apply strategic management concepts to entrepreneurship and
innovation.
Bloom's: Remember
AACSB: Reflective Thinking
5) Social entrepreneurs forego the pursuit of profits to achieve social and environmental goals.
Answer: FALSE
Explanation: Social entrepreneurship describes the pursuit of social goals while creating
profitable businesses. Social entrepreneurs evaluate the performance of their ventures not only
by financial metrics but also by ecological and social contribution (profits, planet, and people).
They use a triple-bottom-line approach to assess performance.
Difficulty: 3 Hard
innovation.
Bloom's: Remember
2
6) Process innovation typically overtakes product innovation in importance during the shakeout
stage of the industry life cycle.
Answer: TRUE
Explanation: As illustrated in Exhibit 7.7, the level of product innovation is at a maximum
during the introductory stage because new features increasing perceived consumer value are
critical to gaining traction in the market. In contrast, process innovation is at a minimum in the
introductory stage because companies produce only a small number of products, often just
prototypes or beta versions. During the growth stage, process innovation gains in importance
while product innovation decline in importance. Finally, during the shakeout stage, when
controlling costs becomes more important than increasing perceived product value, process
innovation surpasses product innovation in importance.
Difficulty: 1 Easy
Topic: Competitive Implications and the Industry Life Cycle
Learning Objective: 07-03 Describe the competitive implications of different stages in the
industry life cycle.
Bloom's: Remember
7) According to the crossing-the-chasm framework, the biggest chasm between customer

segments is between early adopters and the mass market made up of the early majority and the
late majority.
Answer: TRUE
Explanation: According to the crossing-the-chasm framework, each stage of the industry life
cycle is dominated by a different customer group. Different customer groups with distinctly
different preferences enter the industry at each stage of the industry life cycle. Such differences
between customer groups lead to a big gulf or chasm into which companies and their innovations
frequently fall. The largest chasm separates the early adopters from the early and late majority
that make up the mass market.
Topic: Strategic Implications of Crossing-the-Chasm
Learning Objective: 07-04 Derive strategic implications of the crossing-the-chasm framework.
Bloom's: Remember
3
8) Innovation that targets new markets with existing technologies is known as disruptive
innovation.
Answer: FALSE
Explanation: Innovation that targets new markets with existing technologies is known as
architectural innovation. Disruptive innovation targets existing markets with new technologies.
Topic: Strategies for Innovation
Learning Objective: 07-05 Categorize different types of innovations in the markets-and-
technology framework.
Bloom's: Remember
9) Pipeline businesses are typically better than platform businesses at incorporating user
feedback and taking advantage of network effects.
Answer: FALSE
Explanation: Platform businesses help facilitate exchanges between producers and consumers,
and this position allows them to gather data from both sides of the interaction. In contrast,
pipelines tend to be inefficient in managing the flow of information from producer to consumer.
Feedback loops from consumers back to the producers allow platforms to fine-tune their
offerings and to benefit from big data analytics. These feedback loops also facilitate network
effects, in which improved products or services based on user feedback lead to more customers,
allowing the firm to continue improving its offerings.
Topic: Effect of Technology on Industry Structure and Competition
Learning Objective: 07-06 Explain why and how platform businesses can outperform pipeline
businesses.
Bloom's: Remember
4
10) Network effects always lead to a virtuous cycle in which an increasing number of customers
improves the quality of a product or service, thereby attracting more customers and continuing
the cycle.
Answer: FALSE
Explanation: Negative network effects describe the situation where more and more users exit a
platform and the value that each remaining user receives from the platform declines. The social
network Myspace experienced negative network effects as more and more users abandoned it for
Facebook.
Topic: Effect of Technology on Industry Structure and Competition
businesses.
Bloom's: Remember
11) Which of the following accurately describes how Netflix used innovation to gain a
competitive advantage?
A) Netflix moved from content development to upgrading its data analytics to provide faster
online streaming.
B) Netflix applied big data analytics to its user preferences to provide highly personalized
viewing recommendations.
C) Netflix moved from online streaming to online DVD rentals via the Internet.
D) Netflix applied first mover advantages to lock up talent needed to produce original content for
DVD rentals and online streaming.
Answer: B
Explanation: What aided Netflix to gain a competitive advantage was the application of big
data analytics to its user preferences to not only predict future demand, but also to provide highly
personalized viewing recommendations.
Difficulty: 1 Easy
Bloom's: Remember
5
12) The typical four-step innovation process begins with
A) the modification and recombination of an existing product or process.
B) the presentation of an idea as findings derived from basic research.
C) the commercialization of an invention by entrepreneurs.
D) a competitor's attempt to imitate an innovation.
Answer: B
Explanation: The innovation process begins with an idea. The idea is often presented in terms
of abstract concepts or as findings derived from basic research.
Difficulty: 1 Easy
Bloom's: Remember
13) What is an invention?

A) the transformation of an idea into a new product or process
B) a unique idea that has not been thought of before
C) the transformation of an idea into a successful product
D) a unique idea that has been patented
Answer: A
Explanation: Invention describes the transformation of an idea into a new product or process. If
an invention is useful, novel, and nonobvious, it can be patented.
Difficulty: 1 Easy
Bloom's: Remember
6
14) When ReGen Pharmaceuticals released a new drug to treat insomnia, its chemical
composition was disclosed at the back of the drug's cover. However, any attempts by competitors
to copy the chemical composition would result in infringement of ReGen Pharmaceuticals
intellectual property rights. Thus, the drug is protected by a
A) promissory bill.
B) patent.
C) franchise.
D) royalty.
Answer: B
Explanation: In the given scenario, ReGen Pharmaceuticals' drug is protected by a patent. A
patent is a form of intellectual property, and gives the inventor exclusive rights to benefit from
commercializing a technology for a specified time period in exchange for public disclosure of the
underlying idea.
Bloom's: Apply
15) In the United States, the time period for the right to exclude others from the use of a patented
technology is ________ from the filing date of a patent application.
A) 20 years
B) 25 months
C) 15 months
D) 25 years
Answer: A
Explanation: In the United States, the time period for the right to exclude others from the use of
a patented technology is 20 years from the filing date of a patent application.
Difficulty: 1 Easy
Bloom's: Remember
7
16) As a research scholar, Denise had built a helicam as part of her project. The helicam could
capture aerial images. Realizing the potential use of this product in movie production and
military and rescue operations, she started a new venture where she could customize these
helicams to fit the specific needs of the buyers and sell them. Denise can be best described as
a(n)
A) entrepreneur.
B) category captain.
C) franchisor.
D) early adopter.
Answer: A
Explanation: In the context of this scenario, Denise can be best described as an entrepreneur.
Entrepreneurs are the agents who introduce change into the competitive system. They do this not
only by figuring out how to use inventions, but also by introducing new products or services,
new production processes, and new forms of organization. Entrepreneurs can introduce change
by starting new ventures.
Bloom's: Apply
17) A. G. Lafley at Procter & Gamble (P&G) had implemented an open-innovation model,
which had greatly benefitted the company. In the light of this information, we can conclude that
A. G. Lafley is a(n)
A) venture capitalist.
B) category captain.
C) intrapreneur.
D) early adopter.
Answer: C
Explanation: Innovators like A. G. Lafley at Procter & Gamble (P&G), innovating within
existing firms, are referred to as intrapreneurs.
Difficulty: 1 Easy
Bloom's: Understand
8
18) How has Apple been able to sustain its competitive advantage in the smartphone industry?
A) by reducing its network effects
B) by targeting its new products and services toward laggards
C) by driving the price for the end user to zero
D) by regularly introducing incremental improvements in its products
Answer: D
Explanation: To sustain a competitive advantage, a firm must continuously innovate—that is, it
must produce a string of successful new products or services over time. In this spirit, not only
has Apple introduced incrementally improved iPhones, but also the firm has launched other
innovative mobile devices such as the iPad line of products, multimedia tablet computers created
with the intent to drive convergence in computing, telecommunications, and media content.
Bloom's: Understand
19) Which of the following is a competitive benefit experienced by the first mover firm in an
industry?
A) The first mover will be able to achieve a less steep learning curve.
B) The first mover will be able to reduce the switching costs.
C) The first mover will not have to patent its products or technology.
D) The first mover will be able to reduce costs through economies of scale.
Answer: D
Explanation: Economies of scale refer to the decreases in cost per unit as output increases. First
movers may hold important intellectual property such as critical patents. They may also be able
to lock-in key suppliers as well as customers through increasing switching costs.
Bloom's: Understand
9
20) The four-step innovation process ends with
A) idea generation.
B) invention.
C) idea testing.
D) imitation.
Answer: D
Explanation: The innovation process ends with imitation. If an innovation is successful in the
marketplace, competitors will attempt to imitate it.
Difficulty: 1 Easy
Bloom's: Remember
21) Lillypad Toys is a manufacturer of educational toys for children. Six months ago, the
company's research and development division came up with an idea for a unique touchscreen
device that can be used to introduce children to a number of foreign languages. Three months
ago, the company produced a working prototype, and last month the company successfully
launched its new device on the commercial market. What should Lillypad's managers prepare for
next?
A) increased competition from imitators
B) a prolonged period of uncontested success
C) a sharp decline in demand for the product
D) a difficult struggle to move from invention to innovation
Answer: A
Explanation: The innovation process begins with an idea, followed by an invention, then
innovation, and finally imitation. Lillypad's product has already moved through the first three
stages of the innovation process and is entering the fourth and final stage. The company's
managers should prepare for increased competition from competitors offering imitation products.
Difficulty: 3 Hard
Bloom's: Apply
10
22) As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able
to reap the benefits of economies of scale due to a large consumer demand for the drug. Even
when competitors later developed similar drugs after the expiry of OSP's patents, regular users
did not want to switch because they were concerned about possible side effects. Which of the
following benefits does this scenario best illustrate?
A) first-mover advantages
B) social benefits
C) network externalities
D) fringe benefits
Answer: A
Explanation: In this scenario, OneSure Pharmaceuticals enjoys first-mover advantages. First-
mover advantages are competitive benefits that accrue to the successful innovator.
Difficulty: 3 Hard
Bloom's: Analyze
AACSB: Analytical Thinking
23) Edna Gomez is the founder of the restaurant chain Good and Green. She ensures that the
products in her stores are ethically and responsibly sourced. Most products are therefore 100
percent organic and all packaging is manufactured from recycled material. Also, her company
sources ingredients from farms within 100 miles from her locations. Edna's belief is that her
restaurants should be able to support the community at large. Which of the following terms best
describes Edna Gomez?
A) headhunter
B) category captain
C) social entrepreneur
D) trade creditor
Answer: C
Explanation: Edna Gomez can be best described as a social entrepreneur. Social entrepreneurs
evaluate the performance of their ventures not only by financial metrics but also by ecological
and social contribution. They use a triple-bottom-line approach to assess performance.
innovation.
Bloom's: Apply
11
24) Which of the following scenarios would be characteristic of an entrepreneur?
A) Rachel implemented a new and more efficient way to produce pottery.
B) Mary imitated a new, more efficient method of producing pottery.
C) Alissa scaled back the production of pottery because it wasn't cost effective.
D) Ursula used a proven marketing method to advertise her pottery.
Answer: A
Explanation: Entrepreneurs are the agents that introduce change into the competitive system.
They do this not only by figuring out how to use inventions but also by introducing new products
or services, new production processes, and new forms of organization. Entrepreneurs innovate by
commercializing ideas and inventions. By implementing a new and more efficient way to
produce pottery, Rachel is introducing a new production process and is therefore practicing
entrepreneurship.
innovation.
Bloom's: Apply
25) Which of the following is an example of social entrepreneurship? The committee approved
the new formula for an all-purpose cleaner because it
A) cleaned better than other cleaners and used easy-to-obtain ingredients.
B) cleaned better than other cleaners and did not cost more to produce.
C) cleaned as well as other cleaners and could be produced more efficiently.
D) cleaned as well as other cleaners and used organic ingredients.
Answer: D
Explanation: Social entrepreneurs evaluate the performance of their ventures not only by
financial metrics but also by ecological and social contribution. Therefore, the committee that
approved the new formula for an all-purpose cleaner because it cleaned as well as other cleaners
and used organic ingredients is practicing social entrepreneurship.
innovation.
Bloom's: Apply
12
26) Dominic is the founder of an innovative "impromptu catering" business that provides
elegant, healthy party food and decorations on less than 24 hours' notice. The company has
grown by over 150 percent in the past year. Dominic credits some of the company's success to
studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales.
What can Dominic do to exemplify the social entrepreneurship model?
A) Launch a social media platform for food lovers.
B) Provide free weekly catered meals for the homeless.
C) Seek investments from venture capitalists.
D) Buy out his closest competitors to ensure a competitive advantage.
Answer: B
Explanation: Social entrepreneurship describes the pursuit of social goals while creating
profitable businesses. Social entrepreneurs evaluate the performance of their ventures not only
by financial metrics but also by ecological and social contribution (profits, planet, and people).
They use a triple-bottom-line approach to assess performance. Dominic can pursue social
entrepreneurship by donating some of the company's time and resources to helping homeless
individuals in the community.
Difficulty: 3 Hard
innovation.
Bloom's: Apply
27) The strategic objective of a first mover during the introduction stage of the industry life cycle
is to
A) pursue a harvest strategy.
B) survive by drawing on deep pockets.
C) achieve market acceptance.
D) lower entry barriers.
Answer: A
Explanation: The strategic objective during the introductory stage is to achieve market
acceptance and seed future growth.
Difficulty: 1 Easy
Bloom's: Remember
13
28) Which of the following lists the stages of the industry life cycle in the correct order?
A) introduction, growth, shakeout, maturity, and decline
B) introduction, shakeout, growth, maturity, and decline
C) introduction, growth, maturity, shakeout, and decline
D) introduction, shakeout, maturity, growth, and decline
Answer: A
Explanation: As an industry evolves over time, five distinct stages occur in the following order:
introduction, growth, shakeout, maturity, and decline.
Bloom's: Understand
29) A new product often has a high price when it is launched because of a
A) large investment in designing a product while producing small quantities.
B) large investment in marketing a product while producing small quantities.
C) large investment in designing a product while producing large quantities.
D) large investment in marketing a product while producing large quantities.
Answer: A
Explanation: A new product often has a high price when it is launched because of a large
investment in designing a product while producing small quantities.
Bloom's: Understand
14
30) CordKing Electronics has entered a stage in which the demand for their innovative fax
machines has declined. Now most customers are buying replacement parts or buying their second
fax machine from the firm. What stage in the industry life cycle does this scenario describe?
A) growth stage
B) maturity stage
C) shakeout stage
D) decline stage
Answer: C
Explanation: CordKing Electronics has entered the maturity stage. Demand was largely
satisfied in the prior shakeout stage. Demand now consists of replacement or repeat purchases
only.
Bloom's: Apply
31) In the decline stage, which of the following strategies involves a reduction of investments in
product support?
A) exit strategy
B) harvest strategy
C) maintain strategy
D) consolidate strategy
Answer: B
Explanation: In pursuing a harvest strategy, a firm reduces investments in product support and
allocates only a minimum of human and other resources.
Bloom's: Remember
15
32) Assume that the market for print book publishing has entered the maturity stage. Which of
the following would most likely exist during this stage?
A) a few start-up publishers
B) many small to midsized publishers
C) a few large publishers
D) one large publisher
Answer: C
Explanation: During the fourth stage of the industry life cycle, the industry structure morphs
into an oligopoly with only a few large firms.
Bloom's: Understand
33) The leading producer of cell phone backup batteries, Jumpstart, has achieved great success
because they produce high-quality battery backups that are not too expensive. Even so, another
company that produces lower-quality batteries at the same price has also achieved some success,
but not as much as Jumpstart. Also, in general, the price of backup batteries has declined because
of economies of scale and learning. In addition, Jumpstart has added complementary assets, such
as a carrying case. Considering all of these factors, the backup battery industry is most likely in
the
A) introduction stage.
B) growth stage.
C) shakeout stage.
D) maturity stage.
Answer: B
Explanation: The backup battery industry is most likely in the growth stage. Since demand is
strong during the growth phase, both efficient and inefficient firms thrive; the rising tide lifts all
boats. Moreover, prices begin to fall, often rapidly, as standard business processes are put in
place and firms begin to reap economies of scale and learning. Distribution channels are
expanded, and complementary assets in the form of products and services become widely
available.
Difficulty: 3 Hard
Bloom's: Analyze
16
34) In the context of industrial growth, which of the following statements is true of standards?
A) Standards emerge exclusively from bottom-up through competition in the marketplace.
B) As the size of a market expands, a standard signals the market's agreement on a common set
of engineering features and design choices.
C) Standards are exclusively imposed top-down by government or other standard-setting
agencies such as the Institute of Electrical and Electronics Engineers.
D) After a standard is established in an industry, the basis of competition tends to move away
from process innovations toward product innovations.
Answer: B
Explanation: As the size of a market expands, a standard signals the market's agreement on a
common set of engineering features and design choices. Standards can emerge bottom-up
through competition in the marketplace, or be imposed top-down by government or other
standard-setting agencies.
Difficulty: 1 Easy
Bloom's: Remember
35) In which of the following stages of the industry life cycle is a standard first established?
A) maturity stage
B) growth stage
C) shakeout stage
D) introduction stage
Answer: B
Explanation: As the size of a market expands and the industry enters the growth stage, a
standard signals the market's agreement on a common set of engineering features and design
choices. Standards can emerge bottom-up through competition in the marketplace, or be imposed
top-down by government or other standard-setting agencies.
Difficulty: 1 Easy
Bloom's: Remember
17
36) Which of the following is a feature of the growth stage of the industry life cycle?
A) The consumer demand increases.
B) The prices of goods begin to rise.
C) The basis of competition moves away from process innovation.
D) The number of competitors decreases.
Answer: A
Explanation: Market growth accelerates in the growth stage of the industry life cycle. After the
initial innovation has gained some market acceptance, demand increases rapidly as first-time
buyers rush to enter the market, convinced by the proof-of-concept demonstrated in the
introductory stage.
Difficulty: 1 Easy
Bloom's: Understand
37) While cell phones with holographic keyboards are currently in the introduction stage of the
industry life cycle, tablet computers are in the growth stage. In the context of this scenario,
which of the following statements is true?
A) The industry for cell phones with holographic keyboards will face greater competition than
the tablet industry.
B) While the industry for cell phones with holographic keyboards will focus more on product
innovation, the tablet industry will focus more on process innovation.
C) While the industry for cell phones with holographic keyboards can reap the benefits of
economies of scale, the tablet industry will experience no such benefits.
D) The industry for cell phones with holographic keyboards will face price competition,
whereas, in the tablet industry, the mode of competition will be non-price.
Answer: B
Explanation: In the given scenario, while the industry for cell phones with holographic
keyboards will focus on product innovation, the tablet industry will focus on process innovation.
In the introductory stage, the level of product innovation is at a maximum because new features
increasing perceived consumer value are critical to gaining traction in the market. During the
growth stage of the industry life cycle, a standard is established in an industry, due to which the
basis of competition tends to move away from product innovations toward process innovations.
Difficulty: 3 Hard
Bloom's: Analyze
18
38) Which of the following statements accurately brings out the distinction between the
introduction and growth stages of the industry life cycle?
A) There is more strategic variety in the growth stage when compared to the introduction stage.
B) The number of competitors is more in the introduction stage than the growth stage.
C) The market size for a new product or service is larger in the introduction stage when
compared to the growth stage.
D) While achieving market acceptance is the strategic objective during the introduction stage, the
objective in the growth stage is to pursue a harvest strategy.
Answer: A
Explanation: Since market demand is robust in the growth stage and more competitors have
entered the market, there tends to be more strategic variety: Some competitors will continue to
follow a differentiation strategy, emphasizing unique features, product functionality, and
reliability. Other firms employ a cost-leadership strategy in order to offer an acceptable level of
value but lower prices to consumers.
Bloom's: Understand
39) The key objective for firms during the growth phase is to
A) invest as many resources as possible in product innovations.
B) stake out a strong strategic position not easily imitated by rivals.
C) pursue a harvest strategy.
D) reduce their network effects.
Answer: B
Explanation: The key objective for firms during the growth phase is to stake out a strong
strategic position not easily imitated by rivals.
Difficulty: 1 Easy
Bloom's: Understand
19
40) Which of the following is a feature of the shakeout phase of the industry life cycle?
A) There is rapid industry growth during this stage.
B) Market demand in this stage primarily consists of first-time adopters.
C) Competitive intensity within the industry increases.
D) The mode of competition shifts from price to non-price in this stage.
Answer: C
Explanation: Limited market demand in the shakeout phase increases competitive intensity
within the industry. Firms begin to compete directly against one another for market share, rather
than trying to capture a share of an increasing pie.
Difficulty: 1 Easy
Bloom's: Remember
41) To be successful and to survive the shakeout stage of the industry life cycle, a firm should
A) charge higher prices than its competitors.
B) focus on product innovation rather than process innovation.
C) gain economies of scale.
D) shift from price to non-price competition.
Answer: C
Explanation: Key success factors during the shakeout stage are the manufacturing and process
engineering capabilities that can be used to drive costs down. Generally, the larger firms
enjoying economies of scale are the ones that survived the shakeout phase as the industry
consolidated and most excess capacity was removed.
Difficulty: 1 Easy
Bloom's: Understand
20
42) In developed economies, the electric car industry is in the introduction stage, and the
industry for MP3 players is in the shakeout phase. What does this imply?
A) The mode of competition in the electric car industry will be based on price, whereas in the
MP3 player industry, the mode of competition will be non-price based.
B) The industry for electric cars will focus more on product innovation, whereas in the MP3
player industry, the focus will be on process innovation.
C) The electric car industry will move to the growth stage, whereas the industry for MP3 players
will enter the growth stage next.
D) The industry for electric cars will primarily pursue an integration strategy, whereas in the
MP3 players industry, the focus will be on differentiation.
Answer: B
Explanation: The industry for electric cars will focus more on product innovation, whereas in
the MP3 player industry, the focus will be on process innovation. Following the emergence of a
standard during the growth stage, the importance of process innovation increases rapidly and the
importance of product innovation diminishes quickly.
Difficulty: 3 Hard
Bloom's: Analyze
43) Why is the phase after the growth stage of the industry life cycle referred to as the shakeout
stage?
A) The barriers to entry increase during this stage.
B) The firms in the industry yield the highest profits during this phase.
C) Rivalry among competitors decreases in this stage.
D) The weaker firms are forced out of the industry in this stage.
Answer: D
Explanation: In the shakeout stage, as rivals vie for a shrinking pie and competitive intensity is
increasing, the weaker firms are forced out of the industry. This is the reason why this phase of
the industry life cycle is called the shakeout stage.
Bloom's: Understand
21
44) Potomac Industries is a manufacturer of high-definition televisions. The industry has gone
through a period of rapid growth and expansion, and has started to experience a decline in the
rate of growth. Several smaller firms have been bought out by larger competitors, and
competition for market share is intensifying. Which of the following strategies is most likely to
give Potomac a competitive advantage?
A) Implement process innovations that lower per-unit costs.
B) Introduce product innovations that differentiate Potomac televisions from the competition.
C) Imitate the features of the highest-selling television on the market.
D) Increase spending on marketing and attempt to acquire a high-profile celebrity spokesperson.
Answer: A
Explanation: The high-definition television industry has entered the shakeout stage of the
industry life cycle. The winners in this increasingly competitive environment are often firms that
stake out a strong position as cost leaders. Key success factors at this stage are the manufacturing
and process engineering capabilities that can be used to drive costs down. The importance of
process innovation further increases (albeit at diminishing marginal returns), while the
importance of product innovation further declines.
Difficulty: 3 Hard
Bloom's: Apply
45) Which of the following is a feature of the maturity stage of the industry life cycle?
A) The competitive intensity within the industry is at its peak.
B) The market reaches its maximum size.
C) The industry structure is more monopolistically competitive.
D) The focus on product innovation is higher than that on process innovation.
Answer: B
Explanation: During the fourth stage of the industry life cycle, the industry structure morphs
into an oligopoly with only a few large firms. The market has reached its maximum size, and
industry demand is likely to be zero or even negative going forward.
Difficulty: 1 Easy
Bloom's: Remember
22
46) While the domestic airline industry is in the maturity stage of the industry life cycle, the
internet-enabled appliance industry is in its growth stage. Which of the following can be inferred
from the given data?
A) The number of competitors will be greater in the domestic airline industry than the internet-
enabled appliance industry.
B) The internet-enabled appliance industry is ahead of the domestic airline industry in the
C) While the domestic airline industry is mostly free from excess capacity, the internet-enabled
appliance industry will have new entrants.
D) The mode of competition will be price-based in the internet-enabled appliance industry and
will be non-price-based in the domestic airline industry.
Answer: C
Explanation: Generally, the larger firms enjoying economies of scale are the ones that survived
the shakeout phase. After the shakeout is completed and a few firms remain, the industry enters
the maturity stage. The numbers of competitors are fewer at this stage when compared to the
growth stage.
Difficulty: 3 Hard
Bloom's: Apply
47) Which of the conditions prevail when an industry is at the end of its life cycle?
A) The level of process innovation reaches its maximum as firms attempt to lower cost.
B) The industry structure is perfectly competitive with a large number of buyers and sellers.
C) The strategic objectives of businesses will involve gaining market acceptance.
D) The market reaches its maximum size at this stage.
Answer: A
Explanation: At the end of a life cycle, the level of process innovation reaches its maximum as
firms attempt to lower cost as much as possible, while the level of incremental product
innovation reaches its minimum.
Bloom's: Understand
23
48) The demand for flip phones has drastically reduced, and there are only a few consumer
electronics companies selling them at extremely low prices. Also, the current buyers of flip
phones are mainly categorized under laggards. Which of the following stages of the industry life
cycle is the flip phone industry in currently?
A) growth stage
B) maturity stage
C) decline stage
D) commercialization stage
Answer: C
Explanation: Flip phones are in the decline stage of the industry life cycle. Changes in the
external environment often take industries from maturity to decline. In this final stage of the
industry life cycle, the size of the market contracts as demand falls.
Bloom's: Apply
49) Although Mountaintop Electronics still sells its DVD players, a product in its decline stage,
the investments made by the company on improving or marketing the product are very low. The
company has allocated the least amount of human and financial capital to this department. Which
of the following strategies has Mountaintop Electronics adopted in this scenario?
A) harvest strategy
B) maintain strategy
C) consolidation strategy
D) differentiation strategy
Answer: A
Explanation: Mountaintop Electronics is employing the harvest strategy in the given scenario.
In pursuing a harvest strategy, the firm reduces investments in product support and allocates only
a minimum of human and other resources.
Bloom's: Apply
24
50) When the market for standalone Global Positioning System (GPS) devices declined with the
arrival of GPS-enabled mobile phones, Magnet Inc., a manufacturer of GPS devices, bought out
most of its rivals that were planning to exit. This allowed the company to get rid of all the excess
capacity and acquire a monopolistic market power in the declining industry. Which of the
following strategies has Magnet adopted in this scenario?
A) harvest strategy
B) maintain strategy
C) consolidation strategy
D) differentiation strategy
Answer: C
Explanation: In the scenario, Magnet Inc. has adopted the consolidation strategy. Although
market size shrinks in a declining industry, some firms may choose to consolidate the industry by
buying rivals (those who choose to exit). This allows the consolidating firm to stake out a strong
position—possibly approaching monopolistic market power, albeit in a declining industry.
Bloom's: Apply
51) When a firm pursues a maintain strategy, it

A) exits a declining industry to maintain the goodwill of its overall brand name.
B) reduces investments in product support and allocates only a minimum of human and other
resources.
C) continues to support marketing efforts even if the demand for the product is declining.
D) chooses to consolidate the industry by buying rival firms, those who plan to exit.
Answer: C
Explanation: If a firm has been following a maintain strategy, it will continue to support
marketing efforts at a given level despite the fact that the industry has been declining.
Difficulty: 1 Easy
Bloom's: Understand
25
52) On which of the following tenets is the crossing-the-chasm framework, suggested by
Geoffrey Moore, based?
A) The number and size of competitors remain constant throughout the industry life cycle.
B) Each stage of the industry life cycle is dominated by a different customer group.
C) Industries tend to follow an unpredictable industry life cycle.
D) The supply and demand sides of the market remain constant irrespective of the phase of the
Answer: B
Explanation: Based on empirical observations, Geoffrey Moore's core argument is that each
stage of the industry life cycle is dominated by a different customer group. Different customer
groups with distinctly different preferences enter the industry at each stage of the industry life
cycle.
Bloom's: Understand
53) Which of the following customer segments as described in the chasm framework make up
the mass market?
A) the early and late majority together
B) the early adopters alone
C) the technology enthusiasts and laggards together
D) the technology enthusiasts alone
Answer: A
Explanation: As described in the chasm framework, the early and late majority make up the
mass market.
Difficulty: 1 Easy
Bloom's: Remember
26
54) The customers entering the market in the growth stage are primarily
A) technology enthusiasts.
B) laggards.
C) early adopters.
D) late majority.
Answer: C
Explanation: The customers entering the market in the growth stage are early adopters. They
make up roughly 13.5 percent of the total market potential.
Difficulty: 1 Easy
Bloom's: Remember
55) Which of the following statements accurately brings out the difference between technology
enthusiasts and early adopters?
A) While the customer segment in the introduction stage consists of early adopters, the
customers entering the market in the growth stage are technology enthusiasts.
B) Unlike technology enthusiasts, early adopters' demand is fueled more by intuition and vision
rather than technology concerns.
C) While early adopters make up the smallest market segment, technology enthusiasts make up
the mass market.
D) Firms need to communicate products' potential applications in a more direct way when
attracting technology enthusiasts rather than early adopters.
Answer: B
Explanation: Unlike technology enthusiasts, early adopters' demand is driven by their
imagination and creativity rather than by the technology per se. They recognize and appreciate
the possibilities the new technology can afford them in their professional and personal lives.
Bloom's: Understand
27
56) Which of the following statements is true of the early majority section of consumers?
A) They come into the market during the introduction stage.
B) They are unaware that many hyped new product introductions will fade away.
C) They weigh the benefits and costs carefully when adopting a new product.
D) They make up the smallest market segment.
Answer: C
Explanation: The customers coming into the market in the growth stage are called early
majority. They are pragmatists and are most concerned with the question of what the new
technology can do for them. Before adopting a new product or service, they weigh the benefits
and costs carefully.
Difficulty: 1 Easy
Bloom's: Remember
57) It is important for a firm to win over the early majority section of the market to ensure the
commercial success of an innovation because they
A) are driven by technology concerns rather than the practicality of a new product.
B) influence the purchase decisions of early adopters.
C) enter into the market in large numbers, creating a herding effect.
D) have the highest purchasing power when compared to the other customer segments.
Answer: C
Explanation: As the early majority section of the market makes up almost one third of the entire
market potential, winning them over is critical to the commercial success of the innovation. They
are on the cusp of the mass market. Bringing the early majority on board is the key to catching
the growth wave of the industry life cycle.
Bloom's: Understand
28
58) When does a firm fall into the large competitive chasm between early adopters and early
majority?
A) when it cannot attract technological enthusiasts to try the beta versions of its products
B) when it creates strong network effects during the growth stage
C) when it fails to successfully launch a mass-market version of its product
D) when the early majority create herding effects for its products
Answer: C
Explanation: The significant differences in the attitudes toward technology of the early majority
when compared to the early adopters signify the wide competitive gulf—the chasm—between
these two consumer segments. Without adequate demand from the early majority, most
innovative products wither away.
Bloom's: Understand
59) At the time when Ellen decided to purchase a tablet computer, the product had just become
accessible to the mass market. She did not purchase the tablet until after she was convinced that
the benefits it would offer her would far exceed its price. Also, she waited for her friends to try
the product and popular gadget television shows to endorse it. Which of the following customer
segments does Ellen best represent?
A) laggards
B) technology enthusiasts
C) early adopters
D) early majority
Answer: D
Explanation: Ellen represents the early majority section of the market. The customers coming
into the market in the growth stage belong to the early majority group. Early majority customers
rely on endorsements by others. They seek out reputable references such as reviews in prominent
trade journals or in magazines. As the early majority makes up almost one third of the entire
market potential, winning them over is critical to the commercial success of the innovation.
Difficulty: 3 Hard
Bloom's: Analyze
29
60) Ira can be categorized under the late majority customer segment. Which of the following
behaviors is he most likely to exhibit?
A) He will be confident in her ability to master any new technology.
B) He will prefer to buy from well-established brands rather than unknown new ventures.
C) He will not rely on endorsements by the early majority or early adopters.
D) He will buy beta versions of new products and technology.
Answer: B
Explanation: Ira is most likely to buy from well-established brands rather than unknown new
ventures. The late majority prefers to buy from well-established firms with a strong brand image
rather than from unknown new ventures.
Bloom's: Apply
61) Marble Inc. is a new firm that entered the smartwatch industry during the growth stage of the
industry life cycle. It managed to become one of the top-three smartwatch manufacturers during
the shakeout stage due to its low-cost structure. What features should Marble emphasize in its
product marketing to ensure it successfully crosses the chasm into the maturity stage?
A) advanced capabilities
B) the company's outsider status
C) sleek and trendy design
D) ease of use
Answer: D
Explanation: The customer segment associated with the maturity stage of the industry life cycle
is known as the late majority. Although members of the early majority are confident in their
ability to master the new technology, the late majority is not. They prefer to wait until standards
have emerged and are firmly entrenched, so that uncertainty is much reduced. The late majority
also prefers to buy from well-established firms with a strong brand image rather than from
unknown new ventures. By emphasizing the ease of use associated with Marble smartwatches,
the company may attract late majority customers who are uncertain of their ability to use the new
technology.
Difficulty: 3 Hard
Bloom's: Apply
30
62) While the personal computer industry is flooded and growing with laptops and tablets, Malik
recently bought a desktop, his first personal computer. He realized that a computer at home
would be helpful for his children for their school projects, and he could use it to maintain the
simple accounts of his plumbing business. Which of the following customer segments does Ivan
best represent?
A) early adopters
B) category captains
C) laggards
D) early majority
Answer: C
Explanation: Malik best represents the laggards segment. Laggards are customers who adopt a
new product only if it is absolutely necessary. They tend to enter the market after it is completely
mature and frequently during the decline stage.
Bloom's: Apply
63) Which of the following is a drawback of using the industry life cycle as a framework to
guide strategic choice?
A) The framework believes that the life cycle of industries is unpredictable.
B) The framework does not explain everything about changes in industries.
C) The framework is based on the tenet that industries can be rejuvenated even in the declining
stage.
D) The framework believes that the number and size of competitors remain constant throughout
the life cycle.
Answer: B
Explanation: Although the industry life cycle is a useful tool, it does not explain everything
about changes in industries. Some industries may never go through the entire life cycle, while
others are continually renewed through innovation.
Bloom's: Understand
31
64) Foot Friendly is a manufacturer of athletic shoes. It has released an improved version of its
premier running shoe in markets in which the company already operates. Which of the following
types of innovations does this scenario best illustrate?
A) radical innovation
B) incremental innovation
C) architectural innovation
D) disruptive innovation
Answer: B
Explanation: The scenario best illustrates an incremental innovation. An incremental innovation
squarely builds on an established knowledge base and steadily improves an existing product or
service offering. It targets existing markets using existing technology.
Bloom's: Apply
65) In a radical innovation, a firm targets

A) existing markets by using new technologies.
B) new markets by using existing technologies.
C) new markets by using new technologies.
D) existing markets by using existing technologies.
Answer: C
Explanation: A radical innovation draws on novel methods or materials, is derived either from
an entirely different knowledge base or from a recombination of existing knowledge bases with a
new stream of knowledge, or targets new markets by using new technologies.
Difficulty: 1 Easy
Bloom's: Remember
32
66) A firm's resistance to changes in the status quo is referred to as
A) organizational parity.
B) organizational liquidity.
C) organizational inertia.
D) organizational efficacy.
Answer: C
Explanation: Organizational inertia is a firm's resistance to changes in the status quo.
Difficulty: 1 Easy
Bloom's: Remember
67) Incumbent firms favor incremental innovation over radical innovation because
A) their business decisions are independent of the other parties in their innovation ecosystem.
B) radical innovation will disturb the existing power distribution within the firms.
C) incumbent firms do not have formal organizational structures and processes like the way new
entrants do.
D) incremental innovations help firms sustain a permanent competitive advantage, whereas
radical innovations only help gain a temporary advantage.
Answer: B
Explanation: Incumbent firms tend to favor incremental innovations that reinforce the existing
organizational structure and power distribution while avoiding radical innovation that could
disturb the existing power distribution (e.g., between different functional areas, such as R&D and
marketing).
Bloom's: Understand
33
68) Why is it easier for new entrants to get involved in radical innovations when compared to
incumbent firms?
A) Unlike incumbent firms, new entrants do not have to face the high entry barriers, initially.
B) New entrants are embedded in an innovation ecosystem, while incumbent firms are not.
C) Unlike incumbent firms, new entrants do not have formal organizational structures and
processes.
D) Incumbent firms do not have the advantages of network effects that new entrants have.
Answer: C
Explanation: New entrants do not have formal organizational structures and processes, giving
them more freedom to launch an initial breakthrough.
Bloom's: Understand
69) When firms innovate by leveraging existing technologies into new markets, they are said to
be involved in
A) incremental innovations.
B) radical innovations.
C) architectural innovations.
D) disruptive innovations.
Answer: C
Explanation: Firms can innovate by leveraging existing technologies into new markets. An
architectural innovation is a new product in which known components, based on existing
technologies, are reconfigured in a novel way to create new markets.
Difficulty: 1 Easy
Bloom's: Remember
34
70) DigitalHealth Electronics Inc. is a company that builds diagnostic devices. It was the first
company to develop a compact MRI scanner by reconfiguring the components of the MRI
technology. This smaller and user-friendly version of the huge MRI scanner created demand
from small hospitals, nursing homes, and private practice doctors who were earlier dependent on
the scanning machines in large hospitals. Which of the following types of innovations does this
scenario best illustrate?
A) disruptive innovation
C) radical innovation
D) architectural innovation
Answer: D
Explanation: This scenario best illustrates architectural innovation. Firms can innovate by
leveraging existing technologies into new markets. An architectural innovation is a new product
in which known components, based on existing technologies, are reconfigured in a novel way to
create new markets.
Difficulty: 3 Hard
Bloom's: Analyze
71) A(n) ________ leverages new technologies to attack existing markets.

A) disruptive innovation
C) radical innovation
D) architectural innovation
Answer: A
Explanation: A disruptive innovation leverages new technologies to attack existing markets. It
invades an existing market from the bottom up.
Difficulty: 1 Easy
Bloom's: Remember
35
72) As a start-up company, DigiWrist entered the low end of the highly competitive smartwatch
industry with its low-cost smartwatches. Initially, the company was able to sell its inferior
technology due to its low prices. Over the years, however, its rate of technology improvements
increased above the industry standards. This helped the company to create a strong strategic
position for its smartwatches in the high-end segment and claim a premium price. Which of the
following types of innovation does this scenario best illustrate?
A) radical innovation
C) architectural innovation
D) disruptive innovation
Answer: D
Explanation: The scenario best illustrates a disruptive innovation. The dynamic process of
disruptive innovation begins when a firm, frequently a start-up, introduces a new product based
on a new technology to meet existing customer needs. It invades an existing market from the
bottom up.
Difficulty: 3 Hard
Bloom's: Analyze
73) When Japanese carmakers entered the existing U.S. automobile market by first offering
small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into
high-end luxury segments, they were engaging in
A) regressive innovation.
B) radical innovation.
C) disruptive innovation.
D) architectural innovation.
Answer: C
Explanation: Japanese carmakers successfully followed a strategy of disruptive innovation by
first introducing small fuel-efficient cars, and then leveraging their low-cost and high-quality
advantages into high-end luxury segments, captured by brands such as Lexus, Infiniti, and
Acura.
Difficulty: 1 Easy
Bloom's: Remember
36
74) Streaming video services replacing brick-and-mortar video rental stores would be an
example of a(n)
A) regressive innovation.
B) radical innovation.
C) architectural innovation.
D) disruptive innovation.
Answer: D
invades an existing market from the bottom up.
Difficulty: 1 Easy
Bloom's: Remember
75) Which of the following businesses is most likely to disrupt an existing industry?
A) Closer Connex developed an earphone that receives emails and text messages and converts
them to voice messages. The first models had poor reception, but they rapidly improved over
time.
B) Mega Technologies reconfigured the components used in its touchscreen tablets to create a
new type of wearable device for use in restaurants and other service industries.
C) Particle Inc. developed a teleportation technology that can transport physical materials
instantaneously across great distances.
D) Altrea added advanced camera technology to its premium line of smartphones so that they
would take the highest-quality photos of all phones on the market.
Answer: A
invades an existing market from the bottom up, beginning as a low-cost solution to an existing
problem. Initially, its performance is inferior to the existing technology, but its rate of
technological improvement over time is faster than the rate of performance increases required by
different market segments.
Difficulty: 3 Hard
Bloom's: Apply
37
76) A factor favoring the success of disruptive innovation is that
A) incumbent firms are slow to change.
B) new entrants have highly formal organizational structures and processes.
C) the low end of the market is highly guarded.
D) incumbent firms focus on radical innovation rather than incremental innovation.
Answer: A
Explanation: A factor favoring the success of disruptive innovation is that incumbent firms
often are slow to change. Incumbent firms tend to listen closely to their current customers and
respond by continuing to invest in the existing technology and in incremental changes to the
existing products.
Bloom's: Understand
77) Intel's Celeron chip and Atom chip are initiatives to

A) introduce a new product in a new market to extend its leadership.
B) guard the company against disruptive innovation by protecting the low end of the market.
C) stall its own disruption strategies and wait for its rivals to introduce disruptive forces.
D) target that section of the market that is not particularly price sensitive.
Answer: B
Explanation: Intel's Celeron chip and Atom chip are initiatives to guard the company against
disruptive innovation by protecting the low end of the market with low-cost innovations to
preempt stealth competitors. Intel introduced the Celeron chip, a stripped-down, budget version
of its Pentium chip, in 1998. More recently, Intel followed up with the Atom chip, a new
processor that is inexpensive and consumes little battery power, to power low-cost mobile
devices.
Bloom's: Apply
38
78) General Electric (GE) disrupted itself in the healthcare industry by
A) replacing the top levels of the executive hierarchy.
B) introducing inexpensive and smaller diagnostic devices in developing countries.
C) saturating the global market with multiple diagnostic devices.
D) targeting the comparatively less price-sensitive sections of the market.
Answer: B
Explanation: Strategy Highlight 7.2 focuses on GE's new innovation strategy. Realizing that the
likelihood of disruptive innovation increases over time, GE decided to disrupt itself. In 2002, a
GE team in China, through a bottom-up strategic initiative, developed an inexpensive, portable
ultrasound device, combining laptop technology with a probe and sophisticated imaging
software. This lightweight device was first used in rural China.
Bloom's: Apply
79) Which of the following most accurately describes a difference between incremental
innovation and radical innovation?
A) Incremental innovation researches new materials; radical innovation researches new
processes.
B) Incremental innovation targets new markets and technologies; radical innovation reinvents
markets and technologies.
C) Incremental innovation builds on an established knowledge base; radical innovation uses an
entirely different knowledge base.
D) Incremental innovation draws on novel methods; radical innovation draws on proven
methods.
Answer: C
Explanation: An incremental innovation squarely builds on an established knowledge base and
steadily improves an existing product or service offering. It targets existing markets using
existing technology. On the other hand, radical innovation draws on novel methods or materials,
is derived either from an entirely different knowledge base or from a recombination of existing
knowledge bases with a new stream of knowledge, or targets new markets by using new
technologies.
Bloom's: Understand
39
80) Canon was able to redesign the copying machine so that it didn't need professional service—
reliability was built directly into the machine, and the user could replace parts, such as the
cartridge. What Xerox had not envisioned was the possibility that the components of the copying
machine could be put together in an altogether different way that was more user-friendly. This
example describes
A) architectural innovation.
B) incremental innovation.
C) radical innovation.
Answer: A
Explanation: This example describes architectural innovation. Firms can innovate by leveraging
existing technologies into new markets. Doing so generally requires them to reconfigure the
components of a technology, meaning they alter the overall "architecture" of the product. An
architectural innovation, therefore, is a new product in which known components, based on
existing technologies, are reconfigured in a novel way to create new markets.
Bloom's: Apply
40
81) Sunshine Technologies introduced a tablet that could run completely on solar energy and was
less expensive than competitors' tablets. On the downside, it required more frequent charging
than the competition's tablets. However, the technology of the Sunshine tablet improved rapidly,
thereby improving its recharge frequency. This example describes
A) architectural innovation.
B) incremental innovation.
C) radical innovation.
Answer: D
Explanation: The dynamic process of disruptive innovation begins when a firm, frequently a
start-up, introduces a new product based on a new technology to meet existing customer needs.
To be a disruptive force, however, this new product or technology has to have additional
characteristics:
1. It begins as a low-cost solution to an existing problem.

2. Initially, its performance is inferior to the existing technology, but its rate of technological
improvement over time is faster than the rate of performance increases required by different
market segments.
Difficulty: 3 Hard
Bloom's: Analyze
41
82) Which of the following scenarios best exemplifies a platform business?
A) Devin purchases electronic parts from a variety of vendors and assembles them into
inexpensive MP3 players that he sells to consumers.
B) Myra operates an industrial test kitchen in which local growers bring their produce to local
chefs, who use the kitchen to try new recipes and determine which produce to buy.
C) Raul operates a consulting firm in which businesses hire him to assess deficiencies in their
organizational culture.
D) Gena founded a bike-based transportation company that offers environmentally-friendly rides
to customers within a 25-mile radius.
Answer: B
Explanation: A platform is a business that enables value-creating interactions between external
producers and consumers. The platform's overarching purpose is to consummate matches among
users and facilitate the exchange of goods, services, or social currency, thereby enabling value
creation for all participants. The platform provides an infrastructure for these interactions and
sets governance conditions for them. Myra's test kitchen is a platform which facilitates
exchanges between producers (local growers) and consumers (local chefs) and creates value for
both parties by giving them a central location to interact.
Difficulty: 3 Hard
businesses.
Bloom's: Apply
42
83) Which of the following business models in the landscaping industry is likely to scale most
efficiently?
A) a company that offers three different bundles of services at a low, medium, and high price
point depending on the level of care required by the customer
B) a company that deploys a team of both skilled and unskilled landscapers to each customer's
location regardless of their needs
C) a company that charges the same hourly rate for landscaping services no matter what the
situation requires
D) a company that allows users of its website to schedule appointments with landscapers who
specialize in the exact service required
Answer: D
Explanation: Platform businesses leveraging digital technology can grow much faster—that is,
they scale efficiently—because platforms create value by orchestrating resources that reside in
the ecosystem. The platform business does not own or control these resources, facilitating rapid
and often exponential growth.
Difficulty: 3 Hard
businesses.
Bloom's: Apply
84) GoodGear is a mobile platform that matches independent fashion designers with consumers
who want a personalized wardrobe. Which of the following initiatives would best allow
GoodGear to fine-tune its offerings to better meet the needs of its consumers?
A) allowing users to provide feedback to producers on the style and fit of clothing
B) conducting anonymous phone surveys about consumers' fashion preferences
C) hiring an outside consultant to evaluate the offerings of GoodGear's producers
D) studying the financial records of various fashion design companies to determine trends
Answer: A
Explanation: Platforms benefit from community feedback. Feedback loops from consumers
back to the producers allow platforms to fine-tune their offerings and to benefit from big data
analytics.
Difficulty: 3 Hard
businesses.
Bloom's: Apply
43
85) Which of the following businesses is most susceptible to negative network effects?
A) Moonglow Shoes produces a line of lightweight running shoes that are endorsed by an
Olympic gold medalist.
B) Clover Technologies produces computer processing chips and sells them to a variety of
manufacturers for use in smartphones and other devices.
C) Green Tools manufactures solar powered gardening implements and sells them online.
D) Pics Match is a social media platform where users upload photos to the site and are matched
with other users who have taken similar photos.
Answer: D
Explanation: The ability of a platform to evince and manage positive network effects is critical
to producing value for each participant, and it allows it to gain and sustain a competitive
advantage. In contrast, negative network effects describe the situation where more and more
users exit a platform and the value that each remaining user receives from the platform declines.
Because Pics Match relies on having a high number of users to create value for its customers, it
stands to suffer the most from negative network effects if users abandon the platform.
Difficulty: 3 Hard
businesses.
Bloom's: Apply
86) Explain the reasons for increasingly rapid technological diffusion and adoption.
Answer: One determinant is that initial innovations such as the car, airplane, telephone, and the
use of electricity provided the necessary infrastructure for newer innovations to diffuse more
rapidly. Another reason is the emergence of new business models that make innovations more
accessible. The speed of technology diffusion has accelerated further with the emergence of the
Internet, social networking sites, and viral messaging.
Bloom's: Remember
44
87) What are the competitive benefits that first movers in an industry experience?
Answer: Successful innovators can benefit from a number of first-mover advantages, including
economies of scale as well as experience and learning curve effects. First movers may also
benefit from network effects. Moreover, first movers may hold important intellectual property
such as critical patents. They may also be able to lock-in key suppliers as well as customers
through increasing switching costs.
Bloom's: Remember
88) Briefly discuss the steps in the innovation process.
Answer: Innovation describes the discovery and development of new knowledge in a four-step
process captured in the 4 - I's: idea, invention, innovation, and imitation.
1. The innovation process begins with an idea. The idea is often presented in terms of abstract
concepts or as findings derived from basic research.
2. In a next step, invention describes the transformation of an idea into a new product or process,
or the modification and recombination of existing ones.
3. Innovation concerns the commercialization of an invention by entrepreneurs.
4. The innovation process ends with imitation. If an innovation is successful in the marketplace,
competitors will attempt to imitate it.
Bloom's: Remember
45
89) Define entrepreneurship. Who are entrepreneurs?
Answer: Entrepreneurship describes the process by which change agents undertake economic
risk to innovate—to create new products, processes, and sometimes new organizations. If
successful, entrepreneurship not only drives the competitive process, it also creates value for the
individual entrepreneurs and society at large. Entrepreneurs are the agents that introduce change
into the competitive system. They do this not only by figuring out how to use inventions, but also
by introducing new products or services, new production processes, and new forms of
organization. Entrepreneurs innovate by commercializing inventions. They seek out or create
new business opportunities and then assemble the resources necessary to exploit them.
innovation.
Bloom's: Remember
90) Explain some of the features of the introduction stage of the industry life cycle.
Answer: When an individual inventor or company launches a successful innovation, a new

industry may emerge. In this introductory stage, the innovator's core competency is R&D, which
is necessary to creating a new product category that will attract customers. This is a capital-
intensive process, in which the innovator is investing in designing a unique product, trying new
ideas to attract customers, and producing small quantities—all of which contribute to a high
price when the product is launched. The initial market size is very small, and growth is slow. In
this introductory stage, when barriers to entry tend to be high, generally only a few firms are
active in the market. In their competitive struggle for market share, they emphasize unique
product features and performance rather than price.
Bloom's: Understand
46
91) How is process innovation different from product innovation?
Answer: Product innovations, as the name suggests, are new or recombined knowledge
embodied in new products—the jet airplane, electric vehicle, MP3 player, smartphones, and
tablet computers. On the other hand, process innovations are new ways to produce existing
products or to deliver existing services. Process innovations are made possible through advances
such as the Internet, lean manufacturing, Six Sigma, biotechnology, nanotechnology, and so on.
Bloom's: Understand
92) In the introductory stage, the level of product innovation is at a maximum. Elaborate.
Answer: In the introductory stage, the level of product innovation is at a maximum because
new features increasing perceived consumer value are critical to gaining traction in the market.
In contrast, process innovation is at a minimum in the introductory stage because companies only
produce a small number of products, often just prototypes or beta versions. The main concern is
to commercialize the invention—that is, to demonstrate that the product works and that a market
exists.
Bloom's: Understand
93) Why do firms have more strategic variety in the growth stage of the industry life cycle?
Answer: Competitive rivalry is muted in the growth stage because the market is growing fast.
Since market demand is robust in this stage and more competitors have entered the market, there
tends to be more strategic variety: Some competitors will continue to follow a differentiation
strategy, emphasizing unique features, product functionality, and reliability. Other firms employ
a cost-leadership strategy in order to offer an acceptable level of value but lower prices to
consumers. They realize that lower cost is likely a key success factor in the future, because this
will allow the firm to lower prices and attract more consumers into the market.
Bloom's: Understand
47
94) What happens during the shakeout stage of the industry life cycle?
Answer: As the industry moves into the shakeout stage of the industry life cycle, the rate of
growth declines. Demand was largely satisfied in the prior growth stage. Given the large market
size achieved from the growth stage, any additional market demand in the next stage is limited.
Demand now consists of replacement or repeat purchases only. This limited market demand in
turn increases competitive intensity within the industry.
Firms begin to compete directly against one another for market share, rather than trying to
capture a share of an increasing pie. As rivals vie for a shrinking pie and competitive intensity is
increasing, the weaker firms are forced out of the industry. This is the reason why this phase of
the industry life cycle is called the shakeout stage: Only the strongest competitors survive
increasing rivalry as firms begin to cut prices and offer more services, all in an attempt to capture
more of a shrinking market. The winners in this increasingly competitive environment are
generally firms that stake out a strong position as cost leaders.
Difficulty: 1 Easy
Bloom's: Remember
95) Briefly discuss the four strategic options firms have during the decline stage of the industry
life cycle.
Answer: At the decline stage, managers generally have four strategic options:
• Exit: Some firms are forced to exit the industry by bankruptcy or liquidation.
• Harvest: In pursuing a harvest strategy, the firm reduces investments in product support and
allocates only a minimum of human and other resources.
• Maintain: When following a maintain strategy, firms continue to support marketing efforts at a
given level despite the fact that demand has been declining.
• Consolidate: Although market size shrinks in a declining industry, some firms may choose to
consolidate the industry by buying rivals (those who choose to exit). This allows the
consolidating firm to stake out a strong position—possibly approaching monopolistic market
power, albeit in a declining industry.
Difficulty: 1 Easy
Bloom's: Remember
48
96) Briefly discuss the strategic implications of the crossing-the-chasm framework.
Answer: Based on empirical observations, Geoffrey Moore's core argument is that each stage of
the industry life cycle is dominated by a different customer group. Different customer groups
with distinctly different preferences enter the industry at each stage of the industry life cycle.
Each customer group responds differently to a technological innovation. This is due to
differences in the psychological, demographic, and social attributes observed in each unique
customer segment. Moore's main contribution is that the significant differences between the
customer groups that enter early during the introductory stage of the industry life cycle versus
customers that enter later during the growth stage make a firm's smooth transition between the
different parts of the industry life cycle difficult. That is, these distinct differences between
customer groups lead to a big gulf or chasm into which companies and their innovations
frequently fall. Only companies that recognize these differences and are able to apply the
appropriate competencies at each stage of the industry life cycle will have a chance to transition
successfully from stage to stage.
Bloom's: Understand
97) Discuss the drawbacks of the industry life cycle.
Answer: Although the industry life cycle is a useful framework to guide strategic choice,
industries do not necessarily evolve through these stages. Moreover, innovations can emerge at
any stage of the industry life cycle, which in turn can initiate a new cycle. Industries can also be
rejuvenated, often in the declining stage. The industry life cycle model does not explain
everything about changes in industries. Some industries may never go through the entire life
cycle, while others are continually renewed through innovation. It is necessary to consider that
other factors such as fads in fashion, changes in demographics, or deregulation can affect the
dynamics of industry life cycles.
Bloom's: Understand
49
98) Why do incumbent firms favor incremental innovation over radical innovation?
Answer: Incumbent firms favor incremental innovation over radical innovation for the
following reasons.
• Once an innovator has become an established incumbent firm, it has strong incentives to defend
its strategic position and market power. An emphasis on incremental innovations strengthens the
incumbent firm's position and thus maintains high entry barriers.
• From an organizational perspective, as firms become established and grow, they rely more
heavily on formalized business processes and structures. In some cases, the firm may experience
organizational inertia—resistance to changes in the status quo. Incumbent firms, therefore, tend
to favor incremental innovations that reinforce the existing organizational structure and power
distribution while avoiding radical innovation that could disturb the existing power distribution.
• A final reason incumbent firms tend to be a source of incremental rather than radical
innovations is that they become embedded in an innovation ecosystem: a network of suppliers,
buyers, complementors, and so on. They no longer make independent decisions but must
consider the ramifications on other parties in their innovation ecosystem.
Bloom's: Understand
50
99) Discuss the differences between pipeline businesses and platform businesses in terms of the
value chain.
Answer: A firm's value chain captures the internal activities a firm engages in, beginning with
raw materials and ending with retailing and after-sales service and support. The value chain
represents a linear view of a firm's business activities. As such, this traditional system of
horizontal business organization has been described as a pipeline, because it captures a linear
transformation with producers at one end and consumers at the other.
Platforms are business model innovations that use technology (such as the internet, cloud
computing, etc.) to connect organizations, resources, information, and people in an interactive
ecosystem where value-generating transactions can be created and exchanged. From a value
chain perspective, producers produce or create a product or service that consumers consume. The
owner of the platform controls the platform IP address and controls who may participate and in
what ways. The providers provide the interfaces for the platform, enabling its accessibility
online.
Difficulty: 3 Hard
businesses.
Bloom's: Apply
100) Describe network effects and their potential to help or hurt a platform business.
Answer: Network effects refers to the effect that one user of a product or service has on the
value of that product for other users. Network effects often benefit platform businesses by
improving the quality of a user's experience. A social media site, for example, is more attractive
to users when there are a large number of other users. In contrast, negative network effects
describe the situation where more and more users exit a platform and the value that each
remaining user receives from the platform declines. The social network Myspace, for example,
experienced negative network effects as more and more users abandoned it for Facebook.
businesses.
Bloom's: Apply
51
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genus Globigerina (one of the Foraminifera), some modern species
of which are identical with those found in the Cretaceous. To quote
the words of the Protozoologist, Charles A. Kofoid: “The Protozoa
are found in the oldest fossiliferous rocks and the genera of
Radiolaria therein conform rather closely to genera living today, while
the fossil Dinoflagellata of the flints of Delitzsch are scarcely
distinguishable from species living in the modern seas. The striking
similarities of the most ancient fossil Protozoa to recent ones afford
some ground for the inference that the Protozoa living today differ
but little from those when life was young.” (Science, April 6, 1923, p.
397.)
The Metazoa offer similar examples of persistence. Among the
Cœlenterata, we have the genus Springopora, whose
representatives from the Carboniferous limestones closely resemble
some of the present-day reef builders of the East Indies. Species of
the brachiopod genera Lingula and Crania occurring in the Cambrian
rocks are indistinguishable from species living today, while two other
modern genera of the Brachiopoda, namely, Rhynchonella and
Discina, are represented among the fossils found in Mesozoic
formations. Terebratulina striata, a fossil species of brachiopod
occurring in the rocks belonging to the Cretaceous system, is
identical with our modern species Terebratulina caput serpentis.
Among the Mollusca such genera as Arca, Nucula, Lucina, Astarte,
and Nautilus have had a continuous existence since the Silurian,
while the genera Lima and Pecten can be traced to the Permian.
One genus Pleurotomaria goes back to pre-Cambrian times. As to
Tertiary fossils, Woods informs us that “in some of the later
Cainozoic formations as many as 90 per cent of the species of
mollusks are still living.” (“Palæontology,” 1st ed., p. 2.) Among the
Echinodermata, two genera, Cidaris (a sea urchin) and Pentacrinus
(a crinoid) may be mentioned as being persistent since the Triassic
(“oldest” system of the Mesozoic group). Among the Arthropoda, the
horseshoe crab Limulus polyphemus has had a continuous
existence since the Lias (i.e. the lowest series of the Jurassic
system). Even among the Vertebrata we have instances of
persistence. The extant Australian genus Ceratodus, a Dipnoan, has
been in existence since the Triassic. Among the fossils of the
Jurassic (middle system of the Mesozoic group), Sharks, Rays, and
Chimaeroids occur in practically modern forms, while some of the
so-called “ganoids” are extremely similar to our present sturgeons
and gar pikes—“Some of the Jurassic fishes approximate the
teleosts so closely that it seems arbitrary to call them ganoids.”
(Scott.)
The instances of persistence enumerated above are those
acknowledged by evolutionary palæontologists themselves. This list
could be extended somewhat by the addition of several other
examples, but even so, it would still be small and insufficient to tip
the scales decisively in favor of fixism. On the other hand, we must
not forget that the paucity of this list is due in large measure to the
fact that our present method of classifying fossiliferous strata was
deliberately framed with a view to excluding formations containing
modern types from the category of “ancient” beds. Moreover,
orthodox palæontology has minimized the facts of persistence to an
extent unwarranted even by its own premises. As the following
considerations indicate, the actual number of persistent types is far
greater, even according to the evolutionary time-scale, than the
figure commonly assigned.
First of all, we must take into account the deplorable, if not
absolutely dishonest, practice, which is in vogue, of inventing new
names for the fossil duplicates of modern species, in order to mask
or obscure an identity which conflicts with evolutionary
preconceptions. When a given formation fails to fit into the accepted
scheme by reason of its fossil anachronisms, or when, to quote the
words of Price, “species are found in kinds of rock where they are
not at all expected, and where, according to the prevailing theories, it
is quite incredible that they should be found ... the not very
honorable expedient is resorted to of inventing a new name, specific
or even generic, to disguise and gloss over the strange similarity
between them and the others which have already been assigned to
wholly different formations.” (“The New Geology,” p. 291.) The same
observation is made by Heilprin. “It is practically certain,” says the
latter, “that numerous forms of life, exhibiting no distinctive
characters of their own, are constituted into distinct species for no
other reason than that they occur in formations widely separated
from those holding their nearest kin.” (“Geographical and Geological
Distribution of Animals,” pp. 183, 184.) An instance of this practice
occurs in the foregoing list, where a fossil brachiopod identical with a
modern species receives the new specific name “striata.” Its
influence is also manifest in the previously quoted apology of Scott
for calling teleost-like fish “ganoids.”
We must also take into account the imperfection of the fossil
record, which is proved by the fact that most of the acknowledged
“persistent types” listed above “skip” whole systems and even
groups of “later” rocks (which are said to represent enormous
intervals of time), only to reappear, at last, in modern times. It is
evident that their existence has been continuous, and yet they are
not represented in the intervening strata. Clearly, then, the fossil
record is imperfect, and we must conclude that many of our modern
types actually did exist in the remote past, without, however, leaving
behind any vestige of their former presence.
Again, we must frankly confess our profound ignorance with
respect to the total number and kinds of species living in our modern
seas. Hence our conventional distinction between “extinct” and
“extant” species has only a provisory value. Future discoveries will
unquestionably force us to admit that many of the species now
classed as “extinct” are in reality living forms, which must be added
to our list of “persistent types.” “It is by no means improbable,” says
Heilprin, “that many of the older genera, now recognized as distinct
by reason of our imperfect knowledge concerning their true
relationships, have in reality representatives in the modern sea.”
(Op. cit. pp. 203, 204.)
Finally, the whole of our present taxonomy of plants and animals,
both living and fossil, stands badly in need of revision. Systematists,
as we have seen in the second chapter, base their classifications
mainly on what they regard as basic or homologous structures, in
contradistinction to superficial or adaptive characters. Both kinds of
structure, however, are purely somatic, and somatic characters, as
previously observed, are not, by themselves, a safe criterion for
discriminating between varieties and species. In the light of recent
genetical research, we cannot avoid recognizing that there has been
far too much “splitting” of organic groups on the basis of differences
that are purely fluctuational, or, at most, mutational. Moreover, the
distinction between homologous and adaptive structures is often
arbitrary and largely a matter of personal opinion, especially when
numerous specimens are not available. What the “Cambridge
Natural History” says in allusion to the Asteroidea is of general
application. “While there is considerable agreement,” we read,
“amongst authorities as to the number of families, or minor divisions
of unequivocal relationship, to be found in the class Asteroidea,
there has been great uncertainty both as to the number and limits of
the orders into which the class should be divided, and also as to the
limits of the various species. The difficulty about the species is by no
means confined to the group Echinodermata; in all cases where the
attempt is made to determine species by an examination of a few
specimens of unknown age there is bound to be uncertainty; the
more so, as it becomes increasingly evident that there is no sharp
line to be drawn between local varieties and species. In
Echinodermata, however, there is the additional difficulty that the
acquisition of ripe genital cells does not necessarily mark the
termination of growth; the animals can continue to grow and at the
same time slightly alter their characters. For this reason many of the
species described may be merely immature forms....
“The disputes, however, as to the number of orders included in the
Asteroidea proceed from a different cause. The attempt to construct
detailed phylogenies involves the assumption that one set of
structures, which we take as the mark of the class, has remained
constant, whilst the others which are regarded as adaptive, may
have developed twice or thrice. As the two sets of structures are
about of equal importance it will be seen to what an enormous extent
the personal equation enters in the determination of these
questions.” (Op. cit., vol. I, pp. 459, 460.)
In dealing with fossil forms, these difficulties of the taxonomist are
intensified: (1) by the sparse, badly-preserved, and fragmentary
character of fossil remains; (2) by the fact that here breeding
experiments are impossible, and hence the diagnosis based on
external characters cannot be supplemented by a diagnosis of the
germinal factors. Fossil taxonomy is, in consequence, extremely
arbitrary and unreliable. Many fossil forms classed as distinct
species, or even as distinct genera, may be nothing more than
fluctuants, mutants, hybrids, or immature stages of well-known
species living today. Again, many fossils mistaken for distinct
species are but different stages in the life-history of a single species,
a mistake, which is unavoidable, when specimens are few and the
age of the specimens unknown. The great confusion engendered in
the classification of the hydrozoa by nineteenth-century ignorance of
the alternation of hydroid and medusoid generations is a standing
example of the danger of classifying forms without a complete
knowledge of the entire life-cycle. When due allowance is made for
mutation, hybridization, metagenesis, polymorphism, age and
metamorphosis, the number of distinct fossil species will undergo
considerable shrinkage. Nor must we overlook the possibility of
environmentally-induced modifications. Many organisms, such as
mollusks, undergo profound alteration as a result of some important,
and, perhaps, relatively permanent, change in their environmental
conditions, though such alterations affect only the phenotype, and do
not involve a corresponding change in the specific genotype, i.e. the
germinal constitution of the race.
In the degree that these considerations are taken into account the
number of “extinct” fossil species will diminish and the number of
“persistent” species will increase. This is a consummation devoutly
to be wished for, but it means that hundreds of thousands of
described species must needs be reviewed for the purpose of
weeding out the duplicates, and who will have the knowledge, the
courage, or even the span of life, necessary to accomplish so
gigantic a task?
But so far as the practical purposes of our argument are
concerned, the accepted list of persistent types needs no
amplification. It suffices, as it stands, to establish the central fact
(which, for the rest, is admitted by everyone) that some generic and
even specific types have remained unchanged throughout the
enormous lapse of time which has intervened between the
deposition of the oldest strata and the advent of the present age. Our
current theories, far from diminishing the significance of this fact,
tend to intensify it by computing the duration of such persistence in
millions, rather than in thousands, of years. Now, whatever one’s
views may be on the subject of transformism, this prolonged
permanence of certain genera and species is an indubitable fact,
which is utterly irreconcilable with a universal law of organic
evolution. The theory of transformism is impotent to explain an
exception so palpable as this; for persistence and transmutation
cannot be subsumed under one and the same principle. That which
accounts for change cannot account for unchange. Yet unchange is
an observed fact, while the change, in this case, is an inferred
hypothesis. Hence, even if we accept the principle of transformism,
there will always be scope for the principle of permanence. The
extraordinary tenacity of type manifested by persistent genera and
species is a phenomenon deserving of far more careful study and
investigation than the evolutionally-minded scientist of today deigns
to bestow upon it. To the latter it may seem of little consequence,
but, to the genuine scientist, the actual persistence of types should
be of no less interest than their possible variability.
With these reflections, our criticism of the palæontological
argument terminates. The enumeration of its various deficiencies
was not intended as a refutation. To disprove the theory of organic
evolution is a feat beyond our power to accomplish. We can only
adduce negative evidence, whose scope is to show that the various
evolutionary arguments are inconsequential or inconclusive. We
cannot rob the theory of its intrinsic possibility, and sheer justice
compels us to confess that certain facts, like those of symbiotic
preadaptation, lend themselves more readily to a transformistic, than
to a fixistic, interpretation. On the other hand, nothing is gained by
ignoring flaws so obvious and glaring as those which mar the
cogency of palæontological “evidence.” The man who would gloss
them over is no true friend either of Science or of the scientific theory
of Evolution! They represent so many real problems to be frankly
faced and fully solved, before the palæontological argument can
become a genuine demonstration. But until such time as a
demonstration of this sort is forthcoming, the evolutionist must not
presume to cram his unsubstantiated theory down our reasonably
reluctant throats. To accept as certain what remains unproved, is to
compromise our intellectual sincerity. True certainty, which rests on
the recognition of objective necessity, will never be attainable so long
as difficulties that sap the very base of evolutionary argumentation
are left unanswered; and, as for those who, in the teeth of discordant
factual evidence, profess, nevertheless, to have certainty regarding
the “fact” of evolution, we can only say that such persons cannot
have a very high or exacting conception of what scientific certainty
really means.
For the rest, it cannot even be said that the palæontological record
furnishes good circumstantial evidence that our globe has been the
scene of a process of organic evolution. In fact, so utterly at variance
with this view is the total impression conveyed by the visible portion
of the geological column, that the modern geologist proposes, as we
have seen, to probe depths beneath its lowest strata for traces of
that alleged transmutation, which higher horizons do not reveal.
There are six to eight thick terranes below the Cambrian, we are
told, and igneous masses that were formerly supposed to be basal
have turned out to be intrusions into sedimentary accumulations, all
of which, of course, is fortunate for the theory of organic evolution,
as furnishing it with a sadly needed new court of appeal. The bottom,
so to speak, has dropped out of the geological column, and Prof. T.
C. Chamberlin announces the fact as follows: “The sharp division
into two parts, a lifeless igneous base and a sedimentary
fossiliferous superstructure, has given place to the general concept
of continuity with merely minor oscillations in times and regions of
major activity. Life has been traced much below the Cambrian, but its
record is very imperfect. The recent discoveries of more ample and
varied life in the lower Palæozoic, particularly the Cambrian, implies,
under current evolutional philosophy, a very great downward
extension of life. In the judgment of some biologists and geologists,
this extension probably reaches below all the pre-Cambrian terranes
as yet recognized, though this pre-Cambrian extension is great. The
‘Azoic’ bottom has retired to depths unknown. This profoundly
changes the life aspect of the ‘column.’” (Science, Feb. 8, 1924, p.
128.) All this is doubtless true, but such an appeal, from the known
to the unknown, from the actual to the possible, is not far-removed
from a confession of scientific insolvency. Life must, of course, have
had an earlier history than that recorded in the pre-Cambrian rocks.
But even supposing that some portion of an earlier record should
become accessible to us, it could not be expected to throw much
light on the problem of organic origins. Most of the primordial
sediments have long since been sapped and engulfed by fiery
magmas, while terranes less deep have, in all probability, been so
metamorphosed that every trace of their fossil contents has
perished. The sub-Archæan beginnings of life will thus remain
shrouded forever in a mystery, which we have no prospect of
penetrating. Hence it is the exposed portion of the geological column
which continues and will continue to be our sole source of
information, and it is preëminently on this basis that the evolutionary
issue will have to be decided.
Yet what could be more enigmatic than the rock record as it
stands? For in nature it possesses none of that idealized integrity
and coherence, with which geology has invested it for the purpose of
making it understandable. Rather it is a mighty chaos of scattered
and fragmentary fossiliferous formations, whose baffling complexity,
discontinuity, and ambiguity tax the ingenuity of the most sagacious
interpreters. Transformism is the key to one possible synthesis,
which might serve to unify that intricate mass of facts, but it is idle to
pretend that this theory is the unique and necessary corollary of the
facts as we find them. The palæontological argument is simply a
theoretical construction which presupposes evolution instead of
proving it. Its classic pedigrees of the horse, the camel, and the
elephant are only credible when we have assumed the “fact” of
evolution, and even then, solely upon condition that they claim to
approximate, rather than assign, the actual ancestry of the animals
in question. In palæontology, as in the field of zoölogy, evolution is
not a conclusion, but an interpretation. In palæontology, otherwise
than in the field of genetics, evolution is not amenable to the check
of experimental tests, because here it deals not with that which is,
but with that which was. Here the sole objective basis is the
mutilated and partially obliterated record of a march of events, which
no one has observed and which will never be repeated. These
obscure and fragmentary vestiges of a vanished past, by reason of
their very incompleteness, lend themselves quite readily to all sorts
of theories and all sorts of speculations. Of the “Stone Book of the
Universe” we may say with truth that which Oliver Wendell Holmes
says of the privately-interpreted Bible, namely, that its readers take
from it the same views which they had previously brought to it. “I am,
however, thoroughly persuaded,” say the late Yves Delage, “that one
is or is not a transformist, not so much for reasons deduced from
natural history, as for motives based on personal philosophic
opinions. If there existed some other scientific hypothesis besides
that of descent to explain the origin of species, many transformists
would abandon their present opinion as not being sufficiently
demonstrated.... If one takes his stand upon the exclusive ground of
the facts, it must be acknowledged that the formation of one species
from another species has not been demonstrated at all.” (“L’herédité
et les grands problèmes de la biologie générale,” Paris, 1903, pp.
204, 322.)
II
THE PROBLEM OF ORIGINS
CHAPTER I
THE ORIGIN OF LIFE
§ 1. The Theory of Spontaneous Generation

Strictly speaking, the theory of Transformism is not concerned with
the initial production of organic species, but rather with the
subsequent differentiation and multiplication of such species by
transmutation of the original forms. This technical sense, however, is
embalmed only in the term transformism and not in its synonym
evolution. The signification of the latter term is less definite. It may
be used to denote any sort of development or origination of one thing
from another. Hence the problem of the formation of organic species
is frequently merged with the problem of the transformation of
species under the common title of evolution.
This extension of the evolutionary concept, in its widest sense, to
the problem of the origin of life on our globe is known as the
hypothesis of abiogenesis or spontaneous generation. It regards
inorganic matter as the source of organic life not merely in the sense
of a passive cause, out of which the primordial forms of life were
produced, but in the sense of an active cause inasmuch as it
ascribes the origin of life to the exclusive agency of dynamic
principles inherent in inorganic matter, namely, the physicochemical
energies that are native to mineral matter. Life, in other words, is
assumed to have arisen spontaneously, that is, by means of a
synthesis and convergence of forces resident in inorganic matter,
and not through the intervention of any exterior agency.
The protagonists of spontaneous generation, therefore, assert not
merely a passive, but an active, evolution of living, from lifeless
matter. As to the fact of the origin of the primal organisms from
inorganic matter, there is no controversy whatever. All agree that, at
some time or other, the primordial plants and animals emanated from
inorganic matter. The sole point of dispute is whether they arose
from inorganic matter by active evolution or simply by passive
evolution. The passive evolution of mineral matter into plants and
animals is an everyday occurrence. The grass assimilates the
nitrates of the soil, and is, in turn, assimilated by the sheep, whose
flesh becomes the food of man, and mineral substance is thus finally
transformed into human substance. In the course of metabolic
processes, the inorganic molecule may doff its mineral type and don,
in succession, the specificities of plant, animal, and human
protoplasm; and this transition from lower to higher degrees of
perfection may be termed an evolution. It is an ascent of matter from
the lowermost grade of an inert substance, through the intermediate
grades of vegetative and animal life, up to the culminating and
ultimate term of material perfection, in the partial constitution of a
human nature and personality, in the concurrence as a coagent in
vegetative and sensile functions, and in the indirect participation, as
instrument, in the higher psychic functions of rational thought and
volition.
At the present time, the inorganic world is clearly the exclusive
source of all the matter found in living beings. All living beings
construct their bodies out of inorganic substances in the process of
nutrition, and render back to the inorganic world, by dissimilation and
death, whatever they have taken from it. We must conclude,
therefore, the matter of the primordial organisms was likewise
derived from the inorganic world. But we are not warranted in
concluding that this process of derivation was an active evolution.
On the contrary, all evidence is against the supposition that brute
matter is able to evolve of itself into living matter. It can, indeed, be
transformed into plants, animals, and men through the action of an
appropriate external agent (i.e. solely through the agency of the
living organism), but it cannot acquire the perfections of living matter
by means of its own inherent powers. It cannot vitalize, or sensitize,
itself through the unaided activity of its own physicochemical
energies. Only when it comes under the superior influence of
preëxistent life can it ascend to higher degrees of entitive perfection.
It does not become of itself life, sensibility, and intelligence. It must
first be drawn into communion with what is already alive, before it
can acquire life and sensibility, or share indirectly in the honors of
intelligence (as the substrate of the cerebral imagery whence the
human mind abstracts its conceptual thought). Apart from this unique
influence, inorganic matter is impotent to raise itself in the scale of
existence, but, if captured, molded, and transmuted by a living being,
it may progress to the point of forming with the human soul one
single nature, one single substance, one single person. The
evolution of matter exemplified in organic metabolism is obviously
passive, and such an evolution of the primal organisms out of non-
living matter even the opponents of the hypothesis of spontaneous
generation concede. But spontaneous generation implies an active
evolution of the living from the lifeless, and this is the point around
which the controversy wages. It would, of course, be utterly irrational
to deny to the Supreme Lord and Author of Life the power of vivifying
matter previously inanimate and inert, and hence the origin of
organic life from inorganic matter by a formative (not creative) act of
the Creator is the conclusion to which the denial of abiogenesis
logically leads.
The hypothesis of spontaneous generation is far older than the
theory of transformism. It goes back to the Greek predecessors of
Aristotle, at least, and may be of far greater antiquity. It was based,
as is well known, upon an erroneous interpretation of natural facts,
which was universally accepted up to the close of the 17th century.
As we can do no more than recount a few outstanding incidents of its
long and interesting history here, the reader is referred to the VII
chapter of Wasmann’s “Modern Biology” and the VIII chapter of
Windle’s “Vitalism and Scholasticism” for the details which we are
obliged to omit.
§ 2. The Law of Genetic Continuity—

From time immemorial the sudden appearance of maggots in
putrescent meat had been a matter of common knowledge, and the
ancients were misled into regarding the phenomenon as an instance
of a de novo origin of life from dead matter. The error in question
persisted until the year 1698, when it was decisively disproved by a
simple experiment of the Italian physician Francesco Redi. He
protected the meat from flies by means of gauze. Under these
conditions, no maggots appeared in the meat, while the flies, unable
to reach the meat, deposited their eggs on the gauze. Thus it
became apparent that the maggots were larval flies, which emerged
from fertilized eggs previously deposited in decaying meat by female
flies. Antonio Vallisnieri, another Italian, showed that the fruit-fly had
a similar life-history. As a result of these discoveries, Redi rejected
the theory of spontaneous generation and formulated the first article
of the Law of Genetic Vital Continuity: Omne vivum ex vivo.
Meanwhile, the first researches conducted by means of the newly
invented compound microscope disclosed what appeared to be fresh
evidence in favor of the discarded hypothesis. The unicellular
organisms known as infusoria were found to appear suddenly in hay
infusions, and their abrupt appearance was ascribed to spontaneous
generation. Towards the end of the 18th century, however, a Catholic
priest named Lazzaro Spallanzani refuted this new argument by
sterilizing the infusions with heat and by sealing the containers as
protection against contamination by floating spores or cysts. After
the infusions had been boiled for a sufficient time and then sealed,
no organisms could be found in them, no matter how long they were
kept. We now know that protozoa and protophytes do not originate
de novo in infusions. Their sudden appearance in cultures is due to
the deposition of spores or cysts from the air, etc.
The possibility that the non-germination of life in sterilized
infusions kept in sealed containers might be due to the absence of
oxygen, removed by boiling and excluded by sealing, left open a
single loophole, of which the 19th century defenders of abiogenesis
proceeded to avail themselves. Pasteur, however, by employing
sterilized cultures, which he aerated with filtered air exclusively,
succeeded in depriving his opponents of this final refuge, and
thereby completely demolished the last piece of evidence in favor of
spontaneous generation. Prof. Wm. Sydney Thayer, in an address
delivered at the Sorbonne, May 22, 1923, gives the following
account of Pasteur’s experiments in this field: “Then, naturally (1860-
1876) came the famous studies on spontaneous generation
undertaken against the advice of his doubting masters, Biot and
Dumas. On the basis of careful and well-conceived experiments he
demonstrated the universal presence of bacteria in air, water, dust;
he showed the variation in different regions of the bacterial content
of the air; he demonstrated the permanent sterility of media
protected from contamination, and he insisted on the inevitable
derivation of every living organism from one of its kind. ‘No,’ he said,
‘there is no circumstance known today which justifies us in affirming
that microscopic organisms have come into the world, without
parents like themselves. Those who made this assertion have been
the playthings of illusions or ill-made experiments invalidated by
errors which they have not been able to appreciate or to avoid.’ In
the course of these experiments he demonstrated the necessity of
reliable methods of sterilization for instruments or culture media, of
exposure for half an hour to moist heat at 120° or to dry air at 180°.
And behold! our modern procedures of sterilization and the basis of
antiseptic surgery.” (Science, Dec. 14, 1923, p. 477.) Pasteur
brought to a successful completion the work of Redi and
Spallanzani. Henceforth spontaneous generation was deprived of all
countenance in the realm of biological fact.
Meanwhile, the cytologists and embryologists of the last century
were adding article after article to the law of genetic cellular
continuity, thus forging link by link the fatal chain of severance that
inexorably debars abiogenesis from the domain of natural science.
With the formulation of the great Cell Theory by Schleiden and
Schwann (1838-1839), it became clear that the cell is the
fundamental unit of organization in the world of living matter. It has
proved to be, at once, the simplest organism capable of independent
existence and the basic unit of structure and function in all the more
complex forms of life. The protists (unicellular protozoans and
protophytes) consist each of a single cell, and no simpler type of
organism is known to science. The cell is the building brick out of
which the higher organisms or metists (i.e. the multicellular and
tissued metazoans and metaphytes) are constructed, and all
multicellular organisms are, at one time or other in their career,
reduced to the simplicity of a single cell (v.g. in the zygote and spore
stages). The somatic or tissue cells, which are associated in the
metists to form one organic whole, are of the same essential type as
germ cells and unicellular organisms, although the parallelism is
more close between the unicellular organism and the germ cell. The
germ cell, like the protist, is equipped with all the potentialities of life,
whereas tissue cells are specialized for one function rather than
another. The protist is a generalized and physiologically-balanced
cell, one which performs all the vital functions, and in which the
suppression of one function leads to the destruction of all the rest;
while the tissue cell is a specialized and physiologically-unbalanced
cell limited to a single function, with the other vital functions in
abeyance (though capable of manifesting themselves under certain
circumstances). Normally, therefore, the tissue cell is functionally
incomplete, a part and not a whole, whereas the protist is an
independent individual, being, at once, the highest type of cell and
the lowest type of organism.
According to the classic definition of Franz Leydig and Max
Schultze, the cell is a mass of protoplasm containing a nucleus, both
protoplasm and nucleus arising through division of the corresponding
elements of a preëxistent cell. In this form the definition is quite
general and applies to all cells, whether tissue cells, germ cells, or
unicellular organisms. Moreover, it embodies two principles which
still further determine the law of genetic cellular continuity, namely:
Omnis cellula ex cellula, enunciated by Virchow in 1855, and
Flemming’s principle: Omnis nucleus ex nucleo, proclaimed in 1882.
In this way, Cytology supplemented Redi’s formula that every living
being is from a preëxistent living being, by adding two more articles,
namely, that every living cell is from a preëxistent cell, and every
new cellular nucleus is derived by division from a preëxistent cellular
nucleus. Now neither the nucleus nor the cell-body (the cytoplasm or
extranuclear area of the cell) is capable of an independent existence.
The cytoplasm of the severed nerve fibre, when it fails to reëstablish
its connection with the neuron nucleus, degenerates. The enucleated
amœba, though capable of such vital functions as depend upon
destructive metabolism, can do nothing which involves constructive
metabolism, and is, therefore, doomed to perish. The sperm cell,
which is a nucleus that has sloughed off most of its cytoplasm,
disintegrates, unless it regains a haven in the cytoplasm of the egg.
Life, accordingly, cannot subsist in a unit more simply organized than
the cell. No organism lives which is simpler than the cell, and the
origin of all higher forms of life is reducible, as we shall see, to the
origin of the cell. Consequently, new life can originate in no other
way than by a process of cell-division. All generation or reproduction
of new life is dependent upon the division of the cell-body and
nucleus of a preëxistent living cell.
Haeckel, it is true, has attempted to question the status of the cell
as the simplest of organisms, by alleging the existence of cytodes
(non-nucleated cells) among the bacteria and the blue-green algæ.
Further study, however, has shown that bacteria and blue-green
algæ have a distributed nucleus, like that of certain ciliates, such as
Dileptus gigas and Trachelocerca. In such forms the entire cell body
is filled with scattered granules of chromatin called chromioles, and
this diffuse type of nucleus seems to be the counterpart of the
concentrated nuclei found in the generality of cells. At any rate, there
is a temporary aggregation of the chromioles at critical stages in the
life-cycle (such as cell-division), and these scattered chromatin
granules undergo division, although their distribution to the daughter-
cells is not as regular as that obtaining in mitosis. All this is strongly
suggestive of their nuclear nature, and cells with distributed nuclei
cannot, therefore, be classified as cytodes. In fact, the polynuclear
condition is by no means uncommon. Paramœcium aurelia, for
example, has a macronucleus and a micronucleus, and the
Uroleptus mobilis has eight macronuclei and from two to four
micronuclei. The difference between the polynuclear and diffuse
condition seems to be relatively unimportant. In fact, the distributed
nucleus differs from the morphological nucleus mainly in the
absence of a confining membrane. From the functional standpoint,
the two structures are identical. Hence the possession of a nucleus
or its equivalent is, to all appearances, a universal characteristic of
cells. Haeckel’s “cytodes” have proved to be purely imaginary
entities. The verdict of modern cytologists is that Shultze’s definition
of the cell must stand, and that the status of the cell as the simplest
of organic units capable of independent existence is established
beyond the possibility of prudent doubt.
With the progressive refinement of microscopic technique, it has
become apparent that the law of genetic continuity applies not
merely to the cell as a whole and to its major parts, the nucleus and
the cell-body, but also to the minor components or organelles, which
are seen to be individually self-perpetuating by means of growth and
division. The typical cell nucleus, as is well known, is a spherical
vesicle containing a semisolid, diphasic network of basichromatin
(formerly “chromatin”) and oxychromatin (linin) suspended in more
fluid medium or ground called nuclear sap. When the cell is about to
divide, the basichromatin resolves itself into a definite number of
short threads called chromosomes. Now, Boveri found that, in the
normal process of cell-division known as mitosis, these nuclear
threads or chromosomes are each split lengthwise and divided into
two exactly equivalent halves, the resulting halves being distributed
in equal number to the two daughter-cells produced by the division of
the original cell. Hence, in the year 1903, Boveri added a fourth
article to the law of genetic vital continuity, namely: Omne
chromosoma ex chromosomate.
But the law in question applies to cytoplasmic as well as nuclear
components. In physical appearance, the cell-body or cytoplasm
resembles an emulsion with a clear semiliquid external phase called
hyaloplasm and an internal phase consisting mainly of large spheres
called macrosomes and minute particles called microsomes, all of
which, together with numerous other formed bodies, are suspended
in the clear hyaloplasm (hyaline ground-substance). Now certain of
these cytoplasmic components have long been known to be self-
perpetuating by means of growth and division, maintaining their
continuity from cell to cell. The plastids of plant cells, for example,
divide at the time of cell-division, although their distribution to the
daughter-cells does not appear to be as definite and regular as that
which obtains in the case of the chromosomes. Similarly, the
centrioles or division-foci of animal cells are self-propagating by
division, but here the distribution to the daughter-cells is exactly
equivalent and not at random as in the case of plastids. In the light of
recent research it looks as though two other types of cytoplasmic
organelles must be added to the list of cellular components, which
are individually self-perpetuating by growth and division, namely, the
chondriosomes and the Golgi bodies—“both mitochondria and Golgi
bodies are able to assimilate, grow, and divide in the cytoplasm.”
(Gatenby.) Wilson is of opinion that the law of genetic continuity may
have to be extended even to those minute granules and particles of
the cytosome, which were formerly thought to arise de novo in the
apparently structureless hyaloplasm. Speaking of the emulsified
appearance of the starfish and sea urchin eggs, he tells us that their
protoplasm shows “a structure somewhat like that of an emulsion,
consisting of innumerable spheroidal bodies suspended in a clear
continuous basis or hyaloplasm. These bodies are of two general
orders of magnitude, namely: larger spheres or macrosomes rather
closely crowded and fairly uniform in size, and much smaller
microsomes irregularly scattered between the macrosomes, and
among these are still smaller granules that graduate in size down to
the limit of vision with any power (i.e. of microscope) we may
employ.” (Science, March 9, 1923, p. 282.) Now, the limit of
microscopic vision by the use of the highest-power oil-immersion
objectives is one-half the length of the shortest waves of visible light,
that is, about 200 submicrons (the submicron being one millionth of a
millimeter). Particles whose diameter is less than this cannot reflect
a wave of light, and are, therefore, invisible so far as the microscope
is concerned. By the aid of the ultramicroscope, however, we are
enabled to see the halos formed by particles not more than four
submicrons in diameter, which, however, represents the limit of the
ultramicroscope, and is the diameter hypothetically assigned to the
protein multimolecule. Since, therefore, we find the particles in the
protoplasm of the cell body graduating all the way down to the limit
of this latter instrument, and since on the very limit of microscopic
vision we find such minute particles as the centrioles “capable of
self-perpetuation by growth and division, and of enlargement to form
much larger bodies,” we cannot ignore the possibility that the
ultramicroscopic particles may have the same powers and may be
the sources or “formative foci” of the larger formed bodies, which
were hitherto thought to arise de novo.
Certainly, pathology, as we shall see, tells us of ultramicroscopic
disease-germs, which are capable of reproduction and maintenance
of a specific type, and experimental genetics makes us aware of a
linear alignment of submicroscopic genes in the nuclear
chromosomes, each gene undergoing periodic division and
perpetual transmission from generation to generation. The cytologist,
therefore, to quote the words of Wilson, “cannot resist the evidence
that the appearance of a simple homogeneous colloidal substance is
deceptive; that it is in reality a complex, heterogeneous, or
polyphasic system. He finds it difficult to escape the conclusion,
therefore, that the visible and the invisible components of the
protoplasmic system differ only in their size and degree of
dispersion; that they belong to a single continuous series, and that
the visible structure of protoplasm may give us a rough magnified
picture of the invisible.” (Ibidem, p. 283.)
It would seem, therefore, that we must restore to honor, as the fifth
article of the law of cellular continuity, the formula, which Richard
Altmann enunciated on purely speculative grounds in 1892, but
which the latest research is beginning to place on a solid factual
basis, namely: Omne granulum ex granulo. “For my part,” says the
great cytologist, Wilson, “I am disposed to accept the probability that
many of these particles, as if they were submicroscopical plastids,
may have a persistent identity, perpetuating themselves by growth
and multiplication without loss of their specific individual type.” And
he adds that the facts revealed by experimental embryology (e.g.,
the existence of differentiated zones of specific composition in the
cytoplasm of certain eggs) “drive us to the conclusion that the
submicroscopical components of the hyaloplasm are segregated and
distributed according to an ordered system.” (Ibidem, p. 283.) The
structure of the cell has often been likened to a heterogeneous
solution, that is, to a complex polyphasic colloidal system, but this
power of perpetual division and orderly assortment possessed by the
cell as a whole and by its single components is the unique property
of the living protoplasmic system, and is never found in any of the
colloidal systems known to physical chemistry, be they organic or
inorganic.

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§ 1. The Theory of Spontaneous Generation

§ 2. The Law of Genetic Continuity—

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