Strategy Questions and answers Chapter 1 Self-Test 1. Good strategy strategy and and good strategy strategy executi execution on are the most most trustwor trustworthy thy signs signs of good management because management is ultimately responsible for a company's performance and because good execution of a good strategy is the most surefire recipe but not a guarantee!" for good company performance.
True False
#. $inancial $inancial ob%ecti&e ob%ecti&es s are important important because because without acceptabl acceptable e financial financial performance performance an organiation cannot ha&e a good strategy nor is it li(ely to ha&e the resources re)uired for good strategy execution.
True False
*. Strategic Strategic ob%ecti& ob%ecti&es es relate relate to performan performance ce outcomes outcomes that impro& impro&e e a company's company's competiti&e strength and mar(et position whereas financial ob %ecti&es relate to such performance outcomes as profits+ return on in&estment+ cash flow+ di&idend growth+ and financial strength.
True False
,. Crafting Crafting strategy strategy is an exerci exercise se in insideinside-out out strategi strategic c thin(ing. thin(ing.
True False
. Crafting Crafting strategy strategy is primarily primarily an administ administrati& rati&e e tas( whereas whereas implementin implementing g strategy is primarily an entrepreneurial tas(.
True False
. /hich of of the follow following ing are are among the the fi&e fi&e tas(s of of strategic strategic managem management0 ent0
a. Forming a strategic vision of what the organization's future business b. Setting objectives c. Deciding which objectives are high priority and which are low priority d. Crafting a strategy to achieve the desired outcomes e. Doing outsidein strategic thin!ing f. "mplementing and e#ecuting the strategy g. $valuating performance% reviewing new developments% and initiating corrective adjustments in the organization's vision% longterm direction objectives% strategy% and&or implementation
. 2 stra strateg tegic ic &ision &ision for a compa company ny
a. involves how fast to pursue the chosen strategy and reach the targeted levels of performance. b. consists of thin!ing through what it will ta!e to ma!e the chosen strategy wor! as planned. c. consists of management's view of the !ind of company it is trying to create and its intent to sta!e out a specific business position. d. is pretty much the same thing as a company's strategy. e. concerns management's view of the company's future business ma!eup and longterm direction.
3. The ob% ob%ect ecti&e i&es s that that manage managers rs set set
a. should spell out how fast the strategy is to be implemented. b. should reuire organizational stretch and disciplined effort. c. should include both shortrange and longrange performance targets. d. ought to put more emphasis on achieving shortrun performance targets than on longrun performance targets. e. indicate the company's intent to sta!e out a particular business position. f. should include both financial and strategic performance targets.
4. 2 comp compan any' y's s stra strate tegy gy
a. is a combination of planned actions and othespot adaptive reactions to fresh developing industry and competitive events. b. is a company's means of achieving its objectives. c. is developed primarily at the same time the company is formed and then evolves slowly thereafter. d. is aimed more at achieving strategic objectives than at achieving financial objectives. e. tends to change less often and more slowly than either its strategic vision or its performance targets. f. reflects managerial choices among alternatives and signals organizational commitment to particular products% mar!ets% competitive approaches% and ways of operating.
15. Crafting strategy strategy in&ol&es outside-in outside-in strategic thin(ing and entrepeneurship entrepeneurship because
a. company managers need to !eep the strategy responsive to such outside drivers as changing buyer preferences% the latest actions and moves of rivals% mar!et opportunities and threats% and newly appearing business conditions. b. managers can't !eep company strategy responsive to chances in the business environment unless they e#hibit entrepeneurship in studying mar!et trends% listening to customers% figuring out ways to enhance the company activities in new directions in a timely manner. c. strategy is more adaptive and reactive than i ntended and planned. d. good entrepeneurship and astute analysis of the e#ternal business environment are !eys to a conservative% ris!avers strategy. strategy. e. shrewd diagnosis of changing mar!et conditions and changing customer preferences and reuirements is one of the !eys to !eeping company strategies mar!etdriven and customerdriven. customerdriven.
11. Company Company strategies strategies e&ol&e e&ol&e because because
a. it is a bad idea to do too much strategizing until a company has been in business long enough to !now what strategies will wor! best. b. most managers li!e to develop the strategy in bits and pieces rather than all at once. c. even a wellplannedoutinadvance strategy must be adapted to shifting mar!et conditions% the fresh actions of competitors% altered customer needs and preferences% emerging opportunities and threats% unforeseen events% and innovative thin!ing about how to improve the present strategy. d. many managers are conservative% preferring to be latemovers in responding new developments and avoiding the ris!s associated with developing a complete strategy too uic!ly. e. the longer a company is in business% the more li!ely it becomes that the original strategy will need to be fine tuned or revised in significant ways or even overhauled entirely in order to !eep the strategy in tune with changing circumstances.
1#. 2 company' company's s strategy strategy consists consists of
a. the game plan for out competing rivals. b. actions ta!en to capitalize on new opportunities. c. defensive moves to counter the actions of competitors and protect against e#ternal threats. d. actions to respond to changing i ndustry conditions. e. creating a budget to steer resources into those organizational departments whose activities are crucial to mar!et success. f. actions to strengthen its resource base and competitive competitive capabilities. g. moves and approaches that define how the company manages ()D% manufacturing% mar!eting% finance% finance% and other activities.
1*. The tas( of formulating a strategic plan in&ol&es
a. planning to create an organizational structure that will facilitate carrying out the chosen strategies. b. mapping out where the organization is headed. c. establishing objectives. d. deciding on a strategy. strategy. e. installing internal support systems that enable company personnel to carry out their strategic roles effectively on a daily basis. f. involves having a strategic planning staff or a special tas! force come up with the specifics and the details of what to do% while senior management either approves or disapproves what is recommended.
1,. The managerial tas( of implementing strategy includes includes
a. developing a strategic vision and b usiness mission to guide how the strategy is to be communicated% implemented% and then e#ecuted on a daily basis. b. building an organization a capable of carrying out the strategy successfully. c. e#erting the internal leadership needed to d rive implementations forward and to !eep improving on how the strategy is being e#ecuted. d. creating strong *fits* between the way the organization does things internally to try to e#ecute the strategy and what wt will ta!e for the strategy to succeed. e. deciding how best to improve shortterm and longterm profitability. profitability.
1. 2 company's company's long term direction+ strategy+ and approach to strategy implementation implementation are ne&er final because
a. changes in the organization's internal or e#ternal situation fuel the need for strategic adjustments. b. it is always incumbent on management to push for better company performance to find ways to improve the e#isting strategy and how it is being e#ecuted. c. strategic planners sometimes change their minds about what !ind of longrange strategy is best for the company to pursue. d. the company's board of directors and senior e#ecutives may prefer to e#periment with several different strategies and implementation approaches to wee which wor!s best. e. ineffective strategic planning efforts seem to be the norm in so many companies.
1. The fi&e tas( tas( of strategic strategic manageme management nt
a. are best performed by professional strategic planners s!illed in the use of strategic analysis techniues. b. tend to be performed by the C$+ in most companies. c. are primarily the responsibility of a company's board of directors. d. are best performed by senior e#ecutives% with the help and advice from strategic planners. e. tend to reuire the involvement of senior managers% middle managers% and lowerechelon managers all managers tend to have a role in the strategyma!ing% strategyimplementing process.
1. 6elegating a strategy-ma(ing7strategy-imp strategy-ma(ing7strategy-implementing lementing role to middle middle and lower-le&el managers
a. is generally unwise because they lac! the *big picture* !nowledge to ma!e sound strategic decisions. b. wor!s bests when they can see! counsel on an asneeded basis from a wellstaffed strategic planning department. c. is rarely done in large companies because there are plenty of e#perienced seniorlevel managers to handle the strategic management function. d. is normal in many companies because the more geographically scattered and diversified an organization's operations are% the more unwieldy it becomes for senior e#ecutives to craft and implement all the necessary actions and programs. e. is managerially comple# because it is hard% if not impossible% to fi# accountability for strategic success or failure.
13. The strategic role role of a company's board of directors in&ol&es in&ol&es
a. ta!ing lead responsibility for deciding what the company's longterm direction should be and for crafting a strategy. b. reviewing important strategic moves and officially approving the strategic plans submitted by senior management. c. wor!ing closely with senior strategic planners and senior e#ecutives to develop consensus on a longterm direction for the company and a longrange strategic plan. d. evaluating the caliber of senior e#ecutives' strategyma!ing strategyma!ing and strategyimplementing strategyimplementing s!ills. e. being an active participant in the first three tas!s of strategic management and ta!ing a p rettymuch hands off approach on the other two tas!s.
14. The role and tas(s of strategic strategic planners and strategic strategic planning departments departments in the strategic management process should consist of
a. helping to gather and organize information that strategyma!ers strategyma!ers need. b. doing most of the strategic analysis for line managers and helping free line managers of the tedium of thin!ing strategically. strategically. c. ta!ing lead responsibility for strategyma!ing and allowing line managers to have lead responsibility for strategy implementation ,so as to better fi# responsibility for results-. d. wor!ing closely with !ey managers to prepare a sound strategic plan to submit to the board of directors for final approval. e. wor!ing closely with !ey managers to prepare a sound strategic plan to submit to the board of directors for final approval.
#5. The ad&antages of first-rate strategic strategic thin(ing and conscious management of the strategy-ma(ing+ strategy-implementing process include
a. helping to unify the numerous strategyrelated strategyrelated decisions made by managers across the organization. b. creating a more proactive management posture and counteracting tendencies for decisions to be reactive and defensive. c. decreased ris! of a failed strategic vision. d. greater ability to outinnovate and outmaneuver rivals% thereby winning a sustainable competitive advantage. e. raising managers' consciousness regarding the winds of mar!et change% new opportunities% and threatening developments.
#1. 8888888888888888 are yardstic(s yardstic(s for trac(ing trac(ing an organiation's organiation's performance and progress. ##. 2n organiation's 88888888888888888 consists of of the actions and business approaches management employees to achie&e the targeted organiational performance. #*. The most complicated complicated and time time consuming part of strategic management management is 8888888888888888888888. #,. 2 8888888888888888888888 8888888888888888888888 outlines an organiation's mission and future future direction+ near-term and long-term performance targets+ and strategy. #. The term 8888888888888888888888888 8888888888888888888888888 refers to to the full range of managerial managerial acti&ities associated with putting the chosen strategy into place+ super&ising its pursuit+ and achie&ing the targeted results.
29S/:;S 1. T #. F *. T ,. F . F . a% b% d% f% g . c% e 3. b% c% f 4. a% b% f 15. a% b% e 11. 11. c% e 1#. a% b% c% d% f% g 1*. b% c% d 1,. b% c% d 1. a% b 1. e 1. d 13. b% d 14. a% e #5. a% b% e #1. objectives ##. strategy #*. implementing strategy #,. strategic plan #. strategy implementation
Chapter # 1.
Strategic &isions and company mission statements
a. should be highly personalized uniue to the organization to which they apply. b. provide a big picture perspective of the organization's future course its customer focus% its target mar!et position% and the business activities to be pursued. c. are generally focused on the need to ma!e a profit and what size profits and return on investment are desired. d. are much more concerned with the present than the future. e. need to be developed after management has settled on a strategy and a set of objectives.
#. 2rri&ing 2rri&ing at a good definitio definition n of what business business an organiat organiation ion is presently presently in usually usually re)uires considering
a. what strategic objectives the company is trying to achieve. b. what opportunities management considers most appealing. c. the customer needs being served% or what is being satisfied. d. the company's target mar!et% or who is being satisfied. e. the technologies used and functions performed% or how customers' needs are being satisfied. f. what the company's overall strategy is.
*. $orming $orming a strateg strategic ic &ision &ision for a company company in&ol&es in&ol&es the the distinct distinct tas(s tas(s of
a. forcefully stating that the organization's fundamental purpose is to ma!e a profit. b. defining what business the company is presently in. c. stating the company's strategic intent and agreeing on its long term strategic objectives. d. deciding on a long term strategic course for the company to pursue. e. communicating the vision in ways that are clear% e#citing% e#citing% and inspiring. f. establishing a mission statement for each of the company's functional department. department.
,. 2 well-word well-worded+ ed+ well-concei well-concei&ed &ed strategic strategic &ision7mi &ision7mission ssion statement statement has real manageri managerial al &alue when
a. it is stated in language broad enough to cover whatever the firm might later decide to do. b. it is no more than one sentence in length. c. it crystallizes senior e#ecutives' own views about the firm's longterm direction and business ma!eup. d. it is stated in narrow enough terms to pin down the company's real arena of business interest. e. it conveys an organizational purpose and identity that activates employees to go all out and contribute to ma!ing the vision a reality.
. Strate Strategic gic &isi &isions ons and and missio mission n stateme statements nts
a. should be communicated to employees in language that arouses a strong sense of organizational purpose% builds pride% and induces employee buyin. b. need to be changed when emerging opportunities and threats in a company's surrounding business environment ma!e it desirable to revise the organization's longterm direction. c. help reduce the ris! of visionless management and rudderless decisionma!ing. d. provide a beacon that lowerlevel managers can use to form departmental missions and set d epartmental objectives. e. help an organization prepare for the future.
.
a. represent a managerial commitment to achieving specific performance outcomes by a certain time. b. are needed for each !ey result that managers deem important to organizational success. c. are best stated in general terms ,ma#imize profits% reduce costs% increase sales- rather than uantifiable terms ,increase afterta# profits by /0 in 1 years% grow sales revenues by 1/0 annually- so that managers will have the latitude to adjust target outcomes to levels that prove realistic and achievable. d. should be aimed more at nearterm targets than longrange targets because of the uncertainties associated with setting longrange targets at realistic levels. e. should place far more emphasis on financial targets than strategic targets.
. /hich of of the followi following ng are good good examples examples of strategic strategic ob%ect ob%ecti&es i&es as opposed opposed to to financial ob%ecti&es"0
a. 2chieve earnings growth of /0 annually b. "ncrease mar!et share from 30 to 110 within 4 years a c. 2chieve the lowest overall costs of any producer in the industry d. 2chieve a 22 bond rating within 1 years a e. "ncrease the return on invested capital from 4.50 to 5./0 within 1 years f. +ffer the broadest product line of any company in the industry g. 6e a recognized industry leader in technology and product innovations
3. :stablishing and achie&ing strategic ob%ecti&es merits &ery high priority on management's agenda because
a. pursuing actions that strengthen a company's competitiveness and business position is one of the surest paths to protecting and sustaining a company's profitability uarter after uarter and year after year. b. a company's strategic performance is almost as important as a company's financial performance. c. a company that consistently passes up opportunities to strengthen its longterm competitive position in order to realize better nearterm profitability ris!s diluting its competitiveness and losing momentum in its target mar!et. d. wellchosen strategic objectives are essential to a wellcrafted strategy. e. a company can't have a shrewd strategic vision without having aggressive and competitively astute strategic objectives.
4.
a. should be set at high enough levels to stretch an organization to reach its full potential. b. are needed for the organization as a whole but n ot for separate businesses% product lines% functional areas% or departments in order to !eep the full attention of all employees and managers trained on achieving the targeted levels of organizationwide performance. c. should be set via a bottomup process rather than a topdown process so as to involve a greater number of employees. d. should primarily have a shortrange focus because wellchosen shortterm objectives greatly reduce the need for longterm performance objectives. e. are needed for both the nearterm and the longterm.
15. 2n organiation's strategy concerns
a. how to achieve strategic and financial performance targets. b. how to outcompete rivals. c. how to achieve sustainable competitive advantage. d. how to strengthen its longterm business position. e. how to ma!e management's strategic vision a reality. f. how to respond to changing e#ternal or internal conditions.
11. =usiness strategy as distinct from corporate strategy+ functional strategies+ and operating strategies"
a. concerns the pattern of moves and approaches crafted by management to produce successful performance in one specific line of business. b. is usually crafted personally by a company's C$+. c. is chiefly concerned with 7+8 to build and strengthen the company's competitive position in a specific business and mar!et arena. d. can be judged as powerful or wea! depending on whether it has the capacity to produce a sizable and sustainable competitive advantage or whether it results in competitive disadvantage. e. is the result of what operating strategies and what functional strategies lowerlevel managers choose to pursue.
1#. $unctional strategies
a. concern the strategic initiatives and approaches of !ey internal units ,plants% distribution centers% sales districts- and for handling daily operating tas!s having strategic significance ,purchasing% shipping% advertising-. b. are generally crafted by the business head wor!ing in consultation with !ey subordinates and department heads. c. are needed for every major departmental unit and every major piece of the business. d. have% as their main role% to support the overall business strategy and competitive approach. e. should be crafted independently of one another to avoid duplication and overlap.
1*.
a. are of lesser scope than functional strategies. b. are normally the lead responsibility of senior e#ecutives% with heavy input often coming from the business head. c. should be supportive of functional and business strategies. d. need to be crafted and approved before functional strategies and business strategy are formulated. e. are nearly always the !ey to achieving sustainable competitive advantage.
1,. >n a single business company+ the strategy-ma(ing pyramid includes
a. corporate strategy. b. business strategy. c. diversification strategy. d. functional strategies. e. managerial strategies. f. operating strategies. g. industry strategy. h. organization strategy.
1. The managerial tas( of uniting the strategy-ma(ing effort from the top to the bottom of the strategy-ma(ing pyramid in&ol&es
a. more of a bottomup process than a topdown process. b. gaining broad consensus for and commitment to the organization's mission and vision% longterm direction% and objectives. c. harmonizing the separate layers of strategy and networ!ing them into a cohesive% coherent% and mutually reinforcing pattern. d. e#erting strong topdown directionsetting and strategic leadership so as to get lowerlevel managers to perform their strategyma!ing tas!s in a manner that is in accord with the company's vision% objectives% and strategy rather than in a manner that suits departmental or personal interests. e. a collaborative effort on the part of all managers to set performance targets and invent strategic actions in their respective areas of responsibility that contribute directly to overall company objectives and strategy.
1. >n contemplating what strategy to employ and what strategic actions to pursue+ management
a. can ethically pursue any strategic action that i s legal. b. has a duty to its employees to ta!e into account the impact that strategy or a change in strategy has upon employees and% where such impacts may be adverse or negative% to underta!e such actions euitably% compassionately% and with due process. c. has a duty to see that the company's strategic actions are consistent with its being a good citizen in the communities where it operates and to e#ercise care in the impact its strategic actions have on these communities. d. has no special duty or ethical obligation to customers beyond complying with legal reuirements and governmental regulations. e. has a moral duty to pursue satisfactory profitability and an acceptable return on owners' investment.
1. >n a di&ersified company+ the strategy-ma(ing tas(
a. involves three different levels of management !ey e#ecutives% middle managers% and firstline supervisors. b. involves four different levels of management !ey e#ecutives in the corporate office% heads of business units and product divisions% the heads of major functional areas within a business division% and an assortment of operatinglevel managers ,plant managers% product managers% regional and district sales managers% and so on-. c. begins with crafting operating strategies% then progresses up through the managerial hierarchy to functional strategies% business strategies% and corporate strategy. d. is mostly a topdown process where corporate e#ecutives dictate the shape of businesslevel strategy% where business heads are responsible for the functional areas underneath their authority% and where functional heads are responsible for crafting operating strategies for for the units they supervise. e. involves a hierarchy of responsibility or a strategyma!ing pyramid that% starting from the top of the pyramid% begins with corporate strategy and proceeds down to business strategies% functional strategies% and operating strategies.
13. >n identifying the corporate strategy of a di&ersified company+ one needs to consider
a. what !ind of diversification ,related% unrelated% or both- the company is pursuing. b. if diversification is designed to create a strong corporate identity. c. whether the company is diversifying broadly across many industries or is concentrating its efforts narrowly on a few different industries. d. the company's approach to vertical integration. e. the company's ( ) D strategy. f. recent moves to add new businesses to the company's portfolio and build new positions in attractive industries. g. whether it has made recent moves to divest wea! or unattractive businesses. h. the company's approach to allocating investment capital across its business units. i. what !ind of competitive approach the company is pursuing in each of its different businesses. j. whether the company is trying to capture the synergy among related business units and turn it into competitive advantage.
14. To identify the strategy for a single-business company+ one needs to consider
a. whether the company's competitive approach is based on low cost&low price or differentiation ,providing attributes not found in rival brands- or focusing on a specific mar!et niche. b. the company's approach to allocating investment capital to each of its different activities. c. the firm's geographic coverage% approach to vertical integration% and its collaborative partnerships and alliances with others all of which combine to establish its competitive scope within the industry. d. the !ey functional strategies being employed. e. what the company is doing to deal with changing industry conditions and other emerging developments. f. what it is doing to secure a competitive advantage. g. how many different operating strategies the company has and what their !ey features are. h. whether the strategy is ethical or unethical. i. recent internal moves to change compensation methods.
#5. The factors that shape the choice of company strategy can be grouped into # broad categories - factors external to the company and factors internal to the company. =elow is a list of items that may or may not ha&e great bearing on a company's choice of strategy. >f you deem an item is rele&ant to a firm's choice of what strategy to employ+ then classify it as an external factor by mar(ing as an ?:?" or as an internal factor by mar(ing as an ?>?". >f the item is not rele&ant as a factor+ the box should remain blan(.
#1.
Shared values and company culture. 7ow much the product is selling for. Company opportunities and threats. 7ow long the product has been on the mar!et industry attractiveness and competitive conditions. Company resource strengths% resource wea!nesses% competencies% and competitive capabilities. Societal% political% regulatory% and community citizenship considerations. The personal ambitions% business philosophies% and ethical principles of !ey e#ecutives. 7ow many strategy options or alternatives the company has.
is the o&erall managerial game plan for a di&ersified company.
##. 2 company exhibits when it relentlessly pursues an ambitious strategic ob%ecti&e and concentrates its competiti&e actions a nd energies on achie&ing that ob%ecti&e. #*. 2 is a basis for competiti&e ad&antage because it represents specialied expertise that ri&als don't ha&e and cannot readily match. #,. 2 winning strategy must be well-matched to the company's 1" lead to sustainable #" + and boost company performance.
+
#. The approach to performing the strategy-ma(ing tas( is when a manager enlists the help of (ey subordinates in hammering out a consensus strategy that all the (ey players will go bac( and do their best to implement successfully.
ANSWERS a, b 2. c, d, e 3. b, d, e 4. c, d, e 5. a, b, c, d, e 6. a, b 7. b, c, f, g 8. a, c 9. a 10. a, b, c, d, e, f 11. a, c, d 12. c, d 13. a, c 14. b, d, f 15. c, d, e 16. b, c, e 17. b, e 18. a, b, c, f, g, h, j 19. a, c, d, e, f 1.
20. "I" Shared values and company culture. 7ow much the product is selling for.
"E" Company opportunities and threats. 7ow long the product has been on the mar!et industry attractiveness and competitive conditions.
"I" Company resource strengths% resource wea!nesses% competencies% and competitive capabilities. "E" Societal% political% regulatory% and community citizenship considerations. "I" The personal ambitions% business philosophies% and ethical principles of !ey e#ecutives. 7ow many strategy options or alternatives the company has.
21. 22. 23. 24. 25.
Corporate strategy strategic intent distinctive competence (1) situation (2) competitive advantage collaborative
Chapter * Self-Test
1. >ndustry and competiti&e analysis aims at de&eloping probing answers to which se&en of the following )uestions0
a. 7ow well is the company's strategy wor!ing9 b. 8hat are the strategic plans of other competitors in the industry9 c. 8hat are the industry's dominant economic features9 d. 8hat !ey factors will determine competitive success or failure9 e. 8hat are the drivers of change in the industry and what impact will they have9 f. 8hat strengths% wea!nesses% opportunities% and threats are evident in the industry environment9 g. 8hat competitive forces are at wor! and how strong are they9 h. 8ho's li!ely to ma!e what strategic and competitive moves ne#t9 i. 8hich companies are in the strongest&wea!est competitive positions9 j. 7ow attractive is the industry in terms of its prospects for above average profitability9
#. >n identifying an industry's dominant economic features+ it is important to consider such things as a. mar!et size% mar!et growth rate% and where the industry is in the growth cycle. b. what the industry's !ey success factors are. c. which competitors are in which strategic groups. d. resource reuirements% the prevalence of bac!ward and forward integration% and whether there are significant scale economies in purchasing% manufacturing% shipping% mar!eting% or distribution. e. the strength of competitive pressures from producers of substitute products. f. whether the industry's products are standardized or differentiated. g. whether the scope of competitive rivalry is local% regional% national% international% or global. h. the types of distribution channels used to access buyers. i. the pace of technological change. j. the bargaining power of suppliers.
*. /hich of these are included in the ?fi&e-forces? model of competition0
a. Firms in other industries offering substitute products b. Suppliers of !ey inputs c. The regional&national&global economic climate d. Federal and state regulatory agencies e. (ivalry among competing sellers f. 6uyers g. Financial mar!ets ,8all Street investment firms% major ban!s% bond rating agenciesh. :otential new entrants i. Distributors% wholesalers% and other *middleman* interests
,. The ri&alry among competing sellers is stronger when
a. demand for the product is growing rapidly. b. customers' costs to switch brands are low. c. industry conditions tempt rivals to use price cuts or other promotional tactics to boost their sales volumes. d. the number of rivals is relatively small ,less than ;- and there are big d ifferences in their size and competitive capabilities. e. there are significant scale economies and e#perience curve effects.
. @ow serious the competiti&e threat of entry is in a particular industry depends on
a. whether industry demand is growing rapidly or slowly. b. the number of customers for the industry's product ,the greater the number of customers% the greater the threat of entry-. c. whether barriers to entry are hi gh or low. d. how many competitors are already in the industry. e. the e#pected reaction of incumbent firms to new entry.
. /hich of the following are generally considered to be barriers to entering a mar(et or industry0
a. The presence of sizable scale economies and e#perience curve effects b. The presence of more than 1/ rivals already in the industry c. 2 product that is pretty much standardized from rival to rival d. Firms in the industry hold !ey patents and possess significant proprietary technology e. The e#istence of tariffs% import uotas% and governmentmandated regulations f. Difficulty in gaining access to technology and specialized !nowhow g. 6uyer attachment to established brands
. The competiti&e threat that outsiders will enter the industry is wea(er when
a. entry barriers are high. b. the industry's product is standardized. c. incumbent firms are li!ely to fight vigorously to prevent a newcomer from siphoning off their customers and eroding their sales volume. d. substitute products are not a strong competitive factor in the mar!et.
e. newcomers will have a hard time earning attractive profits for several years following entry.
3. The competiti&e threat posed by substitute products is wea(ened when a. buyers believe substitute products don't have better or even eual features. b. buyers' costs of switching to substitutes are relatively high. c. entry barriers are moderately high but by no means prohibitive. d. customers are in a strong bargaining position. e. substitutes are more e#pensive for buyers to use.
4. 2 good example of the competiti&e power of substitute products is a. the competition between ice s!ates and roller blades. b. the competition between Cadillac and
15. The suppliers to an industry are a strong competiti&e force when a. the item suppliers provide is a standard commodity that is readily available from numerous suppliers at the going mar!et price. b. there are good substitute inputs and switching is neither costly nor difficult. c. the industry being supplied is a major customer&user of the item such that suppliers' profitability is heavily dependent on their sales to the industry. d. they can supply an item considerably more cheaply than industry members can ma!e it themselves. e. technology is changing rapidly. f. the industry is moving towards greater global competition. g. suppliers% because of their reputation or the uality of the items they supply or some other factors% are in a position to e#ercise bargaining leverage over price% delivery% and other terms and conditions of sale.
11. /hether the buyers of an industry's product ha&e strong or wea( bargaining le&erage o&er the terms and conditions of sale depends on a. whether the costs of switching to substitute products are high or low. b. whether the costs of switching to competing brands are high or low. c. whether all buyers have the same degree of negotiating power. d. whether buyers purchase in relatively large or small uantities. e. whether buyer demand is sporadic or stable% seasonal or yearround% cyclical% or recessionproof.
1#. /hich of the following are 9
1*. The procedure of constructing a strategic group map in&ol&es a. identifying the competitive characteristics that differentiate firms' mar!et positions and competitive approaches. b. selecting variables for the map's a#es that are highly correlated. c. using only variables for the map's a#es that are uantitative in nature ,ualitative measures of mar!et positions and competitive approaches are too subjective and unreliable-. d. plotting the firms on a twovariable map using pairs of characteristics that distinguish firms having different competitive approaches and mar!et positions. e. drawing circles around those firms occupying about the same strategy space% with the circles for each strategic group being proportional to the size of its members' share of total industry sales revenues.
1,. /ith the aid of a strategic group map+ it is easier to a. assess why competitive pressures and driving forces usually impact the biggest strategic groups more so than the smaller groups. b. determine who competes most closely with whom. c. determine which company is the most profitable in the industry. d. evaluate whether firms in some strategic groups are li!ely to be more profitable than firms in other strategic groups ,because of strengths and wea!nesses in their respective mar!et positions-. e. pinpoint which of the five competitive forces is the strongest and which is the wea!est.
1. Trying to determine what strategic mo&es ri&als are li(ely to ma(e next a. is important because of its bearing on a company's own best strategic moves. b. usually reuires evaluating the industry's !ey success factors as well as how many driving forces are present. c. involves scrutinizing which of the five competitive forces is strongest. d. cannot be done effectively without first drawing a strategic group map.
e. entails understanding their strategies% monitoring their actions on a regular basis% gauging how well they are faring in the mar!etplace% determining how much pressure they are under to improve their performance% and considering what their options are.
1. 2n industry's (ey success factors a. can be determined from a strategic group map. b. concern the competencies% competitive capabilities% product attributes% and mar!et achievements with the most direct bearing on how profitable any company in the industry is li!ely to be. c. are good candidates for being the cornerstones of a company's strategy. d. determine whether the industry is attractive or unattractive over the long term. e. usually relate to manufacturingrelated characteristics and rarely to distribution or mar!eting characteristics. f. can be a basis for sustainable competitive advantage because companies that stand out on particular >SF enjoy a stringer mar!et position for their effort. g. are typically the same from industry to industry.
1. >mportant factors for company managers to consider in drawing conclusions about whether the industry is an attracti&e or unattracti&e business to be in includeA a. whether competitive forces are li!ely to grow or diminish in strength. b. the degree of uncertainty and ris! in the industry's future. c. the potential for entry&e#it of major firms. d. the company's ability to capitalize on the vulnerabilities of wea!er rivals. e. whether the company has strong competitive capabilities and is well positioned to improve its mar!et standing and profitability.
13. 2n industry can be considered unattracti&e a. if longterm profit prospects are below average for one or more firms. b. if potential entrants view entry barriers as too high and decide against attempting to enter. c. if the industry outloo! is for belowaverage profitability. d. if wea! competitors have little prospect of earning a satisfactory profit. e. if substitute products are readily available and attractively priced.
14. Competiti&e %oc(eying among ri&al firms a. tends to be strong% even fierce% in attractive industries and moderate% even countryclubbish% in unattractive industries. b. tends to be more vigorous when entry barriers are high and e#it barriers are low. c. varies in intensity from industry to industry. d. tends to be a dynamic ever changing process as some companies initiate fresh actions and moves and as their rivals react a nd respond. e. tends to involve a *wargames* type of contest with shifting emphasis over time in the nature and mi# of competitive weapons and tactics that rivals employ. f. often results in a situation where the success of any one firm's strategy hinges on what strategies its rivals employee and the resources that rivals are willing and able to put behind their strategic efforts.
#5. /hich of the following are true0 a. 2n industry's dominant economic traits often frame the !inds of strategic approaches a company can pursue. b. 2 company's competitive strategy is increasingly effective the more it provides good defenses against the five competitive forces. c. The tas! of driving forces analysis is to separate the major causes of industry change from the minor ones. d. $nvironmental scanning is a powerful techniue for identifying what economic traits% competitive forces% and driving forces are most li!ely to dominate the industry in the future. e. 2 company that is uniuely wellsituated in an unattractive industry may still be able to earn good profits.
#1. >f an industry has a learning7experience cur&e effect of #5B for each doubling of cumulati&e production &olume and if costs per unit are #.55 for a cumulati&e production &olume of # million units+ then unit costs would be 881"88 at a cumulati&e production &olume of , million units and 88#"88 at a cumulati&e production &olume of 3 million units. 1. ???????????????????????? #. ????????????????????????
##. The competiti&e structure of an industry is deemed 888881"88888 from a profit-ma(ing standpoint if ri&alry among competing sellers is &ery strong+ entry barriers are 88888#"88888+ competition from substitutes is strong+ and at least some important suppliers and customers are in a pos ition to exercise considerable bargaining power. . ???????????????????????? 1. ????????????????????????
#*. 888888888888888888888are factors capable of creating significant incenti&es or pressures for fundamental changes in an industry's structure and competiti&e en&ironment. #,. Those industry ri&als with similar competiti&e approaches and mar(et positions comprise a 88888888888888. #. 2 sound strategy incorporates efforts to be competent on all industry 888888888888888888 and to excel on at least on factor.
29S/:;S 1.
c% d% e% g% h% i% j
2.
a, d, f, g, h, i, j
3.
a, b, e, f, g, h
4.
b, c
5.
c, e
6.
a, d, e, f, g
7.
a, c, e
8.
a, b, e
9.
d, e
10.
a, b, c, d, g
11.
a, b, d
12.
c, f, g
13.
a, d, e
14. b, 15.
d
a, e
16. b,
c, f
17.
a, b, c, e
18.
c
19.
c, d, e, f
20.
a, b, c, e
21.
(1) 1.50 (2) 1.28
22.
(1) unattractive (2) low
23.
Driving forces
24.
strategic group
25.
e! success factors
Chapter , Self-Test 1. The wea(er a company's financial performance and the less strong its com petiti&e position+ the more its current strategy must be called into )uestion. True False
#. 2 core competence gi&es a company competiti&e capability and )ualifies as a genuine competiti&e strength+ but it does not )ualify as a competiti&e ad&antage. True False
*. The importance of a distincti&e competence to strategy-ma(ing rests with the competiti&ely &aluable capability it gi&es a company+ its potential for being a cornerstone of the company's strategy+ and the competiti&e edge it can potentially produce in the mar(etplace. True False
,. 2s a rule+ company strategies should see( to exploit and le&erage company capabilities and its most competiti&ely &aluable resourcesD strategies that place hea&y demand on areas where a company is wea( or has unpro&en ability should be a&oided. True False
. The o&erall competiti&e strength scores resulting from a competiti&e strength assessment pro &ide indication of net competiti&e ad&antage or disad&antage. Companies with higher o&erall strength ratings ha&e a net com petiti&e ad&antage o&er ri&als with lower scores+ with sie of the ad&antage being a function of the s ies of the differences in the o&erall strength ratings. True False
. Company situation analysis focuses on de&eloping solid+ probing answers to which of the following )uestionsA a.
8hat should the company's strategy be9 b. 7ow strong is the company's competitive position relative to its rivals9 c. 8hat does the company's value chain loo! li!e9 d. 2re the company's prices and costs competitive9 e. Does the company need to pursue benchmar!ing and activitybased costing9 f. 8hat are the company's resource strengths and wea!nesses and its e#ternal opportunities and threats9 g. 7ow well is the present strategy wor!ing9 h. 8hat strategic issues does the company face9 i. 8hat is the company's competitive environment li!e does it confront strong% moderate% or wea! competition9
. /hich of the following are criteria for e&aluating the performance of a company's present strategy0 a.
The company's mar!et share ran!ing and whether its share is trending up% down% or staying more or less the same 8hether the company has at least two core competencies c. 8hether the company's internal strengths and competitive capabilities outweigh its internal wea!nesses and competitive vulnerabilities d. 8hether the company's profit margins are increasing or decreasing and how large they are relative to other firms in the industry e. 8hether the company's sales are growing faster or slower than the industry as a whole f. The firm's image and reputation with customers g. 7ow many strategic issues the company faces and how serious they are h. 8hether the company is regarded as a leader in some significant area ,technology% product uality% service% product innovation% and so on i. 8hether the firm's value chain is longer or shorter than rivals j. 7ow strong the company's advertising and promotional programs are relative to those of close rivals b.
3. The tas( of siing up a company's internal resource strengths. and wea(nesses and its external opportunities and threats a.
is called S8+T analysis. provides an overview of whether a firm's strategic situation is fundamentally healthy or unhealthy. c. helps provide a basis for matching the company's strategy to the company's situation. d. is the most important part of figuring out how many and what !ind of strategic issues and problems the company's management needs to address. e. is best done after a thorough competitive strength assessment so that the identification of company strengths% wea!nesses% opportunities% and threats will be easier and more accurate. b.
4.2 company strength a.
is something the company is good at doing or a characteristic that gives it enhanced competitiveness. usually ta!es the form of a s!ill&competence or a physical asset. c. can be a valuable human% organizational% or intangible asset. d. can result from different company resources teaming together to create a competitive capability. a e. can stem from a competitively important alliance or cooperative venture. f. is any !ind of company asset that results in a company having a sustainable competitive advantage ,otherwise it is not really a strength-. b.
15. $or a particular company resource to )ualify as the basis for sustainable competiti&e ad&antage+ it must a.
be hard to imitate. be the company's biggest balance sheet asset. c. be a physical asset% not a human asset. d. really be competitively superior. e. not be readily trumped by different resources&capabilities of rivals. f. be longlasting. g. be tangible rather than intangible. b.
11. The mar(et opportunities that are most rele&ant to a company are a.
those best able to assist in correcting the company's competitive wea!nesses. those which it has the financial and organizational resources to pursue. c. those that offer important avenues for growth. d. those that create defenses against e#ternal threats. e. those where the company has the greatest potential for competitive advantage. b.
1#. Company &alue chains a.
show the lin!ed set of activities and functions it performs internally. are the same for all firms within an industry but can differ across industries. c. are a tool for determining the e#tent to which a company is globally competitive. d. indicate which activities are most costly and which are least costly. e. identify which activities are strategycritical and which are not. f. identify which internal activities represent core competencies. g. identify the primary activities that create customer value and the related support activities. h. identify which activities are being performed efficiently and which are not. b.
1*. =enchmar(ing a.
is a manager's best tool for determining whether a company is performing particular value chain activities and functions efficiently. is a tool for determining whether a company's costs for particular value chain activities are in or out of line with competitors. c. is inherently unethical if i t is done with companies that are direct competitors. d. can often be done with the aid of thirdparty organizations so as to protect the confidentiality of individual company data. e. is not a valid tool for measuring the costeffectiveness of an activity unless it is restricted to companies in the same industry. b.
1,. 2 company's cost competiti&eness a.
depends on how well it benchmar!s its activities against competitors. depends on how efficiently it manages its overall value chain activities relative to how efficiently competitors manage theirs. c. depends mainly on bac!ward ,upstream- sections of the overall industry value chain. d. depends mainly on forward ,downstream- sections of overall industry value chain. e. depends on how well its internallyperformed activities are lin!ed to the activities performed by suppliers and to the activities performed by forward channel allies. b.
1. Strategic actions to eliminate a cost disad&antage can a.
aim at lowering costs in the suppliers' part of the industry value chain. b. aim at lowering costs in a company's own internally performed activities. c. aim at lowering costs in the forward channel portion of the value chain. d. ta!e the form of benchmar!ing and the development of activitybased costing approaches. e. aim at concentrating company resources and talents on those s!ills and activities where the company can gain dominating e#pertise.
1.2 company's best chance to achie&e sustainable competiti&e ad&antage a.
is grounded in the caliber of its product or service ,because superior products or services are almost impossible to clone or improve upon-. is lin!ed most closely to its ability to sell at a lower price than rivals. c. is in having a shorter% more economical value chain than rivals. d. is to perform most valuechain activities internally so a s not to be very dependent on either suppliers or forward channel allies. e. is often grounded in its having competitively superior competencies and capabilities as compared to those of rivals. f. often hinges on managerial efforts to concentrate company resources and talents on those competencies% capabilities% and value chain activities where it can gain d ominating e#pertise to serve target customers better than rivals. b.
1. /hich of the following are signs of wea(ness in a company's competiti&e position0 a. 2n eroding mar!et share b. 2 lower price than rivals c. 2 higher price than rivals d.
"n an unfavorably situated strategic group Too small to be a major factor in the mar!etplace f. @uestionable product uality or customer service or product development s!ills g. Subpar revenue growth relative to competitors h. Aot able to match the s!ills% e#pertise% or capabilities of competitors in !ey value chain activities i. 2n afterta# returnoneuity below 50 j.
13. 6oing a competiti&e strength assessment in&ol&es a.
developing a list of B to / !ey success factors and measures of competitive strength. rating each company on each >SF and strength measure ,using a scale or to 5 or to /-. c. summing the individual strength ratings to get an overall measure of competitive strength for each competitor. d. drawing conclusions about the size of the company's net competitive advantage or disadvantage. e. deciding whether to employ a weighted or an unweighted rating system. b.
14. The purpose of de&eloping a list of the strategic issues a company faces is a.
to draw conclusions about the strengths and wea!nesses of company's present strategy. to determine whether it has a distinctive competence. c. to highlight the wea!nesses in its competitive mar!et position and to draw conclusions about whether the firm has a net competitive advantage or disadvantage. d. to help decide whether the firm needs to shorten or lengthen its value chain in order to better position itself in the mar!etplace. e. to develop an agenda for management action. b.
#5. 2 company's strategic options for o&ercoming cost disad&antages in the forward downstream" end of its o&erall &alue chain system include a.
pressuring distributors and other forward channel allies to reduce their costs. wor!ing closely with forward channel allies to alter practices and procedures in ways that achieve mutually beneficial cost reductions. c. integrating forward to gain better control over the costs of downstream activities. a d. shifting to activitybased costing. e. cutting prices enough to eliminate the cost disadvantage in the forward end of the value chain. b.
#1. 2 ##.
is something a company does especially well in comparison to its competitors.
in&ol&es comparing a company's costs+ acti&ity by acti&ity+ against the costs of (ey ri&als and identifying which internal acti&ities are a source of cost ad&antage or disad&antage.
#*. 2 company's identifies the acti&ities+ functions+ and business processes that are performed in designing+ producing+ mar(eting+ deli&ering+ and supporting its products" or ser&ices". #,.
focuses on cross-company comparisons of how well basic functions+ acti&ities+ and processes in a company's &alue chain are performed relati&e to other companies and organiations.
#.
entails de&eloping cost estimates for specific tas(s and acti&ities in a company's &alue chainD the cost data it pro&ides is substantially different from traditional approaches to cost accounting.
29S/:;S 1. T #. T *. T ,. T . T . b% d% f% g% h . a% d% e% f% h 3. a% b% c 4. a% c% d% e 15. a% d% e% f 11. b% c% e 1#. a% g 1*. a% b% d 1,. b 1. a% b% c 1. e% f 1. a% d% e% f% g% h% j 13. a% b% c% d% e 14. a% e #5. a% b% c #1. distinctive competence ##. strategic cost analysis #*. value chain #,. benchmar!ing #. activitybased costing
Chapter Self-Test 1. The fi&e generic competiti&e strategies are a.
market share leadership. focused differentiation. c. overall lowcost leadership. d. overall !uality leadership. e. broad differentiation. f. bestcost provider. g. focused lowcost. h. technology leadership. i. customer service leadership. b.
#.2 company's competiti&e strategy a.
consists of the business approaches and initiatives it uses to attract customers, withstand competitive pressures, and strengthen its market position. b. consists mainly of offensive actions. c. consists mainly of defensive actions. d. typically involves both offensive and defensive moves to counter the maneuvering of key rivals. e. typically includes tactical efforts to respond to prevailing market conditions. f. can include actions to shift resources around to improve its long term market position and competitive capabilities.
*. /hich of the following is a distincti&e feature of a low-cost leadership strategy0 a.
"he strategic target is valueconscious buyers. "he production emphasis is on continuously searching for ways to reduce costs without sacrificing acceptable !uality and essential features. c. "he marketing emphasis is on making virtues out of product features that lead to low cost. d. "he product line consists of a few basic models having minimal frills and acceptable !uality. e. #ustaining the strategy depends on fre!uent advances in technology and occasional product innovations. b.
,. /hich of the following is a distincti&e feature of a best-cost pro &ider strategy0 a.
"he strategic target is valueconscious buyers. $ marketing emphasis on underpricing those rival brands with comparable features and attributes c. $ product line consisting of wide selection, many product variations, and emphasis on differentiating features d. #ustaining the strategy depends on constant product innovation, e%cellent &' skills, and periodic technological breakthroughs e. $ competitive advantage based on more value for the money b.
. Stri&ing to be the industry's o&erall low-cost pro&ider a.
works well in markets where many buyers are pricesensitive. entails pursuing costsaving initiatives that will yield a sustainable cost advantage over rivals. c. depends more on e%pertise in controlling the two primary cost drivers than on revamping the value chain to bypass some costproducing activities altogether. d. involves doing a better job than r ivals of performing internal value chain activities efficiently and of managing the factors that drive the costs of value chain activities. e. re!uires making the lowest !uality products possible. f. is a particularly powerful strategy when the industrys product is essentially the same from rival to rival. g. can involve trying to revamp the value chain to bypass or eliminate certain low valueadded activities. b.
. 2 low-cost pro&ider strategy a.
provides attractive defenses against the five competitive forces. is virtually riskfree because lowcost leaders are always able to make a profit g iven their lowcost status. c. is an attractive competitive approach when buyers of the industrys product purchase relatively large !uantities and have significant power to bargain down prices. d. must always aim at absolute low cost in order to assure the greatest success. e. is particularly attractive when there are few ways to achieve product differentiation that have value to buyers. b.
. 6ifferentiation strategies a.
are an attractive competitive approach when buyer preferences and re!uirements are too diverse to be satisfied either by a standardi*ed product or by sellers with identical capabilities. b. work best when the basis for differentiation is superior !uality or superior customer service. c. create much greater buyer loyalty than lowcost provider strategies. d. can enhance profitability whenever the e%tra price the product commands outweighs the added costs of achieving the differentiation. e. usually offer the best chance for gaining market share, as compared to lowcost or bestcost provider strategies. f. involve incorporating enough features and attributes with buyer appeal to set company product offerings visibly and distinctively apart from the product offerings of rivals. g. can result in strong customer loyalty when buyers are strongly, attracted to the differentiating features. h. can produce sustainable competitive advantage if the differentiating features possess strong buyer appeal and cant be copied or easily, matched by rivals.
3. Creating buyer &alue &ia differentiation a.
has to be grounded solidly in uni!ue e%tras that deliver real value rather than perceived value. a b. can be achieved anywhere along the industry value chain. c. can involve incorporating product attributes and user features that lower buyers overall costs of using the product. d. can involve incorporating product attributes and user features that raise the performance a buyer gets from the product. e. can involve incorporating attributes and features that enhance buyer satisfaction in noneconomic or intangible ways. f. re!uires understanding what attributes represent value to the customer, where along the value chain to create the differentiating attributes, and what resources and capabilities are needed to produce brand uni!ueness. g. nearly always involves restructuring the value chain to eliminate some activities altogether. h. can involve delivering value to customers via capabilities that rivals dont have or cant afford to match.
4. 6ifferentiation strategies are competiti&ely attracti&e because a.
successful differentiation erects entry barriers in the form of customer loyalty and uni!ueness that newcomers can find hard to hurdle. b. successful differentiation lessens buyers bargaining power (since other brands are less attractive). c. they give users the latitude to avoid being drawn into price wars (since competing on price is no longer necessary). d. they can lead to higher profitability when the costs of achieving differentiation can be held below the pr ice premium the differentiating attributes can command in the marketplace. e. appealing differentiating features help fend off threats from substitute products not having comparable features.
15. 6ifferentiation strategies wor( best when a.
the basis for differentiation is not linked to uni!ue resource strengths, competencies, and competitive capabilities. buyer needs and uses of a product or service are diverse and cannot be satisfied by a standardi*ed product. c. few rivals are following a similar differentiation approach. d. the most appealing approaches to differentiation are hard or e%pensive for r ivals to duplicate. e. there are not many ways to differentiate that have value to buyers. f. a company pursues topoftheline differentiation at the upper end of the price spectrum. b.
11. The strategy of being a best-cost pro&ider a.
combines a strategic emphasis on low cost with a strategic emphasis on more than minimally acceptable !uality, service, features, and performance. b. is usually somewhat less profitable than either topoftheline differentiation or lowcost leadership strategies. c. is almost always more profitable than focus+niche strategies because of the potential for creating a much bigger competitive advantage. d. is the most attractive of all the competitive strategies because it combines the best features of the four other generic competitive strategies. e. involves using the advantage of lower cost to underprice brands with comparable !uality+service+performance+features and thereby deliver superior buyer value. f. re!uires the resource strengths and capabilities to simultaneously drive unit costs down and product caliber up or, to put it a bit differently, the capability and knowhow to incorporate upscale features and attributes at a lower cost than rivals. g. is the easiest of the five generic competitive strategies to copy. h. is the hardest of the five generic strategies to employ successfully.
1#. The characteristics of a focused strategy based either on low-cost or differentiation include a.
concentrating on a narrow piece of the total market. striving for a competitive advantage based on doing a better job than competitors of serving buyers in the target market niche. c. the use of guerrilla offensives to capture customers. d. trying to wrest market share away from r ivals via e%tra advertising, aboveaverage e%penditures for promotional programs, and heavy use of pointofsale merchandising techni!ues. e. an emphasis on using backward vertical integration to satisfy the speciali*ed re!uirements of niche members. b.
1*. $ocusing on a limited mar(et niche a.
is more attractive when the niche offers good growth potential and is big enough to be profitable. is more attractive when a focuser has the capabilities and resources to serve the segment effectively. c. is more attractive when the focuser can defend itself against challengers based on the customer goodwill it has built up and on its superior ability to serve niche members. d. works best when it is costly or difficult for multisegment rivals to satisfy the speciali*ed needs of niche members. e. works best when the focuser can use preemptive strikes to create sustainable competitive advantage. f. is more attractive when no other rivals are attempting to speciali*e in serving the same target segment. g. is a vulnerable strategy if rivals have the opportunity to employ endrun offensives to thwart the focusers own strategic initiatives. h. typically entails lower profit margins and rates of return on investment than can be achieved by aiming to serve the broad part of the market. b.
1,. Eertical integration a.
can be a good strategy if it results in strengthening the firms competitive position otherwise, it is ill advised. forward into wholesale distribution and retail operations is one of the best strategic options to lowering the costs of accessing endusers and becoming the overall lowcost provider. c. is the most fre!uently used strategy for achieving a cost advantage. d. has some disadvantages, but they are usually offset by the advantages. e. backward into the production of items otherwise sourced from outside suppliers is usually the cheapest and most reliable way to obtain needed inputs since the profits earned by suppliers can be bypassed. f. locks a firm into relying on its own in house activities and sources of supply and+or distribution outlets (which may prove to be more costly than having these value chain activities performed by outsiders). g. can pose capacity balance problems at each stage in the value chain. h. can involve different skills, business capabilities, and key success factors at each stage of the industry value chain, thus raising !uestions about whether it makes good business sense to get involved in performing more activities along the industry value chain. b.
1. Cooperati&e strategies+ alliances+ or partnerships can produce such benefits as a.
making vertical integration easier and cheaper. improving supply chain efficiency. c. gaining costsaving efficiencies in manufacturing, marketing, and+or distribution. d. speeding new products to market. e. improved access to new technologies (via technology sharing and joint research). f. allowing a company to ac!uire access to competitively valuable resources and capabilities that it could not develop on its own. g. giving a company the capability to launch many offensive initiatives simultaneously across many fronts. h. making it feasible for a company to switch back and forth between a lowcost provider strategy and a differentiation strategy. i. allowing a company to fill gaps in its resources or to offset internal resource weaknesses. b.
1. Competiti&e ad&antage a.
emerges only after a buildup period, which can range from as little as several months to as much as several years or even longer. b. is enjoyed over some benefit period, the length of which depends on how much time it takes rivals to launch counter moves to close the competitive gap. c. is best achieved by initiatives to capitali*e on competitor weaknesses. d. is more sustainable with a differentiation strategy than a lo wcost provider strategy. e. is harder to achieve with an endrun offensive than with initiatives to outmatch rivals strengths. f. tends to be eroded by the actions of competent, resourceful competitors, unless the holder can devise an ongoing series of strategic initiatives that thwart the gap narrowing actions of rivals. g. is generally achieved via some kind o f strategic offensive and then protected and perhaps sustained with some combination of defensive and offensive strategies.
1. 2 strategic offensi&e aimed at going head-to-head against (ey competitors to match or beat their strengths a.
may be an attractive way of winning market share away from weaker rivals whose strengths and resources can be outmatched. b. may be unavoidable if the competitive advantage of a stronger rival is to be narrowed or whittled away entirely. c. nearly always should involve cutting price below those charged by the rivals being targeted. d. is the least risky and mostlikelytosucceed of all of the various types of offensive strategies. e. stands the best chance of succeeding if it is predicated on either a cost advantage or an e!ualorbetter product offering otherwise the offensive is probably destined to hurt profitability because of the e%tra costs of supporting such an offensive.
13. Guerrilla offensi&es a.
are particularly wellsuited offensives for market leaders to wage against small challengers. utili*e the principle of surprise and the principle of hitandrun. c. are an e%cellent offensive tactic for going after market share in markets comprised of many different buyer segments, because a guerrilla can randomly go after buyers in different market segments to confuse rivals as to what segment the guerrilla is really interested in. d. can aim at buyer groups that are not important to larger rivals or at buyers whose loyalty to rival brands is weakest. e. fre!uently involve e%panding capacity ahead of r ivals in hopes of bluffing out rivals from following with e%pansions of their own. f. work best when aimed at attracting the business of the most prestigious customers. g. can aim at areas where particular rivals are overe%tended or have spread their resources so thinly as to be temporarily vulnerable. b.
14. 6efensi&e strategies a.
serve the purpose of helping protect competitive advantage, lowering the risk of being attacked, weakening the impact of any attack that occurs, and influencing wouldbe challengers to aim their offensive attacks elsewhere. b. are the best ways to counter the efforts of firms trying to make market inroads with substitute products. c. tend to work more fre!uently than offensive strategies because they are usually less risky. d. can entail actions that signal wouldbe challengers that there is a real threat of strong retaliation if a challenge is mounted. e. often work better if they present a movingtarget type of defensive as opposed to a defense of the status !uo. f. can involve deflecting market challenges by forgoing some shortrun profits. g. work best when they involve some form of vertical integration. h. are more likely to succeed if they are predicated on actions to capture firstmover advantages via preemptive strikes that foreclose imitation by rivals.
#5. $irst-mo&er ad&antages and disad&antages a.
concern the speed at which to vertically integrate forward or backward. b. are more important in crafting defensive strategies than offensive strategies. c. concern the pros and cons of vertical integration versus deintegration and unbundling. d. concern when to make a strategic move. e. are more important considerations in a technologybased differentiation strategy than in a bestcost producer strategy. f. deal primarily with whether entry barriers are higher for newcomers than latecomers. g. concern whether to be aggressive or cautious in making a particular strategic move. h. concern whether it is more strategically advantageous to be a leader or a follower.
#1.2 company has defending against competiti&e forces.
whene&er it has an edge o&er ri&als in attracting customers and
##. The 2chilles heel of alliances and cooperati&e strategies is the danger of other companies for essential expertise and capabilities o&er the long term.
on
#*. Competiti&e ad&antage is nearly always achie&ed by launching successful 1" strategiesD #" strategies can protect competiti&e ad&antage but rarely are the basis of achie&ing it. #,. 2n strategy see(s to a&oid head-on competiti&e challenges tied to such tactics as aggressi&e price-cutting+ escalated ad&ertising+ or e fforts to out-differentiate ri&als" and+ instead+ in&ol&e maneu&ering around competitors by aggressi&ely entering unoccupied or less contested mar(et territory by introducing next-generation products and7or technologies so as to gain first-mo&er ad&antages. #.2 strategy in&ol&es mo&ing first to secure an ad&antageous position that ri&als are foreclosed or discouraged from duplicating.
ANSWERS 1. 2. 3. 4. 5. 6. 7. 8. 9.
b, a, b, a, a, a, a, b, a,
10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.
c, e, f, g d, e, f c, d b, e b, d, f, g c, e d, f, g, h c, d, e, f, h b, d, e b, c, d a, e, f a, b a, b, c, d, f a, g, h b, c, d, e, f, i a, b, f, g a, b, e b, d, g a, d, e, f d, g, h competitive advantage becoming dependent (1) offensive (2) defensive endrun offensive
25.
strike
preemptive
Chapter Self-Test 1. Competing in emerging industries
a. poses the strategy-making challenge of dealing with uncertainties about how the market will function, how fast it will grow, and how big it will get. b. is frequently dicult because of little data and little consensus about which of several competing technologies will win out and/or which product attributes will ultimately gain the most buyer favor. c. is less risky than competing in maturing industries. d. is usually more protable than competing in either globally competitive industries or industries where market demand is stagnant or even declining. e. typically involves high entry barriers and small learning/experience curve eects. f. generally requires participants to wrestle with !"# how to nance the start-up phase, !$# what market segments to pursue, and !%# what -kind of competitive advantage to build. g. usually entails risk-taking entrepeneurship, a bold strategy !often keyed to product superiority#, eorts to capture rst-mover advantages and preparing to defend against new entry by prot-seeking outsiders.
#. >n high-&elocity mar(et en&ironments
a. the key drivers are vigorous price competition and powerful buyers whose needs are changing rapidly. b. it is typical to have rapid-re technological change, short product lifecycles, frequent launches of fresh competitive moves by rivals, and rapidly evolving buyer needs and expectations all occurring at once. c. competitive success often hinges on investing aggressively in &'( and staying on the cutting edge of technological know-how. d. competitive success often hinges on such organi)ational capabilities as speed, agility, resource *exibility, and innovativeness in nding new and better ways to please customers. e. the driving forces are out of control, making new investment very risky. f. being a fast follower, if not the rst mover, is critical. g. it is virtually impossible for any company to achieve competitive advantage because of the speed with which conditions change. h. two of the key success factors are creating new competencies and capabilities !to t newly emerging market conditions# and being able to quickly match rivals on whatever technological approaches and product features they are able to pioneer successfully.
*. /hich of the following are characteristics of a maturing industry0
a. +ost competitors are driven to pursue a low-cost provider strategy. b. he industry becomes more protable because market demand is dependable and stable. c. ntry barriers fall. d. here is more head-to-head competition for market share. e. uyers become more sophisticated, often driving a harder bargain on repeat purchases. a f. ompetition often produces a greater emphasis on which seller oers the best combination of price and service. a g. 0roduct innovation and process-related technological changes begin to come at a faster and faster pace. h. he industry begins to consolidate to a smaller number of players. i. 0rot margins start to get squee)ed and industry protability begins to erode. 1. ompanies can strengthen their positions in response to the new competitive character of industry maturity by pruning their product lines, focusing on cost reduction, expanding internationally, purchasing/ acquiring weak or struggling competitors, and building new capabilities.
,. Companies that succeed in competing in stagnant or declining industries
a. usually are forced to pursue a best-cost provider strategy. b. depend heavily on defensive strategies rather than oensive strategies.
c. typically pursue short-term cash *ow maximi)ation rather than long-term prot maximi)ation. d. sometimes rely on a focus strategy that involves identifying, creating, and exploiting growth segments within the overall industry. e. often pursue dierentiation strategies keyed to quality improvement and product innovation. f. draw their cash out of the business quickly and re-deploy it elsewhere !in other more protable investments#. g. work diligently and persistently to drive costs down. h. are those that are patient and willing to wait the hard times out until the market turns around !as it usually does# and business conditions improve.
. Competing in fragmented industries
a. entails demand conditions where there are many, many buyers of the product and the quantity sold to any one buyer constitutes a tiny fraction of total industry sales volume. b. involves a situation where companies have to cope with low entry barriers, there is an absence of economies of large-scale production, and no seller has a king-si)ed market share. c. usually requires use of low-cost leadership and broad-appeal dierentiation strategies !because in a fragmented industry environment such strategies readily lead to industry domination#. d. is very conducive to the use of focused strategies keyed to product speciali)ation, customer speciali)ation, or geographic speciali)ation. e. normally requires both forward and backward integration in order to achieve a viable long-term market position. f. tends to be more protable and more likely to result in sustainable competitive advantage when a company employs a focused dierentiation strategy instead of a focused low-cost strategy.
. >n a fragmented industry
a. the standout competitive feature is the absence of market leaders with king-si)ed market shares. b. participants generally have the strategic freedom to pursue broad or narrow market targets and low-cost or dierentiation-based competitive advantages. c. the market is usually local !which is why it takes thousands of sellers to cover all the dierent local markets#. d. one of the suitable competitive strategy options is to construct and operate 2formula2 facilities at many locations. e. another of the suitable competitive strategy options is to form strategic alliances with sellers in many local markets to gain wider geographic exposure and market visibility.
. Companies are moti&ated to expand internationally and compete in additional country mar(ets
a. in order to capture the scale economies and lower costs that may be associated with selling a volume greater than can be achieved in any single national market. b. in order to avoid the risk of *uctuating exchange rates. c. in order to escape slowing growth and market saturation in country markets where they are already competing. d. because competition is usually weaker in foreign markets. e. to access natural resource deposits in other countries. f. to capitali)e on their competencies and resource strengths. g. to spread their business risk across a wider market base.
3. Competing in international mar(ets poses a bigger strategy-ma(ing challenge than competing in only the company's home mar(et because of
a. manufacturing cost variations among countries. b. the risks of exchange rate *uctuations. c. variations in host government trade policies. d. diering competitive conditions in dierent country markets. e. diering buyer needs and habits from country to country.
4. /here multi-country competition pre&ails+
a. prices and competitive conditions are strongly linked across country markets to form a world market. b. there is no 2international market,2 1ust a collection of self-contained country markets. c. the risk of *uctuating exchange rates is greatly reduced. d. it makes strategic sense for a company3s strategy to be crafted country by country to be responsive to buyer needs and competitive conditions in each country. e. the least risky strategy option is to maintain a one-country production base and export goods to each of the target country markets where the company elects to sell !utili)ing either company-owned or foreign controlled distribution channels#.
15. /hich of the following is a &alid competiti&e strategy option for a company that wants to participate in international mar(ets0
a. 4 global low-cost provider strategy b. 4 multi-country follow-the-leader strategy c. 4 strategy of licensing foreign rms to use the company3s technology or to produce and distribute the company3s products. d. 4 content follower strategy e. 4 global dierentiation strategy where the same dierentiation approach is used in each country market where the company competes
f. 4 global focus strategy aimed at the same market niche or segment in each country where the company competes a g. +aintaining a one-country production base and exporting goods to foreign markets 56 h. 4 multi-country cross-subsidi)ation strategy i. 4 critical market strategy 1. 4 strategic alliance strategy aimed at having more alliances in more country markets than any other rival.
11. >n globally competiti&e mar(ets
a. the pattern of competition is fundamentally dierent from country to country. b. prices and competitive conditions are closely linked across country markets. c. a company3s competitive position in one country both aects and is aected by its position in other countries, especially so in countries that represent critical markets. d. it makes strategic sense to pursue some type of global strategy. e. a cross-subsidi)ation strategy is preferable to a prot sanctuary strategy.
1#. Fulti-country and global strategies differ in which of the following respects0
a. he strategic arena for a multi-country strategy consists of country markets where the company chooses to compete, but the strategic arena for a global strategy includes countries which constitute critical markets for the product and also other 2important2 country markets. b. he product line in a multi-country strategy is adapted to local needs whereas with a global strategy the product line is mostly the same from country to country. c. he production strategy for a multi-country competitive approach may well involve plants scattered across many host countries whereas a global competitive approach tends to entail locating plants wherever the best competitive advantage potential exists. d. 7ith a multi-country approach marketing and distribution strategies are adapted to the circumstances and culture of each host country whereas with a global approach there is a lot of worldwide coordination, with minor adaptation to host country situations as required. e. 7ith a multi-country strategy companies may set up autonomous subsidiaries to customi)e operations to t host country conditions whereas with a global strategy ma1or strategic decisions are closely coordinated and more unied across individual country markets.
1*. /ith a global approach to competing+ the achie&ement of competiti&e ad&antage depends on
a. deploying and locating value chain activities !&'(, manufacturing, distribution centers, sales and marketing, after-the-sale service, and so on# among the various countries so as to achieve lower costs or greater dierentiation than rivals. b. having more prot sanctuaries than rivals. c. doing a better 1ob of cross-subsidi)ation than rivals. d. competing in more national markets than key rivals. e. having more manufacturing plants than rivals. f. coordinating company activities and strategic moves worldwide. g. forming more and better strategic alliances than rivals. h. using an export strategy so as to avoid the risks of *uctuating exchange rates.
1,. $orming strategic alliances with ma%or foreign companies
a. is generally the least risky, most likely to succeed, and mostly protable approach to competing internationally. b. may oer an avenue for gaining economies of scale in production and/ or marketing. c. are a way of gaining access to international markets that otherwise may be hard or costly to penetrate. d. is a frequently used approach to competing in international markets. e. is the most eective and dependable way to gain competitive advantage in international markets. f. is usually more eective in combating competitive disadvantage than in gaining competitive advantage. g. poses organi)ational hurdles because of the potential for con*icting ob1ectives, con*icting opinions about how to proceed, disagreements over who is to have authority over what, the added costs of coordination and communication, and diculties of trying to collaborate in competitively sensitive areas. h. should be viewed as temporary rather than permanent.
1. Competitors in international mar(ets can be distinguished not only by strategy differences but also by differences in their long-term ob%ecti&es and strategic intentD the most common types of strategic intent include
a. global dominance. b. competing on a domestic-only basis. c. content followership. d. long-term cross subsidi)ation. e. short-term cross subsidi)ation.
f. competing only in critical markets. g. constant oensive attack. h. concentrating on building a stronger domestic market position but still pursuing sales in several or many foreign markets !to boost sales and prots over what can be achieved domestically#.
1. rofit sanctuaries
a. refer to country markets where a company derives substantial prots because of its strong or protected market position. b. are valuable competitive assets in globally competitive markets because a multinational competitor with multiple sanctuaries has a resource advantage in waging a competitive oensive against domestically competitors whose only prot sanctuary is their home market. c. enable a company pursuing a multi-country strategy to compete on an equal footing with companies pursuing a global strategy. d. are a relevant competitive consideration in international markets because companies with multiple prot sanctuaries have a competitive advantage over companies with a single !or no# prot sanctuary. e. are essential to competing successfully in countries that qualify as critical markets. f. are relevant to who has the upper hand in competing in world markets because companies with multiple prot sanctuaries can utili)e the prots and cash *ows generated in their sanctuaries to support new strategic oensives to gain customers and market share in additional countries.
1. To sustain their mar(et positions+ industry leaders usually need to consider which of the following strategic options0
a. 4 multi-country strategy b. 4 multiple prot sanctuary strategy c. 4 stay-on-the-oensive strategy d. 4 strategy that encourages rivals to be content followers rather than aggressive challengers e. 4 cross-subsidi)ation strategy f. 4 content follower strategy g. 4 harvest strategy h. 4 fortify-and-defend strategy
13. The strategic options most suitable for runner-up competitors include
a. a strategy of imitating the strategic actions and approaches of the industry leader. b. becoming a lower-cost producer and using the appeal of a lower price to win customers from weak, higher-cost rivals. c. using dierentiation strategies keyed to better quality, technological superiority, superior customer service, or product innovation. d. a harvest strategy. e. a growth via acquisition strategy. f. focusing on a few market segments where the rm3s resource strengths and capabilities can yield a competitive edge. g. a vertical integration strategy. h. an export strategy. i. a content follower strategy. 1. a turnaround strategy.
14. Strategic efforts to turnaround crisis-ridden companies typically in&ol&e such actions as
a. revising the existing strategy !perhaps radically#. b. launching initiatives to boost revenues. c. pursuing cost reduction !often quite aggressively#. d. selling some of the company3s assets to raise cash to pay down debt and to revitali)e the remaining part of the business. e. endeavoring to put together a business game plan that closely imitates the strategy of a high-performing company of approximately the same si)e.
#5. /hich of the following do 9
a. 0lace top priority on crafting and executing strategic moves that will enhance a company3s long-term competitive position. b. 4lways harvest a weak business and re-deploy the cash *ows to more protable business opportunities. c. 4void compromise or middle-of-the-road strategies that try to balance lower costs against greater dierentiation and that result in average costs, average quality, average features, average service, and average appeal. d. 8ell or close a crisis-ridden business immediately9 turnaround strategies are doomed to fail. e. :nvest in creating a sustainable competitive advantage. f. e wary of attacking capable, resourceful rivals without solid competitive advantage and ample nancial strength. g. onsider that attacking competitive weakness is usually more protable and less risky than attacking competitive strength.
h. &emember that dierentiation strategies rarely defeat low-cost provider strategies.
#1. another national mar(et.
exists when competition in one national mar(et is independent of competition in
##. are country mar(ets where a company has a strong or protected mar(et position and deri&es substantial profit. #*. 2 strategy in&ol&es (eeping rein&estment to a bare-bones minimum+ ta(ing actions to minimie operating expenses+ and operating the business in a manner calculated to maximie short -term cash flows in preparation for an orderly mar(et exit. #,. 2 big disad&antage of expertise and capabilities.
is the danger of depending on another company for essential
#. in&ol&es using profits earned in one or more country mar(ets to co&er the added costs of waging a competiti&e offensi&e against (ey ri&als in their home mar(ets or to support the costs of entering a strategically-critical country mar(et.
29S/:;S 1. a% b% f% g #. b% c% d% h *. d% e% f% h% "% j ,. d% e% g . b% d . a% b% d . a% c% e% f% g 3. a% b% c% d% e 4. b% d 15. a% c% e% f% g 11. b% c% d 1#. a% b% c% d% e 1*. a% f 1,. c% d% f% g% h 1. a% b% h 1. a% b% d% f 1. c% d% h 13. b% c% e% f% " 14. a% b% c% d #5. b% d% h #1. ulticountry competition ##. profit sanctuaries #*. harvest #,. strategic alliances #. Crosssubsidization
Chapter Self-Test
1. The tas( of crafting corporate strategy for a di&ersified company concerns
a. ma!ing strategic moves to position the company in the industries chosen for diversification. b. initiating actions to improve the combined performance of the businesses the firm has diversified into. c. selecting ways to standardize the geographic scope over which all of the company's businesses compete. d. deciding whether to standardize the manufacturing and mar!eting approaches used in each business so as to capture strategic fit benefits. e. establishing investment priorities and steering corporate resources into the most attractive business units.
#. Companies that are prime candidates for di&ersifying into new businesses include
a. single business enterprises with diminishing growth prospects in their present business. b. firms that are fully integrated in a fragmented industry. c. those with competencies and capabilities that are readily transferable to other businesses. d. those with the financial resources and managerial depth to e#pand into other industries. e. wea!ly positioned companies in slowgrowth industries. f. those who have competitors that are diversifying. g. firms that have 150 or greater mar!et shares in their present business.
*. 6i&ersification results in enhanced shareholder &alue when
a. the company's profits are higher after diversification than before diversification. b. the company's return on shareholder euity is higher after diversification than before diversification. c. the industries chosen for diversification are growing faster than the company's present business. d. diversification results in bigger mar!et shares. e. the businesses a company has diversified into perform better as part of the same firm than they could have performed as independent companies.
,. /hether a particular di&ersification mo&e is capable of enhancing share-holder &alue can be e&aluated &ia
a. the attractiveness test. b. the acuisition test. c. the entry barrier test. d. the costofentry test. e. the competition test and the returnoninvestment test. f. the betteroff test. g. the synergy test and the financial test.
. The strategic options for a company that elects to di&ersify include
a. e#panding into new geographic areas. b. e#panding into a group of geographically related country mar!ets. c. building positions in related businesses. d. acuiring a number of companies in businesses that are unrelated to its present business so as to spread its investment ris! across many industries. e. pursuing a combination of related and unrelated diversification. f. partial or full vertical integration. g. e#panding its product line to include a much broader and more diverse selection for customers.
. 2c)uisition of an existing business
a. is the most popular means of diversifying into another industry. b. is usually more costly than entering via internal startup. c. poses the problem of whether to buy a successful company at a high price or a struggling company at a bargain price. d. has the advantage of uic!er entry into the target mar!et ,as compared to internal startup-. e. is the toughest option for diversifying in a manner that passes the synergy test for enhanced shareholder value. f. is the most profitable way to enter a new industry. g. is usually a more profitable way of entering a new business&industry than via a joint venture or strategic alliance with another company.
. The big drawbac(s to entering a new industry &ia internal start-up include
a. passing the attractiveness test for enhanced shareholder value. b. the costs of overcoming entry barriers. c. passing the betteroff test for enhanced shareholder value. d. the reduced opportunities for capturing strategic fit benefits. e. the e#tra time it ta!es to build a strong and profitable competitive position.
3. Hoint &entures are an attracti&e way to enter new businesses when
a. it is uneconomical or ris!y for a company to underta!e entry on its own b. pooling the resources and competencies of two or more independent organizations produces a venture arrangement with more of the s!ills and resource strengths needed to be a strong competitor. c. partners with different objectives and strategies can be found. d. the partners have closely related value chains. e. such ventures help surmount import uotas% tariffs% other trade restrictions% nationalistic political interests% and cultural roadbloc!s.
4. 2 related di&ersification strategy
a. involves diversifying into businesses whose value chains have appealing strategic fits. b. is attractive because of the opportunity to turn strategic fits into competitive advantage. c. e#ploits economies of scale whereas an unrelated diversification strategy e#ploits economies of scope. d. offers more competitive advantage potential than an unrelated diversification strategy. e. is usually based on mar!etrelated strategic fit rather than operating fits or management fits.
15. The competiti&e ad&antage potential of related di&ersification
a. stems from greater degrees of industry attractiveness than is found with unrelated diversification. b. can come partly from the ability to transfer e#pertise or capabilities or technology from one business to another. c. stems partly from opportunities to combine the related activities of separate businesses into a single operation and reduce costs. d. can come from opportunities to leverage use of a company's brand name reputation in new businesses. e. can stem from opportunities to capture economies of scope. f. can emerge from collaborative performance of related value chain activities so as to produce valuable new competitive capabilities.
11. /hile strategic fit relationships can occur throughout the &alue chains of different businesses+
a. distribution and customerrelated strategic fits are the most common and offer the best potential for economies of scope. b. most fits are manufacturingrelated. c. most fits fall into the categories of being mar!etrelated% technology related% operatingrelated% or managementrelated. d. operating fits tend to be most important% mar!et fits second most important% management fits third most important% and technology fits fourth most important. e. most companies prefer to concentrate on technologyrelated fits and capturing the benefits of s!ills transfer because of the greater chances of success and the big payoff in gaining a technologybased competitive advantage.
1#. 2 strategy of unrelated di&ersification
a. involves a willingness to diversify into any industry or business that holds promise for attractive financial gain. b. has appeal from the standpoint of diversifying business ris! over a set of diverse industries. c. can offer the potential of stable profits ,because hard times in one industry may be offset by good times in another-. d. is generally more profitable than related diversification because financial resources can be directed to industries where profits are highest rather than restricting investments to industries with strategic fits. e. involves paying less attention to the attractiveness and costofentry tests than does a related diversification strategy. f. has appeal from the standpoint of avoiding too many diverse !inds of strategic fits.
1*. The drawbac(s to unrelated di&ersification include
a. the inability to pursue joint ventures. b. the greater business ris!. c. the difficulties of competently managing many unrelated businesses. d. the absence of added competitive advantage that the presence of strategic fit provides. e. having to divest businesses which don't wor! out as planned. f. too much diversity in the strategic fits among the different businesses.
1,. $or unrelated di&ersification to result in enhanced shareholder &alue+ corporate managers
a. must pursue acuisition opportunities in many different !inds of industries both to broadly diversify financial ris! and to stabilize earnings. b. must pursue multinational diversification. c. must do a superior job of overseeing the firm's subsidiaries and contributing to how they are managed such that the businesses perform at a higher level than they could achieve as standalone operations. d. must do a superior job of diversifying into industries and businesses that can produce consistently good returns on investment. e. must do an e#cellent job of negotiating favorable prices in acuiring the companies chosen for the diversification effort. f. must be shrewd in selling previouslyacuired businesses at their pea! and getting premium prices , before it becomes clear to outsiders that the business probably faces eroding longterm profitability-. g. have to aggressively shift corporate resources out of businesses where profit prospects are dimming and into businesses where there are high returns on investment and potential for rapid profit growth.
1. /hich of the following accurately characterie approaches to shareholder &alue &ia di&ersification0
a. =nrelated diversification is an easier and safer way to build shareholder value than is related diversification. b. (elated diversification see!s to build shareholder value b y converting the strategic fits among related businesses into an e#tra measure of competitive advantage and using this advantage to achieve better profitability and longterm performance. c. 8ith unrelated diversification% a company's competitive advantages do not e#tend beyond what each business is able to achieve on its own. d. =nrelated diversification involves less competitive ris! than related diversification because the competitive positions of different businesses are not lin!ed together by strategic fit. e. Creating shareholder value via unrelated diversification is predicated on shrewd deployment of corporate f inancial resources and e#ecutive s!ill in spotting financially rewarding business opportunities.
1. 6i&estiture of an existing business operation
a. can involve selling the business unit outright to a willing buyer. b. can involve spinning the business off as a financially and managerially independent company in which the parent company may or may not retain partial ownership. c. becomes an attractive strategic option when the business's profit prospects sour or when it no longer fits in with the parent company's longterm direction and overall corporate strategy. d. is a last resort strategic option because it almost always means ta!ing a large asset writeoff. e. merits consideration anytime top management concludes it can sell it for more than its original acuisition cost.
1. ortfolio restructuring
a. involves revamping a diversified company's business ma!eup through a series of divestitures and new acuisitions. b. is the mostused techniue of shifting from a related diversification strategy to an unrelated diversification strategy. c. merits consideration when a diversified company's longterm performance prospects are poor due to a business portfolio comprised of too many slowgrowth% declining% or competitively wea! businesses. d. focuses on efforts to restore moneylosing businesses to profitability instead of divesting them. e. is usually underta!en when corporate management concludes that the company is in too many businesses and needs to concentrate its efforts on a few core businesses.
13. Fultinational di&ersification strategies
a. are comple# because they involve both a diversity of businesses and a diversity of national mar!ets. b. usually are predicated on unrelated diversification approaches rather than related diversification approaches. c. are potentially powerful when built around related diversification. d. are illsuited for capturing economies of scope. e. are illsuited for creating multiple profit sanctuaries. f. offer potent advantages for outcompeting a onebusiness domestic company. g. offer potent advantages for outcompeting a onebusiness multinational company.
14. The sources of competiti&e ad&antage for a 6F9C include
a. transferring e#pertise in a core technology to related products and businesses ,as 7onda has done-. b. concentrating on related global industries where there are strategic fits that produce economies of scope and that offer brand name transfer benefits. c. superior product uality. d. superior customer service. e. greater potential to employ crosssubsidization tactics against one business domestic competitors and onebusiness multinational competitors. f. a lower r is! of asset writeoffs in divesting poorlyperforming business units. g. less ris! that any one business will fall upon hard times. h. leveraging its brand name by diversifying into businesses able to use the same brand.
#5.2 one-business domestic company is wea(ly positioned to defend its mar(et position against a determined+ aggressi&e 6F9C because
a. diversification is a more powerful strategy than singlebusiness concentration. b. it has only one profit sanctuary ,its home mar!et-% which leaves it vulnerable to low prices from a DAC with multiple profit sanctuaries. c. the DAC may have economyofscope advantages growing out of a related diversification strategy. d. the DAC can use financial resources generated from its other businesses to fund a longterm competitive offensive in the domestic company's home mar!et and gradually sap the domestic company's financial strength ,by eroding the size of its home mar!et profit sanctuary-. e. it is more vulnerable to economic recessions.
#1. /hich of the following are strategic options for impro&ing a di&ersified company's performance0
a. 2cuire new businesses b. Divest wea!performing businesses c. $mploy portfolio restructuring d. (etrench to a narrower diversification base e. :ursue multinational diversification f. :ursue greater value chain diversity and ma!e sure all businesses that the firm diversifies into pass the competition test and the profit test g. :ursue turnaround strategies for poorly performing businesses in the company's business lineup
##. $or a potential di&ersification mo&e to pass the test+ the di&ersifying company must bring added potential for competiti&e ad&antage to the new business it enters or the new business must offer added competiti&e ad&antage potential to the company's present business. #*. 1" exists when different businesses ha&e sufficiently related #" that there are opportunities for s(ills transfer and cost-reduction+ thus forming a basis for competiti&e ad&antage. #,. arise from the ability to eliminate costs by operating two or more businesses under the same corporate umbrella. #. ;elated di&ersification represents a whereas unrelated di&ersification is principally a &alue.
1" #"
approach to building shareholder &alue approach to creating shareholder
ANSWERS a, b, e 2. a, c, d 3. e 4. a, d, f 5. c, d, e 6. a, c, d 7. e 8. a, b, e 9. a, b, d 10. b, c, d, e, f c 11. 12. a, b, c c, d 13. 14. c, d, e, f, g 15. b, c, e a, b, c 16. 17. a, c a, c, f, g 18. 19. a, b, e, h 20. b, c, d a, b, c, d, e, g 21. 22. betteroff strategic fit, value chains 23. 24. economies of scope 25. strategic, financial 1.
Chapter 3 Self-Test 1. $or a di&ersified company to be a s trong performer a substantial portion of its re&enues and profits must come from business units %udged to be in attracti&e industries. rue 5alse
#. >n arri&ing at )uantitati&e measures of an industry's attracti&eness+ it is wea( methodology to use an unweighted rating system and assume that the &arious measures of industry attracti&eness are e)ually important. rue 5alse
*. ;elati&e mar(et share is a better indicator of a business's competiti&e strength and mar(et position than is absolute mar(et share. rue 5alse
,. ;elati&e mar(et share is calculated by di&iding a company's mar(et share by the mar(et share of its largest ri&al. rue 5alse
. Shareholder interests are generally best ser&ed by concentrating corporate resources on businesses that can contend for mar(et leadership in their industries. rue 5alse
.
. $irms emphasiing related di&ersification should di&est businesses with little or no strategic fit unless these businesses are unusually good financial performers or offer superior growth opportunities. rue 5alse
3. The businesses in a di&ersified company's portfolio exhibit good resource fit when they add to a company's resource strengths either financially or strategically" and when the company has the resources to support the re)uirements of its businesses without stretching itself too thinly. rue 5alse
4. >n deciding whether to di&est a business unit+ corporate managers should rely primarily on whether the business is a cash hog or a cash cow -- cash hogs should nearly always be di&estedD cash cows should almost ne&er be di&ested. rue 5alse
15. 2 cash hog business is one whose internal cash flows are not big enough to co&er annual capital re)uirements and thus re)uires regular infusions of financial capitalD a cash cow business is one which generates positi&e cash flows more than sufficient to co&er its annual capital re)uirements. rue 5alse
11. To identify a di&ersified company's strategy+ one needs to consider a.
the extent to which the rm is diversied. b. the makeup of the value chain of each business the rm has diversied into. c. whether the rm is pursuing related or unrelated diversication, or a mixture of both. d. what strategic group each of the rm3s businesses is in. e. whether the scope of company operations is mostly domestic, increasingly multinational, or global. f. recent moves to add new businesses or divest weak or unattractive businesses. g. how the company is allocating investment capital and resources among its various businesses. h. the strength of the ve competitive forces in each industry the rm operates in.
1#. To e&aluate the o&erall attracti&eness of the industries a company has di&ersified into+ it is important to a.
do a 87; analysis of each industry. b. draw a strategic group map for each industry. c. consider the attractiveness of each industry from the standpoint of whether it represents a good business for the company to be in. d. prepare a value chain analysis of each industry. e. evaluate each industry3s attractiveness relative to the others. f. consider how appealing the mix of industries is as a group. g. determine the strategic ts among the key success factors of each industry the rm is in.
1*. /hich of the following are pertinent in e&aluating the attracti&eness of a particular industry that a company has di&ersified into0 a.
he intensity of competition b.
1,. 6e&eloping )uantitati&e ratings of which of a di&ersified company's industries are most attracti&e and least attracti&e in&ol&es a.
selecting an appropriate set of industry attractiveness measures. determining the makeup of each industry3s value chain. c. assigning weights to each of the industry attractiveness measures. d. rating each industry on each attractiveness measure !using a " to = or " to "> rating scale#. e. multiplying the rating by the assigned weight to get a weighted attractiveness rating. f. summing the weighted attractiveness ratings to obtain an overall attractiveness rating. g. using the overall ratings to draw a strategic group map for the industry h. deciding whether an industry is attractive or unattractive based on its position on the industry strategic group map. b.
1. The more that a di&ersified company's business portfolio includes subsidiar ies with competiti&ely &aluable strategic fits+ the greater is its potential for a.
reali)ing positive cash *ows and being a cash cow. b. reali)ing economies of scope. c. enhancing the competitive capabilities of particular business units. a d. achieving a combined performance greater than the subsidiaries could achieve operating as an independent company. e. having the best value chain of any of the rivals against which it competes. f. having more prot sanctuaries than rivals.
1. Criti)uing a di&ersified company's strategy+ assessing its business ma(eup+ and deciding how to impro&e the competiti&e strength and performance potential of its businesses in&ol&es a.
applying the cost->f-entry test. doing a 87; analysis. c. drawing a strategic group map. d. evaluating the long-term attractiveness of each industry the company is in. e. evaluating the competitive strength of the company3s business units to determine which are really strong contenders in their industries. f. doing a ve forces analysis. g. determining the competitive advantage potential of any value chain relationships and strategic ts among existing business units. h. rating each business unit on the basis of how well it has performed recently and how good its future performance is likely to be. i. ranking the business units in terms of priority for new investment. identifying cross-subsidi)ation opportunities. b.
1. The 4-cell industry attracti&eness-business strength matrix a.
uses quantitative measures of long-term industry attractiveness and business strength/competitive position to plot each business3s location. b. stresses giving top priority to businesses having strong competitive positions in industries with high long-term attractiveness. c. provides real guidance as to the specic strategy actions which need to be taken in each business based on its position in the industry. d. is a useful tool for displaying which businesses oer the best strategic t and resource t. a e. is a useful tool for gauging the overall attractiveness of a diversied company3s collection of businesses.
13. To arri&e at a )uantitati&e measure of business strength7competiti&e position each business unit in a di&ersified company should be rated on the basis of such factors as a.
relative market share. b. ability to compete on price and/or quality and/or service. c. how well the business unit3s competencies and competitive capabilities match industry key success factors. d. growth in revenues and prots over the last ve years. e. brand name recognition and reputation. f. which business has the best strategy. g. protability relative to competitors. h. technology and innovation capabilities. i. degree of bargaining leverage with suppliers and customers.
14. To determine whether a business fits well strategically in a di&ersified company's business portfolio+ it is useful to consider whether a.
a business unit has valuable strategic t with other businesses in the portfolio. b. the business has a relative market share above =>?. c. it has the same strategic ob1ectives as other businesses in the portfolio. d. it is pursuing the same basic competitive strategy as other businesses in the portfolio. e. the business matches well with the company3s long-term strategic direction and can contribute to achieving the company3s strategic vision.
#5. The most important considerations in comparing the performance of different businesses in a di&ersified company's portfolio are a.
sales growth. b. prot growth. ( c. the debt-to-assets ratio. d. inventory turnover ratios. e. percentage contribution to the company3s total earnings. f. the number of core competencies and distinctive competencies each business unit has. g. the return on capital invested in the business. h. relative product quality. i. cash *ow generation. 1. the relative number of customers and percentage growth in the customer base.
#1. ;an(ing a di&ersified company's businesses in terms of priority for new capital in&estment a.
should be done principally on the basis of relative long-term industry attractiveness and secondarily on the basis of strategic t with other businesses. b. should be based on how much it will take to substantially enhance the competitive standing of each business9 attempts should then be made to fund as much of the needed investments as possible, starting with the business needing the smallest amount and proceeding to the business needing the largest amount. c. should be based primarily on strategic t considerations and long-term growth potential. d. should be based chie*y on relative competitive strength, recent performance and potential for achieving high positive cash *ows. e. should take into account all those business aspects relevant to deciding whether a business3s outlook and prospects are excellent, good, fair, or poor9 as a general rule, corporate managers should concentrate company resources on businesses with excellent to good prospects and invest minimally, if at all, in businesses with sub-par prospects.
##. >f a di&ersified company cannot realistically hope to achie&e its performance ob%ecti&es with its current lineup of businesses+ then it can try to close the performance gap by a.
divesting weak-performing or money-losing businesses. adding new businesses to the corporate portfolio. c. issuing more shares of common stock and using the proceeds to pay o corporate debt. d. lowering corporate performance ob1ectives. e. revising the strategic plans of some or all of the businesses in the portfolio to get better performance out of existing businesses. f. forming strategic alliances or collaborative partnerships to try to remedy the conditions responsible for underperformance. g. upgrading the company3s resource base. b.
#*. >n the case of companies with an unrelated di&ersification strategy+ decisions to add more unrelated businesses to the portfolio lineup tend to be based on a.
the company3s nancial ability to make another acquisition. b. whether new acquisitions are needed to boost overall corporate performance. c. whether the timing is right for another acquisition. d. whether there are pressing acquisition opportunities that need to be acted on immediately !to avoid being lost altogether#. e. identifying a business to divest so as to make room in the portfolio for a new acquisition. f. whether corporate management believes it possesses the range and depth of expertise to take on the supervision of an additional business.
#,. Corporate strategy in ma%or enterprises a.
tends to be crafted all at once in comprehensive fashion, following a full-scale portfolio review. usually emerges incrementally, a step at a time, as condence and consensus build for what strategic moves need to be made and as attention and resources are concentrated on a few critical thrusts that integrate corporate direction, ob1ectives, and strategies. c. changes more slowly than in single-business enterprises because it is harder to make ad1ustments in corporate strategy than in business strategy. d. tends to be more driven by nancial considerations than by strategic t and competitive advantage considerations. e. requires more formal analysis and brainstorming than is typically required in single-business enterprises because tting the pieces of corporate strategy together is more complex than tting the pieces of business strategy together. b.
#. >n re&iewing a di&ersified company's portfolio and deciding on what strategic mo&es are needed to impro&e o&erall corporate performance+ one needs to consider such factors as whether a.
the company has enough businesses in very attractive industries. b. the company3s business mix is over-weighted with marginally performing businesses, question marks, slow-growth businesses, or businesses in decline. c. the company has the nancial strength to support the new investment needs of its businesses. d. the portfolio contains businesses that the company really doesn3t need to be in. e. corporate performance is being dragged down by businesses that are in average-to-weak competitive positions. f. the makeup of the business portfolio puts the company in good position for the future.
ANSWERS 1. 2. 3. 4. 5. 6. 7. 8. 9.
5
10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.
a, c, e, f, g c, e, f a, d, e, f, h, i, 1 a, c, d, e, f b, c, d d, e, g, h, i a, b, e a, b, c, e, g, h, i a, e a, b, e, g, i e a, b, d, e, f, g a, b, c, d, f b a, b, c, d, e, f
Chapter 4 Self-Test
1. The multi-s(ill+ multi-acti&ity character of core competencies ma(es building and strengthening them an exercise in managing human s(ills+ intellect+ and (nowledge bases and in networ(ing the efforts of different wor(groups and departments. rue 5alse
#.
*.
,. ;eengineering is an organiational tool to reduce business process fragmentation and to cut bureaucratic o&erheads. rue 5alse
. 2 decentralied business unit structure is the best organiational arrangement for coordinating the related acti&ities of related businesses. rue 5alse
. >mplementing strategy a.
is a task that must be done by the chief executive ocer and the heads of ma1or organi)ational units !business divisions, functional departments, and key operating units#. b. involves leading, working with others, allocating resources, building and strengthening competitive capabilities, and matching how the organi)ation performs value chain activities to the requirements for good strategy execution. c. is easier and less time-consuming than crafting strategy. d. is a 1ob for the whole management team, not a few senior managers, because every manager needs to be concerned with what has to be done in his/her area of authority to implement the company3s strategy successfully. e. can be considered successful if the organi)ation achieves its strategic and nancial ob1ectives. f. tests a manager3s ability to direct organi)ational change, motivate people, achieve continuous improvement in strategy-critical business processes, and meet or beat performance targets.
. The principal management tas(s in implementing strategy include a.
creating a strategy-supportive work environment and corporate culture. b. reducing the layers of management to a bare minimum. c. building an organi)ation with the competencies, capabilities, and resource strengths to carry out the strategy successfully. d. making sure that employees are empowered. e. establishing strategy-supportive policies and procedures. f. developing budgets to steer ample resources into those value-chain activities critical to strategic success. g. monitoring the actions of competitors. h. installing information, communication, and operating systems that enable personnel to carry out their strategic roles prociently. i. tying rewards and incentives to the achievement of performance ob1ectives and good strategy execution. 1. exerting the internal leadership needed to drive implementation forward and to keep improving on how the strategy is being executed.
3. The organiation-building actions most rele&ant to competent strategy execution are a.
delegating authority to down-the-line managers and employees. b. eectively and persuasively communicating the case for organi)ational change to managers and employees. c. selecting able people for key positions. d. organi)ing business processes, value-chain activities, and decision making in a manner conducive to successful strategy execution. e. avoiding business process fragmentation. f. using team-based organi)ation structures. g. making certain that the organi)ation has the skills, core competencies, managerial talents, technical know-how, resource strengths, and competitive capabilities it needs. h. employee empowerment, de-layered management hierarchies, and the reengineering of core business processes for greater eciencies.
4. =uilding core competencies and competiti&ely &aluable capabilities in per- forming one or more strategy-critical acti&ities in the &alue chain a.
can yield a sustainable competitive advantage over rivals by providing a basis for superior strategy execution. b. should be the rst thing managers do in establishing an organi)ational structure. c. requires spending more money on developing competence-related capabilities than competitors. d. is primarily the responsibility of the employee training department and rst-line supervisors. e. is basically a team-building exercise. f. is an exercise that is best orchestrated by senior managers with the clout to enforce the necessary networking and collaboration among individuals, groups, departments, and external allies. g. is an ongoing task rather than a one-time event. h. is an inside organi)ation-building challenge, not one where outsiders !suppliers, strategic# allies ought to have an important role. i. can sometimes be accomplished through collaborative eorts with external allies and/or by acquiring or merging with another company.
15. Core competencies and competiti&ely &aluable organiational capabilities a.
usually emerge from the speciali)ed skills or work eorts of a single department. b. can be leveraged into competitive advantage by concentrating enough talent, resources, and management attention on deepening and strengthening them to ultimately achieve dominating depth. c. typically emerge from networked and coordinated skills and eorts performed at dierent value chain locations. d. can usually be imitated or duplicated by rivals within less than a year, provided they exert concerted eort. e. need to be an organi)ation-building responsibility of senior managers. f. that are nely honed and kept current with shifting circumstances can provide a big executional advantage. g. are more eective when developed in partnership with key suppliers and other strategic allies.
11. :mployee training and retraining a.
tends to be strategically important in organi)ational eorts to create skills-based competencies. is a function that the ; needs to personally supervise and have responsibility for. c. are a key strategy-implementing activity in businesses where technical know-how is changing so rapidly that a company loses its ability to compete unless its skilled people have cutting-edge knowledge and expertise. d. come into play primarily when core business processes need to be reengineered, thus creating altogether dierent kinds of 1obs that present employees now have to perform. e. merit high-priority on the strategy-implementing agenda when a rm revises its strategy in ways that call for new skills or dierent know-how. b.
1#. To organie the wor( effort in a strategy-supporti&e fashion and fit organiational structure to strategy+ a.
those primary activities and key tasks in the value chain that are pivotal to successful strategy execution and are performed internally should be made the main building blocks in the organi)ation structure. b. all facets of a strategy-critical business process must be placed under the authority of a single manager. c. all strategy-critical value-chain activities need to be performed internally rather than out-sourced. d. support activities should be centrali)ed and primary activities should be decentrali)ed. e. reporting and coordinating arrangements for support activities need to be woven into an organi)ational design that facilitates enhanced performance of strategy-critical value chain activities. f. :t is often both desirable and cost eective to partner with outsiders to add to a company3s arsenal of competitive capabilities and to perform strategy-critical value chain activities.
1*.
9C<;;:CT acti&ities or processes being scattered across many departments
a.
are problematic because no one person or department oversees the whole activity/process and is accountable for good results. b. can lengthen completion time. c. frequently drive up overhead costs !because coordinating the fragmented pieces can soak up hours of eort from many people#. d. occurs most frequently in matrix structures and decentrali)ed business unit structures. e. generally signal that management has strayed too far from strict adherence to a centrali)ed functional organi)ation structure. f. prevent a company from building strong competencies or capabilities in that activity or process. g. can be avoided by outsourcing the activity from external allies.
1,. artnering with outsiders to de&elop or gain access to competiti&ely &aluable capabilities a.
entails high risk and should be avoided if at all possible. b.makes strategic sense when outsiders can add to a company3s resource strengths and contribute materially to better strategy execution. c. is okay for remedying resource deciencies but not for building resource strengths. d.is best accomplished using a matrix organi)ation structure. e.is usually more costly and less eective than building and developing the capability internally. f. requires establishing internal organi)ational arrangements to manage the relationships with outsiders and to build the necessary bridges between the partnering organi)ations.
1. >n determining the degrees of authority and independence to gi&e each organiational unit+ a. it
is better to rely more on the principle of centrali)ed authority than to risk pushing decision-making authority down to lower-level managers and employees !who may be ill-equipped or unwilling to take on added responsibility#. b.experience proves that a centrali)ed hierarchical structure is superior to a decentrali)ed *at structure. c. the recent trend is for companies to shift away from authoritarian, multi-layered hierarchical structures to *atter, more decentrali)ed structures that stress employee empowerment. d.centrali)ing authority in a few senior executives is the most reliable way to shorten decision times and respond quickly and decisively to events as they unfold !the greater the strategic need for short decision response times, the more that authority needs to be centrali)ed#. e. centrali)ing authority over the related activities of separate businesses makes sense when there are opportunities to share a common sales force, utili)e common distribution channels, or rely upon a common eld service organi)ation to handle customer requests for technical assistance or to provide maintenance and repair services.
1.
allows a company to concentrate its full energies and resources on those value-chain activities where it can create unique value, where it may have a chance to be best in the industry !or even world class#, and where it needs control to build core competencies, win competitive advantage, and manage relationships with key customers and suppliers. b. can result in downsi)ed internal bureaucracies. c. can result in a *atter organi)ational structure. d. can increase competitive responsiveness. e. makes strategic sense whenever outsiders can perform them at lower cost and/or with higher value-added than the buyer company can perform them internally. f. has the disadvantage of hindering the development of managers with cross-functional experience. g. can inhibit the use of self-contained work forces and cross-functional task forces. h. can, if done in too many areas, hollow out a company, leaving it without skills and capabilities needed to be a master of its own destiny.
1. The strategic ad&antages of functional and process organiation structures include a.
providing an excellent training ground for future general managers. providing a way to centrali)e control for strategic results. c. becoming a basis for competitive advantage !lower cost or unique capability# when dominating depth in one or more functional specialties or business processes is a key success factor. d. promoting in-depth functional or process expertise !a big advantage when the rm3s value chain consists of a series of discipline-specic activities or business processes#. e. forcing prot responsibility to the top. f. avoiding fragmentation of strategy-critical business processes. g. promoting creative entrepeneurship and rapid adaptation to changing market circumstances. h. exploiting learning/experience curve eects and scale economies associated with functional or process speciali)ation. i. being the best organi)ational design for empowering people. b.
13. The disad&antages of a functionally specialied organiation structure include a.
being more complex to manage than other organi)ational designs. blurring performance recognition. c. inhibiting the allocation of corporate resources to the areas with the greatest growth opportunities. d. the potential for excessive functional myopia !too much inward emphasis on departmental matters and the priorities of functional executives and too little outward emphasis on the business as a whole, the customer, and the industry#. e. a high potential for fragmentation of strategy-critical business process across functional lines of authority. f. a potential for functional empire building, multi-layered management bureaucracies, and slow decision-making. g. tunnel vision in developing entrepreneurially creative responses to ma1or customer-market-technological changes. h. the creation of an organi)ational environment where functional departments operate as vertical silos and where inter-functional rivalry works against team-play and interdepartmental cooperation. b.
14. Geographic forms of organiation ha&e the ad&antage of a.
allowing strategy to be tailored to the specics of each geographical market. b. avoiding problems of whether to locate sta services at the headquarters level or the geographic level. c. providing an excellent training ground for higher-level general managers. d. eliminating inter-functional rivalry and con*ict. e. avoiding functional empire-building. f. delegating prot/loss responsibility to the lowest strategic level. g. improving functional coordination within each dierent geographic market. h. eliminating most of the potential for excessive business process fragmentation. i. providing away for multinational enterprises to manage the diversity encountered in operating across national boundaries.
#5. The ad&antages of a decentralied line-of-business organiation structure include a. facilitating
what decisions to centrali)e and what decisions to decentrali)e. responsibility for crafting and implementing business strategy in closer proximity to each business3s unique environment. c. allowing each business unit to organi)e around its own value chain system, key activities, and functional requirements. d.providing an eective organi)ational arrangement for detouring rivalry for corporate resources and for attention from headquarters. e. freeing the ; to handle corporate strategy issues. f. putting prot/loss accountability for business results on the shoulders of business-unit managers. g.being the lowest-cost way to manage a diversied company. h.providing the most ecient structure for capturing strategic t benets in diversied companies. b.putting
#1. 2mong the strategic disad&antages of a decentralied business unit J>9C<;;:CT organiation are a.
the absence of a built-in mechanism for coordinating related value chain activities across related business units. b. the diculty of developing suitable bonus and incentive compensation ;5 < @ ;&& 4A87&8, arrangements for business-unit managers. c. the potential for higher administrative overhead costs. d. the potential for excessive business-unit rivalry for corporate resources and attention. e. the heavy dependence of corporate management on having competent business-unit mangers. f. the potential for corporate managers to lose touch with business-unit situations. g. top-heavy corporate management. h. the accounting diculties associated with operating each business unit as a stand-alone prot center. i. the problem it creates in deciding of how much authority to delegate to business-unit managers.
##.
fewer layers of management. lower overhead costs. c. easy clarication of the roles and authority of the ;, the 8B head, and the business-unit head. d. promoting the coordination of related value chain activities across businesses within the same 8B. e. promoting the coordination of related value chain activities across businesses not in the same 8B. f. helping allocate corporate resources to the areas with the greatest growth opportunities. g. making the task of strategic review of company businesses by corporate executives more ob1ective and more eective. h. promoting more decisions on the basis of 2what3s best for the organi)ation as a whole.2 i. creating needed checks and balances among competing viewpoints. b.
#*. The disad&antages of a matrix organiation structure include a.
the potential for creating a transactions log1am and disproportionate amounts of time being spent on communications. b. the added diculty of capturing strategic t benets. c. the added diculty of promoting internal checks and balances among competing viewpoints. d. making it harder to employ process teams, venture teams, and cross functional task forces. e. the complexity it adds to the management process. f. the diculty of maintaining balance between the two lines of authority in the matrix. g. its promotion of an organi)ational bureaucracy where bureaucrats spend a lot of time transacting business with each other. h. the potential for hamstringing creative entrepeneurship. i. a slowdown in decision-making. 1. working against eorts to empower employees and managers.
#,. 2mong the most fre)uently used ways to supplement a company's basic building-bloc( organiation design are a.
cross-functional task forces. b. 8B teams. c. matrix teams. d. venture teams. e. self-contained work teams. f. empowered decentrali)ation. g. special pro1ect teams. h. process teams. i. functionally-speciali)ed work teams. 1. the creation of relationship managers.
#. The organiational structures of the future are li(ely to feature a.
a pronounced shift away from decentrali)ed structures and empowerment back to functional speciali)ation and tight centrali)ed control. b. reduced use of geographic forms of organi)ation and 8B structures. c. fewer boundaries between vertical ranks, dierent departments, functions and disciplines, and geographic units. d. more mechanisms and capacity to accommodate change and rapid learning. e. less outsourcing and fewer strategic partnerships with external allies. f. more vertical layers of management. g. more collaborative eorts internally between dierent functional specialties and between people in dierent geographic locations.
ANSWERS 1. 2.
5 4. 5. 5 6. b, d, e, f 7. a, c, e, f, h, i, 1 8. c, d, g 9. a, f, g, i 10. b, c, e, f 11. a, c, e 12. a, e, f 13. a, b, c 14. b, f 15. c, e 16. a, b, c, d, e, h 17. b, c, d, f, h 18. d, e, f, g, h 19. a, c, f, g, i 20. b, c, e, f 21. a, c, d, e, f, i 22. d, f, g 23. a, e, f, g, h, i 24. a, d, g, h, 1 25. c, d, g 3.
Chapter 15 Self-Test 1. Cost-effecti&e strategy implementation re)uires that budgets for organiational units be prepared ahead of the plans and schedule for implementing strategy -- otherwise organiational resources are li(ely to be wasted. rue 5alse
#. >n deciding how many policies and procedures to prescribe and how tight they should be+ a good guideline is to prescribe enough policies to gi&e organiational members clear direction and ma(e them tight enough to place desirable boundaries on their actionsD then empower people to act within these boundaries howe&er they thin( ma(es sense. rue 5alse
*. The best policies and procedures are those that gi&e employees sufficient leeway to do acti&ities whate&er way they belie&e is best. rue 5alse
,. =enchmar(ing+ best practice implementation+ and some form of TQF are basic tools for implementing strategies (eyed to defect-free manufacturing+ superior product )uality+ superior customer ser&ice+ and total customer satisfaction. rue 5alse
. The essential difference between reengineering and TQF is that reengineering aims at redesigning the &alue chain while TQF programs aim at continuously impro&ing how particular &alue chain acti&ities are performed. rue 5alse
. TQF programs can be a &ery effecti&e follow-on to reengineering efforts. rue 5alse
. >nstalling state-of-the-art systems to support daily business operations is one of the (eys to better strategy implementation and execution because inno&ati&e and well-concei&ed operating systems can gi&e employees the capability to perform their %obs more efficiently and can strengthen organiational capabilities enough to pro&ide a competiti&e edge o&er ri&als. rue 5alse
3. Getting employees to buy into the strategy and commit to ma(ing it wor( is best done by tal(ing to e&eryone about how important new strategic practices and achie&ement of performance targets are to the company's future and its ability to pro&ide %ob security. rue 5alse
4. 9egati&e moti&ational approaches the fear of puniti&e conse)uences" generally wor( better than positi&e moti&ational approaches. rue 5alse
15.The strategy-implementers foremost attention-getting+ commitment generating de&ice is the sie of the changes in departmental operating budgets. rue 5alse
11.The most dependable way to (eep company personnel focused on achie&ing the ob%ecti&es laid out in the strategic plan is to generously reward indi&iduals and groups who achie&e their assigned performance targets and to deny rewards to those who don't. rue 5alse
1#.The (ey to creating a reward system that promotes good strategy execution is to ma(e strategically rele&ant measures of performance the dominating basis for designing incenti&es+ e&aluating indi&idual and group efforts+ and handing out rewards. rue 5alse
1*.2 strategy-implementers standard for %udging whether indi&iduals and organiational units ha&e done a good %ob must be whether they achie&ed their performance targets+ not whether they tried hard or did their best. rue 5alse
1,.>t is flawed management to tie incenti&es and rewards to satisfactory performance of duties and assigned functions in hopes that the by -products will be the desired business outcomes and company achie&ements. rue 5alse
1.Knless meaningful incenti&e rewards and career conse)uences are attached to successfully implementing strategic initiati&es and hitting strategic performance targets+ few company personnel will attach much significance to the company's strategic plan. rue 5alse
1.Strategy-implementers need to be deeply in&ol&ed in the budget-ma(ing process because a.
too little funding of strategy-critical organi)ational units impedes their ability to execute their pieces of the strategic plan prociently. b. implementation of a new or revised strategy usually entails budget reallocations. c. the funding requirements of any change in strategy need to drive capital allocations and the si)e of each unit3s operating budget. d. without budget reallocations it is hard, if not impractical, to match organi)ation structure to the chosen strategy. e. aggressive resource reallocation is a prerequisite to reengineering, empowerment, and decentrali)ation.
1.rescribing policies and operating procedures aid the tas( of implementing strategy by a.
helping empower product champions and create self-managed work teams. providing personnel with top-down guidance on how certain things are to be done and what behavior is expected. c. placing limits on independent action and channeling individual and group eorts along the intended path. d. indicating how reengineering needs to be accomplished. e. specifying how big operating budgets will need to be for organi)ational units to carry out their assigned piece of the strategy in a competent fashion. f. helping enforce needed consistency in how particular strategy-critical activities are performed in geographically scattered operating units. g. paving the way for instituting C+, best practices, and internal support systems. h. helping alter the internal work climate and corporate culture in ways that produce a stronger t with the strategy being implemented. b.
13. >dentifying and adopting best practices a.
starts with benchmarking how well a company performs specic tasks and activities against best-in-industry or best-in-world performers. b. is integral to eective, ecient strategy implementation. c. needs to be directed chie*y at manufacturing and customer service activities, since these two areas are generally the most critical to successful strategy implementation. d. is a prerequisite to eective reengineering of core business processes. e. provides a basis for setting internal performance targets that gauge organi)ational competence in executing strategy.
14. ;eengineering+ TQF+ and the identification and adoption of best practices a.
are tools managers can use to promote better strategy execution. are more eective when used sparingly -- normally in strategy-critical areas of the business9 it is usually a mistake to introduce them on a wide scale throughout the organi)ation. c. should be undertaken in tandem, not separately. d. yield their best results in *at, decentrali)ed organi)ation environments rather than in centrali)ed, vertical structures. e. have been used widely in Dapan and only rarely in B.8. and uropean companies. f. need to be instituted before management has a clear x on the indicators of successful strategy execution, not after. b.
#5. =uilding a total )uality culture entails a.
management articulation of a quality vision and establishment of specic, measurable quality goals. b. hiring only those 1ob applicants with the attitudes and aptitudes conducive to quality-based performance. c. issuing a quality manual to all employees that describes the policies, procedures, and practices that must be adhered to if quality targets are to be met. d. initiating quality training for employees. e. stressing inspection and immediate correction of mistakes. f. using teams and team-building exercises to reinforce and nurture individual eort. g. recogni)ing and rewarding individual and team eorts regularly and systematically. h. empowering employees. i. preaching that there3s no such thing as good enough !because competitors aren3t resting on their laurels and customers are always looking for something better# and that continuous improvement is the only thing which can protect the organi)ation3s competitiveness.
#1. /ell-concei&ed+ state-of-the-art support s ystems a.
facilitate better strategy execution. can strengthen organi)ational capabilities enough to provide a competitive edge over rivals. c. can help a company mobili)e information, use knowledge eectively, redeploy resources quickly, and respond faster. d. reduce the need for rigidly prescribed policies and procedures. e. typically have the eect of raising a rm3s unit costs because of the high dollar outlays required to develop and install such systems. b.
##. >n designing strategy-supporti&e reward systems+ a.
the focus should be exclusively on carrots !positive rewards# rather than sticks !punishment for poor performance#. b. it is particularly important to dene 1obs and assignments in terms of the duties and functions to be performed, not the results to be accomplished. c. achievement of the organi)ation3s strategic and nancial ob1ectives should be the basis for incentive compensation. d. the performance payo should be a ma1or, not a minor, piece of the total compensation package. e. the incentives should be restricted to managers. f. the performance targets each individual is expected to achieve should involve outcomes that the individual can personally aect.
#*. Total )uality management TQF" a.
is a technique for convincing employees that superior product quality is the most reliable key to strategic success. b. generally works better than reengineering because of quicker employee buy-in, lower implementation costs, and easier-to-achieve results. c. is a term used to describe companies that are best-in-industry in most of the relevant performance indicators. d. involves installing a total quality/continuous improvement culture where employees throughout the organi)ation are committed to doing all tasks and value-chain activities better and better --there3s a never-ending drive to improve on how things are done. e. is a management approach where managers go through in-depth training to learn how to teach their employees to do things right and how to supervise them in a manner that results in continuous improvement in employee productivity.
#,. Creating strategy-supporti&e policies and procedures a.
generally means having many policies rather than few policies !because it usually takes many policies and procedures to adequately spell out and fully explain how things are to be done correctly#. b. is an important strategy-implementing tool because good strategy execution can seldom be achieved by giving employees leeway to do tasks the way they think best !without carefully prescribed policies and procedures, management loses control over how tasks are being performed#. c. is the most reliable way to motivate employees to do things in a rst-rate fashion !because very few employees will knowingly violate company policies#.
d.
is a prerequisite to successfully imitating the practices and procedures of best-in-industry or best-in-world performers. e. aids the implementation process by channeling actions, behavior, and daily 1ob performance along avenues that are calculated to improve strategy execution.
#. Foti&ating employees to do their best in trying to ma(e the s trategy wor( entails a.
using monetary incentives. b. using non-monetary incentives. c. creating a work climate where there is a constructive amount of pressure for employees to perform well. d. taking care to avoid those approaches that could result in employee stress, anxiety, or 1ob insecurity. e. making sure that all employees are rewarded regularly for their eorts and that the amount of incentive compensation is pretty much equal from employee to employee.
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a, b, cANSWERS
1.
Chapter 11 Self-Test 1. >t is difficult to implement a strategy successfully when a firm's culture is not well aligned with the beliefs+ practices+ beha&iors+ and business approaches that the strategy calls for. rue 5alse
#. Companies+ especially large ones+ typically ha&e multiple cultures or subcultures. rue 5alse
*. /hen a company's culture is out of sync with what is needed for successful strategy implementation and execution+ the wisest and best course of action is to change the strategy. rue 5alse
,. The tas( of reshaping a firm's culture to better fit strategy generally ta(es from a few wee(s to a month in small firms to as much as a year in large companies. rue 5alse
. Symbolic actions to change the corporate culture are more important than substanti&e actions. rue 5alse
. Charisma and personal magnetism are (ey traits that a C:< needs in order to successfully lead efforts to change corporate culture. rue 5alse
. @igh ethical standards are nice+ e&en desirable+ but they ha&e little impact on a company's long-term strategic success or on efforts to build a healthy corporate culture. rue 5alse
3. >n a strong-culture company where strategy and culture are well-aligned+ managers are less dependent on policies+ procedures+ rules+ and super&ision to enforce what people should and should not do because deeply imbedded cultural norms can be counted upon to guide beha&ior. rue 5alse
4.
15. Correcti&e ad%ustments to strategy and to strategy implementation should be proacti&e rather than reacti&e. rue 5alse
11.2 company's culture is manifested in a.
the values and business principles that management preaches and practices. b. the traditions the company maintains. c. the kind of organi)ation structure it has and the kinds of internal support systems it has installed. d. the particular countries and geographic areas where it operates. e. the demographic makeup of its work force.
f.
the kinds of relationships it has developed with employees, unions, suppliers, customers, stockholders, and the communities where it operates. g. its policies and its ethical standards. h. its folklore !legends, stories, heroes#. i. the types of competitive strategy it employs, its nancial and strategic ob1ectives, and its strategic vision. its supervisory practice, its operating style, and its internal work environment.
1#.
continuity of leadership !new leaders continue to preach and practice the same values and beliefs and to reinforce existing norms and traditions#. b. continuity of ownership c. continuity of strategy d. continuity of long-term direction !strategic vision and nancial and strategic ob1ectives#. e. screening and selecting new employees according to how well their values, attitudes, and personality t in. f. systematic indoctrination of new members in the culture3s fundamentals. g. the telling and retelling of company legends and constant management reiteration of core values in daily conversations and pronouncements. h. visibly rewarding people who display cultural ideals and follow cultural norms and penali)ing those who don3t. i. deliberately avoiding diversication or acquisition so as not to upset the internal cultural balance or risk a cultural clash.
1*. >n strong culture companies+ a tight strategy-culture alignment is a powerful ally in implementing strategy because a.
a work environment where the culture matches well with the requirements for good strategy execution provides a ready system of informal rules and peer pressures regarding how to conduct business internally and how to go about doing one3s 1ob. b. no changes in organi)ation structure will be needed. c. no new internal support systems will have to be developed. d. benchmarking, reengineering, and C+ programs will not be needed. e. a strong strategy-supportive culture promotes the very kinds of work habits, behaviors, values, and practices needed for procient strategy execution. f. it promotes strong employee identication with the company3s vision, performance targets, and strategy.
1,. 2 company's culture can be said to be strong and cohesi&e when a.
the ; has exercised strong authoritarian leadership for a number of years. b. the company conducts its business according to a clear and explicit set of principles and values. c. management devotes considerable time to communicating these principles and values to organi)ational members and explaining how they relate to the company3s business environment. d. the principles and values are widely shared by company personnel. e. the organi)ation structure has undergone no ma1or changes for a number of years. f. it is well matched to the company3s strategy. g. employee turnover rates are low.
1. Characteristics that contribute to unhealthy or low-performance cultures include a.
a frequently changing strategy. b. a frequently changing organi)ation structure. c. a highly politici)ed internal environment where in*uential managers have enough clout to operate their efdoms autonomously and resist needed changes. d. hostility to change and to people who champion new ways of doing things. e. an aversion to looking outside the company for superior practice and approaches. f. promoting managers who are good at internal administration but not so good at entrepeneurship, strategy-making, motivation, and culture-building.
1. 2dapti&e cultures are characteried by such traits as a.
leaders who are more strongly committed to timeless business principles and the well-being of organi)ational stakeholders than to any specic business strategy or operating practice. b. personnel who are receptive to risk-taking, experimentation, innovation, and changing to new strategies and operating practices whenever necessary to serve the legitimate interests of stakeholders. c. strong adherence to promoting people from within the company. d. heavier-than-normal use of bonuses, stock options, and other forms of incentive compensation. e. a proactive approach to identifying issues, evaluating the implications and options, and implementing workable solutions. f. encouraging and rewarding entrepeneurship.
g.
openly supporting managers and employees at all ranks who propose or help initiate useful change.
1. Changing a company's culture and aligning it with the re)uirements for strategic success a.
are among the toughest management tasks. entails diagnosing which facets of the present culture are strategy supportive and which are not. c. involves open and candid communication among all concerned about those aspects of the culture that have to be changed. d. requires visible actions, both symbolic and substantive, to modify the culture. e. nearly always requires that senior executives personally lead the culture-changing eort. f. may require replacing old-culture traditionalist managers with 2new breed2 managers. b.
13. >nstilling and ingraining a company's &alues statement and code of ethics in company policies+ practices+ and actual conduct entails such actions as a.
making them an integral part of employee training and educational programs. b. screening out 1ob applicants who do not exhibit compatible character traits. c. communicating the values and ethics code to all employees and explaining compliance procedures. d. promptly dismissing any employee who violates the ethics code or disavows company values. e. the ; openly and unequivocally endorsing the values and ethics code and leading the enforcement of ethical standards. f. having all ocers sign statements arming their belief in the company3s values and their agreement to abide by the ethics code, then circulating these signed statements among all company personnel.
14. The managerial tas( of exerting strategic leadership entails a.
fostering a strategy-supportive climate and culture. b. developing a budget to implement and execute the strategy. c. staying on top of what is happening and how well things are going !often via +74#. d. making sure that policies and procedures are supportive of eective strategy execution. e. building consensus and dealing with the internal politics of crafting and implementing strategy. f. being an authoritarian, hard-nosed decision-maker who is willing to make the tough calls. g. being a strong advocate of C+. h. enforcing ethical standards. i. keeping the internal organi)ation responsive, innovative, and alert for new opportunities. 1. pushing corrective actions to improve strategy execution and overall strategic performance.
#5. Successful culture-change efforts a.
require a ma1or reorgani)ation to achieve a strategy-supportive organi)ation structure. require strong, forceful top management leadership because considerable internal clout is needed to bring about ma1or cultural change. c. require ma1or budget reallocations. d. entail persuasive top management arguments that cultural changes are needed to serve the long-term best interests of all key constituencies. e. usually entail challenging the status quo, promoting an openness to new ideas, and gaining the commitment of individuals and department to support the new strategic direction and needed new practices. f. usually requires rewriting the company3s code of ethics and altering ethical standards accordingly. g. frequently involve reengineering core business processes, benchmarking, and promoting C+. h. involve recogni)ing and rewarding people who exhibit the desired new cultural traits and who lead or promote successful cultural change eorts. b.
#1. refers to a company's &alues+ beliefs+ traditions+ operating style+ and internal wor( en&ironment. ##. $rom a strategy implementation perspecti&e+ the best types of corporate culture are cultures. #*. The difference between a &alues statement and a code of ethics is that a is a cornerstone for building a corporate culture whereas a #" a basis for de&eloping a corporate conscience.
1" is
#,. F=/2 stands for
.
# 2 company's culture can be characteried as if many subcultures exist+ few &alues are widely shared+ and there are few company traditions.
