Strategy
Questions and answers
Chapter 1 Self-Test
1. Good strategy and good strategy execution are the most trustworthy 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.
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True
False
2. Financial objectives are important because without acceptable financial performance
an organization cannot have a good strategy nor is it likely to have the resources
required for good strategy execution.
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True
False
3. Strategic objectives relate to performance outcomes that improve a company's
competitive strength and market position whereas financial objectives relate to such
performance outcomes as profits, return on investment, cash flow, dividend growth,
and financial strength.
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True
False
4. Crafting strategy is an exercise in inside-out strategic thinking.
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True
False
5. Crafting strategy is primarily an administrative task whereas implementing strategy is
primarily an entrepreneurial task.
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True
False
6. Which of the following are among the five tasks of strategic management?
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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 outside-in strategic thinking
f. Implementing and executing the strategy
g. Evaluating performance, reviewing new developments, and initiating corrective adjustments in the
organization's vision, long-term direction objectives, strategy, and/or implementation
7. A strategic vision for a company
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a. involves how fast to pursue the chosen strategy and reach the targeted levels of performance.
b. consists of thinking through what it will take to make the chosen strategy work as planned.
c. consists of management's view of the kind of company it is trying to create and its intent to stake 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 makeup and long-term direction.
8. The objectives that managers set
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a. should spell out how fast the strategy is to be implemented.
b. should require organizational stretch and disciplined effort.
c. should include both short-range and long-range performance targets.
d. ought to put more emphasis on achieving short-run performance targets than on long-run performance
targets.
e. indicate the company's intent to stake out a particular business position.
f. should include both financial and strategic performance targets.
9. A company's strategy
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a. is a combination of planned actions and o-the-spot 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,
markets, competitive approaches, and ways of operating.
10. Crafting strategy involves outside-in strategic thinking and entrepeneurship because
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a. company managers need to keep the strategy responsive to such outside drivers as changing buyer
preferences, the latest actions and moves of rivals, market opportunities and threats, and newly appearing
business conditions.
b. managers can't keep company strategy responsive to chances in the business environment unless they
exhibit entrepeneurship in studying market 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 intended and planned.
d. good entrepeneurship and astute analysis of the external business environment are keys to a conservative,
risk-avers strategy.
e. shrewd diagnosis of changing market conditions and changing customer preferences and requirements is
one of the keys to keeping company strategies market-driven and customer-driven.
11. Company strategies evolve because
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a. it is a bad idea to do too much strategizing until a company has been in business long enough to know what
strategies will work best.
b. most managers like to develop the strategy in bits and pieces rather than all at once.
c. even a well-planned-out-in-advance strategy must be adapted to shifting market conditions, the fresh actions
of competitors, altered customer needs and preferences, emerging opportunities and threats, unforeseen
events, and innovative thinking about how to improve the present strategy.
d. many managers are conservative, preferring to be late-movers in responding new developments and
avoiding the risks associated with developing a complete strategy too quickly.
e. the longer a company is in business, the more likely it becomes that the original strategy will need to be fine
tuned or revised in significant ways or even overhauled entirely in order to keep the strategy in tune with
changing circumstances.
12. A company's strategy consists of
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a. the game plan for out competing rivals.
b. actions taken to capitalize on new opportunities.
c. defensive moves to counter the actions of competitors and protect against external threats.
d. actions to respond to changing industry conditions.
e. creating a budget to steer resources into those organizational departments whose activities are crucial to
market success.
f. actions to strengthen its resource base and competitive capabilities.
g. moves and approaches that define how the company manages R&D, manufacturing, marketing, finance, and
other activities.
13. The task of formulating a strategic plan involves
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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.
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 task force come up with the specifics and the details of
what to do, while senior management either approves or disapproves what is recommended.
14. The managerial task of implementing strategy includes
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a. developing a strategic vision and business mission to guide how the strategy is to be communicated,
implemented, and then executed on a daily basis.
b. building an organization a capable of carrying out the strategy successfully.
c. exerting the internal leadership needed to drive implementations forward and to keep improving on how the
strategy is being executed.
d. creating strong "fits" between the way the organization does things internally to try to execute the strategy
and what wt will take for the strategy to succeed.
e. deciding how best to improve short-term and long-term profitability.
15. A company's long term direction, strategy, and approach to strategy implementation
are never final because
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a. changes in the organization's internal or external 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 existing strategy and how it is being executed.
c. strategic planners sometimes change their minds about what kind of long-range strategy is best for the
company to pursue.
d. the company's board of directors and senior executives may prefer to experiment with several different
strategies and implementation approaches to wee which works best.
e. ineffective strategic planning efforts seem to be the norm in so many companies.
16. The five task of strategic management
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a. are best performed by professional strategic planners skilled in the use of strategic analysis techniques.
b. tend to be performed by the CEO in most companies.
c. are primarily the responsibility of a company's board of directors.
d. are best performed by senior executives, with the help and advice from strategic planners.
e. tend to require the involvement of senior managers, middle managers, and lower-echelon managers -- all
managers tend to have a role in the strategy-making, strategy-implementing process.
17. Delegating a strategy-making/strategy-implementing role to middle and lower-level
managers
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a. is generally unwise because they lack the "big picture" knowledge to make sound strategic decisions.
b. works bests when they can seek counsel on an as-needed basis from a well-staffed strategic planning
department.
c. is rarely done in large companies because there are plenty of experienced senior-level 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 executives to craft and implement all the necessary
actions and programs.
e. is managerially complex because it is hard, if not impossible, to fix accountability for strategic success or
failure.
18. The strategic role of a company's board of directors involves
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a. taking lead responsibility for deciding what the company's long-term direction should be and for crafting a
strategy.
b. reviewing important strategic moves and officially approving the strategic plans submitted by senior
management.
c. working closely with senior strategic planners and senior executives to develop consensus on a long-term
direction for the company and a long-range strategic plan.
d. evaluating the caliber of senior executives' strategy-making and strategy-implementing skills.
e. being an active participant in the first three tasks of strategic management and taking a pretty-much handsoff approach on the other two tasks.
19. The role and tasks of strategic planners and strategic planning departments in the
strategic management process should consist of
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a. helping to gather and organize information that strategy-makers need.
b. doing most of the strategic analysis for line managers and helping free line managers of the tedium of
thinking strategically.
c. taking lead responsibility for strategy-making and allowing line managers to have lead responsibility for
strategy implementation (so as to better fix responsibility for results).
d. working closely with key managers to prepare a sound strategic plan to submit to the board of directors for
final approval.
e. working closely with key managers to prepare a sound strategic plan to submit to the board of directors for
final approval.
20. The advantages of first-rate strategic thinking and conscious management of the
strategy-making, strategy-implementing process include
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a. helping to unify the numerous strategy-related 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 risk of a failed strategic vision.
d. greater ability to out-innovate and out-maneuver rivals, thereby winning a sustainable competitive advantage.
e. raising managers' consciousness regarding the winds of market change, new opportunities, and threatening
developments.
21. ________________ are yardsticks for tracking an organization's performance and
progress.
22. An organization's _________________ consists of the actions and business
approaches management employees to achieve the targeted organizational
performance.
23. The most complicated and time consuming part of strategic management is
______________________.
24. A ______________________ outlines an organization's mission and future direction,
near-term and long-term performance targets, and strategy.
25. The term _________________________ refers to the full range of managerial activities
associated with putting the chosen strategy into place, supervising its pursuit, and
achieving the targeted results.
ANSWERS
1. T
2. F
3. T
4. F
5. F
6. a, b, d, f, g
7. c, e
8. b, c, f
9. a, b, f
10. a, b, e
11. c, e
12. a, b, c, d, f, g
13. b, c, d
14. b, c, d
15. a, b
16. e
17. d
18. b, d
19. a, e
20. a, b, e
21. objectives
22. strategy
23. implementing strategy
24. strategic plan
25. strategy implementation
Chapter 2
1.
Strategic visions and company mission statements
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a. should be highly personalized --unique to the organization to which they apply.
b. provide a big picture perspective of the organization's future course -- its customer focus, its target market
position, and the business activities to be pursued.
c. are generally focused on the need to make 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.
2. Arriving at a good definition of what business an organization is presently in usually
requires considering
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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 market, 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.
3. Forming a strategic vision for a company involves the distinct tasks of
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a. forcefully stating that the organization's fundamental purpose is to make 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, exciting, and inspiring.
f. establishing a mission statement for each of the company's functional department.
4. A well-worded, well-conceived strategic vision/mission statement has real managerial
value when
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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 executives' own views about the firm's long-term direction and business makeup.
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
making the vision a reality.
5. Strategic visions and mission statements
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a. should be communicated to employees in language that arouses a strong sense of organizational purpose,
builds pride, and induces employee buy-in.
b. need to be changed when emerging opportunities and threats in a company's surrounding business
environment make it desirable to revise the organization's long-term direction.
c. help reduce the risk of visionless management and rudderless decision-making.
d. provide a beacon that lower-level managers can use to form departmental missions and set departmental
objectives.
e. help an organization prepare for the future.
6. Objectives
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a. represent a managerial commitment to achieving specific performance outcomes by a certain time.
b. are needed for each key result that managers deem important to organizational success.
c. are best stated in general terms (maximize profits, reduce costs, increase sales) rather than quantifiable
terms (increase after-tax profits by 10% in 2 years, grow sales revenues by 20% 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 near-term targets than long-range targets because of the uncertainties associated
with setting long-range targets at realistic levels.
e. should place far more emphasis on financial targets than strategic targets.
7. Which of the following are good examples of strategic objectives (as opposed to
financial objectives)?
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a. Achieve earnings growth of 10% annually
b. Increase market share from 17% to 22% within 3 years a c. Achieve the lowest overall costs of any producer
in the industry
d. Achieve a AA bond rating within 2 years
a e. Increase the return on invested capital from 13.5% to 15.0% within 2 years
f. Offer the broadest product line of any company in the industry
g. Be a recognized industry leader in technology and product innovations
8. Establishing and achieving strategic objectives merits very high priority on
management's agenda because
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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 quarter after quarter 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 long-term competitive position in order
to realize better near-term profitability risks diluting its competitiveness and losing momentum in its target
market.
d. well-chosen strategic objectives are essential to a well-crafted strategy.
e. a company can't have a shrewd strategic vision without having aggressive and competitively astute strategic
objectives.
9. Objectives
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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 not for separate businesses, product lines, functional areas,
or departments in order to keep the full attention of all employees and managers trained on achieving the
targeted levels of organization-wide performance.
c. should be set via a bottom-up process rather than a top-down process so as to involve a greater number of
employees.
d. should primarily have a short-range focus because well-chosen short-term objectives greatly reduce the need
for long-term performance objectives.
e. are needed for both the near-term and the long-term.
10. An organization's strategy concerns
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a. how to achieve strategic and financial performance targets.
b. how to out-compete rivals.
c. how to achieve sustainable competitive advantage.
d. how to strengthen its long-term business position.
e. how to make management's strategic vision a reality.
f. how to respond to changing external or internal conditions.
11. Business strategy (as distinct from corporate strategy, functional strategies, and
operating strategies)
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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 CEO.
c. is chiefly concerned with HOW to build and strengthen the company's competitive position in a specific
business and market arena.
d. can be judged as powerful or weak 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 lower-level managers choose to
pursue.
12. Functional strategies
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a. concern the strategic initiatives and approaches of key internal units (plants, distribution centers, sales
districts) and for handling daily operating tasks having strategic significance (purchasing, shipping,
advertising).
b. are generally crafted by the business head working in consultation with key 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.
13. Operating strategies
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a. are of lesser scope than functional strategies.
b. are normally the lead responsibility of senior executives, 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 key to achieving sustainable competitive advantage.
14. In a single business company, the strategy-making pyramid includes
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a. corporate strategy.
b. business strategy.
c. diversification strategy.
d. functional strategies.
e. managerial strategies.
f. operating strategies.
g. industry strategy.
h. organization strategy.
15. The managerial task of uniting the strategy-making effort from the top to the bottom of
the strategy-making pyramid involves
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a. more of a bottom-up process than a top-down process.
b. gaining broad consensus for and commitment to the organization's mission and vision, long-term direction,
and objectives.
c. harmonizing the separate layers of strategy and networking them into a cohesive, coherent, and mutually
reinforcing pattern.
d. exerting strong top-down direction-setting and strategic leadership so as to get lower-level managers to
perform their strategy-making tasks 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.
16. In contemplating what strategy to employ and what strategic actions to pursue,
management
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a. can ethically pursue any strategic action that is legal.
b. has a duty to its employees to take into account the impact that strategy or a change in strategy has upon
employees and, where such impacts may be adverse or negative, to undertake such actions equitably,
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 exercise 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 requirements and
governmental regulations.
e. has a moral duty to pursue satisfactory profitability and an acceptable return on owners' investment.
17. In a diversified company, the strategy-making task
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a. involves three different levels of management - key executives, middle managers, and first-line supervisors.
b. involves four different levels of management - key executives 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
operating-level 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 top-down process where corporate executives dictate the shape of business-level 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 strategy-making pyramid that, starting from the top of the pyramid,
begins with corporate strategy and proceeds down to business strategies, functional strategies, and
operating strategies.
18. In identifying the corporate strategy of a diversified company, one needs to consider
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a. what kind 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 R & 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 weak or unattractive businesses.
h. the company's approach to allocating investment capital across its business units.
i. what kind 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.
19. To identify the strategy for a single-business company, one needs to consider
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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 market 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 key 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 key features are.
h. whether the strategy is ethical or unethical.
i. recent internal moves to change compensation methods.
20. The factors that shape the choice of company strategy can be grouped into 2 broad
categories - factors external to the company and factors internal to the company.
Below is a list of items that may or may not have great bearing on a company's choice
of strategy. If you deem an item is relevant to a firm's choice of what strategy to
employ, then classify it as an external factor (by marking as an "E") or as an internal
factor (by marking as an "I"). If the item is not relevant as a factor, the box should
remain blank.
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21.
Shared values and company culture.
How much the product is selling for.
Company opportunities and threats.
How long the product has been on the market industry attractiveness and competitive conditions.
Company resource strengths, resource weaknesses, competencies, and competitive capabilities.
Societal, political, regulatory, and community citizenship considerations.
The personal ambitions, business philosophies, and ethical principles of key executives.
How many strategy options or alternatives the company has.
is the overall managerial game plan for a diversified company.
22. A company exhibits
when it relentlessly pursues an ambitious
strategic objective and concentrates its competitive actions and energies on achieving
that objective.
23. A
is a basis for competitive advantage because it represents
specialized expertise that rivals don't have and cannot readily match.
24. A winning strategy must be well-matched to the company's
(1)
lead to sustainable
(2)
, and boost company performance.
,
25. The
approach to performing the strategy-making task is when a
manager enlists the help of key subordinates in hammering out a consensus strategy
that all the key players will go back and do their best to implement successfully.
ANSWERS
1. 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
20.
"I" Shared values and company culture.
How much the product is selling for.
"E" Company opportunities and threats.
How long the product has been on the market industry attractiveness and competitive conditions.
"I" Company resource strengths, resource weaknesses, competencies, and competitive capabilities.
"E" Societal, political, regulatory, and community citizenship considerations.
"I" The personal ambitions, business philosophies, and ethical principles of key executives.
How 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 3 Self-Test
1. Industry and competitive analysis aims at developing probing answers to which seven of the following
questions?
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a. How well is the company's strategy working?
b. What are the strategic plans of other competitors in the industry?
c. What are the industry's dominant economic features?
d. What key factors will determine competitive success or failure?
e. What are the drivers of change in the industry and what impact will they have?
f. What strengths, weaknesses, opportunities, and threats are evident in the industry environment?
g. What competitive forces are at work and how strong are they?
h. Who's likely to make what strategic and competitive moves next?
i. Which companies are in the strongest/weakest competitive positions?
j. How attractive is the industry in terms of its prospects for above average profitability?
2. In identifying an industry's dominant economic features, it is important to consider such things as
a. market size, market growth rate, and where the industry is in the growth cycle.
b. what the industry's key success factors are.
c. which competitors are in which strategic groups.
 d. resource requirements, the prevalence of backward and forward integration, and whether there are significant scale economies in purchasing,
manufacturing, shipping, marketing, or distribution.
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e. the strength of competitive pressures from producers of substitute products.
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f. whether the industry's products are standardized or differentiated.
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g. whether the scope of competitive rivalry is local, regional, national, international, or global.
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h. the types of distribution channels used to access buyers.
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i. the pace of technological change.
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j. the bargaining power of suppliers.
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3. Which of these are included in the "five-forces" model of competition?
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a. Firms in other industries offering substitute products
b. Suppliers of key inputs
c. The regional/national/global economic climate
d. Federal and state regulatory agencies
e. Rivalry among competing sellers
f. Buyers
g. Financial markets (Wall Street investment firms, major banks, bond rating agencies)
h. Potential new entrants
i. Distributors, wholesalers, and other "middle-man" interests
4. The rivalry 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 8) and there are big differences in their size and competitive capabilities.
e. there are significant scale economies and experience curve effects.
5. How serious the competitive 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 high or low.
d. how many competitors are already in the industry.
e. the expected reaction of incumbent firms to new entry.
6. Which of the following are generally considered to be barriers to entering a market or industry?







a. The presence of sizable scale economies and experience curve effects
b. The presence of more than 20 rivals already in the industry
c. A product that is pretty much standardized from rival to rival
d. Firms in the industry hold key patents and possess significant proprietary technology
e. The existence of tariffs, import quotas, and government-mandated regulations
f. Difficulty in gaining access to technology and specialized know-how
g. Buyer attachment to established brands
7. The competitive threat that outsiders will enter the industry is weaker when




a. entry barriers are high.
b. the industry's product is standardized.
c. incumbent firms are likely 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 market.

e. newcomers will have a hard time earning attractive profits for several years following entry.
8. The competitive threat posed by substitute products is weakened when





a. buyers believe substitute products don't have better or even equal 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 expensive for buyers to use.
9. A good example of the competitive power of substitute products is





a. the competition between ice skates and roller blades.
b. the competition between Cadillac and Lincoln.
c. the competition between Coca-Cola and 7UP.
d. the market invasion of CDs and the effect they've had in eroding the sales of cassette tapes.
e. the competition that frozen yogurt provides to the producers and marketers of ice cream.
10. The suppliers to an industry are a strong competitive force when
 a. the item suppliers provide is a standard commodity that is readily available from numerous suppliers at the going market 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 make it themselves.
 e. technology is changing rapidly.
 f. the industry is moving towards greater global competition.
 g. suppliers, because of their reputation or the quality of the items they supply or some other factors, are in a position to exercise bargaining
leverage over price, delivery, and other terms and conditions of sale.
11. Whether the buyers of an industry's product have strong or weak bargaining leverage over 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 quantities.
 e. whether buyer demand is sporadic or stable, seasonal or year-round, cyclical, or recession-proof.
12. Which of the following are NOT among the most common types of driving forces?
 a. Product innovation
 b. Shifts in buyer composition and the appearance of new ways of using the product
 c. Ups and downs in interest rates and the stock market
 d. Advances in technology and the diffusion of more technical know-how across the industry
 e. Shifts in buyer preferences away from differentiated products to more or less standardized products
 f. The decisions of one or more rivals to try to boost their market shares
 g. A reduction in the prices of substitute products
13. The procedure of constructing a strategic group map involves
 a. identifying the competitive characteristics that differentiate firms' market positions and competitive approaches.
 b. selecting variables for the map's axes that are highly correlated.
 c. using only variables for the map's axes that are quantitative in nature (qualitative measures of market positions and competitive approaches
are too subjective and unreliable).
 d. plotting the firms on a two-variable map using pairs of characteristics that distinguish firms having different competitive approaches and market
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.
14. With 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 likely to be more profitable than firms in other strategic groups (because of strengths and
weaknesses in their respective market positions).
 e. pinpoint which of the five competitive forces is the strongest and which is the weakest.
15. Trying to determine what strategic moves rivals are likely to make next
 a. is important because of its bearing on a company's own best strategic moves.
 b. usually requires evaluating the industry's key 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 marketplace,
determining how much pressure they are under to improve their performance, and considering what their options are.
16. An industry's key success factors
 a. can be determined from a strategic group map.
 b. concern the competencies, competitive capabilities, product attributes, and market achievements with the most direct bearing on how
profitable any company in the industry is likely 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 manufacturing-related characteristics and rarely to distribution or marketing characteristics.
 f. can be a basis for sustainable competitive advantage because companies that stand out on particular KSF enjoy a stringer market position for
their effort.
 g. are typically the same from industry to industry.
17. Important factors for company managers to consider in drawing conclusions about whether the industry is
an attractive or unattractive business to be in include:
 a. whether competitive forces are likely to grow or diminish in strength.
 b. the degree of uncertainty and risk in the industry's future.
 c. the potential for entry/exit of major firms.
 d. the company's ability to capitalize on the vulnerabilities of weaker rivals.
 e. whether the company has strong competitive capabilities and is well positioned to improve its market standing and profitability.
18. An industry can be considered unattractive
 a. if long-term 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 outlook is for below-average profitability.
 d. if weak competitors have little prospect of earning a satisfactory profit.
 e. if substitute products are readily available and attractively priced.
19. Competitive jockeying among rival firms
 a. tends to be strong, even fierce, in attractive industries and moderate, even country-clubbish, in unattractive industries.
 b. tends to be more vigorous when entry barriers are high and exit 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 and respond.
 e. tends to involve a "war-games" type of contest with shifting emphasis over time in the nature and mix 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.
20. Which of the following are true?
 a. An industry's dominant economic traits often frame the kinds of strategic approaches a company can pursue.
 b. A company's competitive strategy is increasingly effective the more it provides good defenses against the five competitive forces.
 c. The task of driving forces analysis is to separate the major causes of industry change from the minor ones.
 d. Environmental scanning is a powerful technique for identifying what economic traits, competitive forces, and driving forces are most likely to
dominate the industry in the future.
 e. A company that is uniquely well-situated in an unattractive industry may still be able to earn good profits.
21. If an industry has a learning/experience curve effect of 20% for each doubling of cumulative production
volume and if costs per unit are $2.00 for a cumulative production volume of 2 million units, then unit costs
would be $__(1)__ at a cumulative production volume of 4 million units and $__(2)__ at a cumulative
production volume of 8 million units.
1. ________________________
2. ________________________
22. The competitive structure of an industry is deemed _____(1)_____ from a profit-making standpoint if rivalry
among competing sellers is very strong, entry barriers are _____(2)_____, competition from substitutes is
strong, and at least some important suppliers and customers are in a position to exercise considerable
bargaining power.
1. ________________________
2. ________________________
23. _____________________are factors capable of creating significant incentives or pressures for fundamental
changes in an industry's structure and competitive environment.
24. Those industry rivals with similar competitive approaches and market positions comprise a ______________.
25. A sound strategy incorporates efforts to be competent on all industry __________________ and to excel on at
least on factor.
ANSWERS
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, d
15. 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. key success factors
Chapter 4 Self-Test
1. The weaker a company's financial performance and the less strong its competitive position, the more its
current strategy must be called into question.
 True
 False
2. A core competence gives a company competitive capability and qualifies as a genuine competitive strength,
but it does not qualify as a competitive advantage.
 True
 False
3. The importance of a distinctive competence to strategy-making rests with the competitively valuable capability
it gives a company, its potential for being a cornerstone of the company's strategy, and the competitive edge it
can potentially produce in the marketplace.
 True
 False
4. As a rule, company strategies should seek to exploit and leverage company capabilities and its most
competitively valuable resources; strategies that place heavy demand on areas where a company is weak or
has unproven ability should be avoided.
 True
 False
5. The overall competitive strength scores resulting from a competitive strength assessment provide indication
of net competitive advantage or disadvantage. Companies with higher overall strength ratings have a net competitive advantage over rivals with lower scores, with size of the advantage being a function of the sizes of the
differences in the overall strength ratings.
 True
 False
6. Company situation analysis focuses on developing solid, probing answers to which of the following questions:
 a. What should the company's strategy be?
 b. How strong is the company's competitive position relative to its rivals?
 c. What does the company's value chain look like?
 d. Are the company's prices and costs competitive?
 e. Does the company need to pursue benchmarking and activity-based costing?
 f. What are the company's resource strengths and weaknesses and its external opportunities and threats?
 g. How well is the present strategy working?
 h. What strategic issues does the company face?
 i. What is the company's competitive environment like --does it confront strong, moderate, or weak competition?
7. Which of the following are criteria for evaluating the performance of a company's present strategy?
 a. The company's market share ranking and whether its share is trending up, down, or staying more or less the same
 b. Whether the company has at least two core competencies
 c. Whether the company's internal strengths and competitive capabilities outweigh its internal weaknesses and competitive vulnerabilities
 d. Whether the company's profit margins are increasing or decreasing and how large they are relative to other firms in the industry
 e. Whether 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. How many strategic issues the company faces and how serious they are
 h. Whether the company is regarded as a leader in some significant area (technology, product quality, service, product innovation, and so on)
 i. Whether the firm's value chain is longer or shorter than rivals
 j. How strong the company's advertising and promotional programs are relative to those of close rivals
8. The task of sizing up a company's internal resource strengths. and weaknesses and its external opportunities
and threats
 a. is called SWOT analysis.
 b. 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 kind 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, weaknesses, opportunities, and
threats will be easier and more accurate.
9.A company strength
 a. is something the company is good at doing or a characteristic that gives it enhanced competitiveness.
 b. usually takes the form of a skill/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 kind of company asset that results in a company having a sustainable competitive advantage (otherwise it is not really a strength).
10. For a particular company resource to qualify as the basis for sustainable competitive advantage, it must
 a. be hard to imitate.
 b. 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 long-lasting.
 g. be tangible rather than intangible.
11. The market opportunities that are most relevant to a company are
 a. those best able to assist in correcting the company's competitive weaknesses.
 b. 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 external threats.
 e. those where the company has the greatest potential for competitive advantage.
12. Company value chains
 a. show the linked set of activities and functions it performs internally.
 b. are the same for all firms within an industry but can differ across industries.
 c. are a tool for determining the extent to which a company is globally competitive.
 d. indicate which activities are most costly and which are least costly.
 e. identify which activities are strategy-critical 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.
13. Benchmarking
 a. is a manager's best tool for determining whether a company is performing particular value chain activities and functions efficiently.
 b. 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 it is done with companies that are direct competitors.
 d. can often be done with the aid of third-party organizations so as to protect the confidentiality of individual company data.
 e. is not a valid tool for measuring the cost-effectiveness of an activity unless it is restricted to companies in the same industry.
14. A company's cost competitiveness
 a. depends on how well it benchmarks its activities against competitors.
 b. depends on how efficiently it manages its overall value chain activities relative to how efficiently competitors manage theirs.
 c. depends mainly on backward (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 internally-performed activities are linked to the activities performed by suppliers and to the activities performed by
forward channel allies.
15. Strategic actions to eliminate a cost disadvantage 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. take the form of benchmarking and the development of activity-based costing approaches.
 e. aim at concentrating company resources and talents on those skills and activities where the company can gain dominating expertise.
16.A company's best chance to achieve sustainable competitive advantage
 a. is grounded in the caliber of its product or service (because superior products or services are almost impossible to clone or improve upon).
 b. is linked 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 value-chain activities internally so as 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 dominating expertise to serve target customers better than rivals.
17. Which of the following are signs of weakness in a company's competitive position?
 a. An eroding market share
 b. A lower price than rivals
 c. A higher price than rivals
 d. In an unfavorably situated strategic group
 e. Too small to be a major factor in the marketplace
 f. Questionable product quality or customer service or product development skills
 g. Subpar revenue growth relative to competitors
 h. Not able to match the skills, expertise, or capabilities of competitors in key value chain activities
 i. An after-tax return-on-equity below 15%
 j. Low revenues or market shares in market segments where growth is fastest or potential is greatest
18. Doing a competitive strength assessment involves
 a. developing a list of 6 to 10 key success factors and measures of competitive strength.
 b. rating each company on each KSF and strength measure (using a scale or 1 to 5 or 1 to 10).
 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.
19. The purpose of developing a list of the strategic issues a company faces is
 a. to draw conclusions about the strengths and weaknesses of company's present strategy.
 b. to determine whether it has a distinctive competence.
 c. to highlight the weaknesses in its competitive market 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 marketplace.
 e. to develop an agenda for management action.
20. A company's strategic options for overcoming cost disadvantages in the forward (downstream) end of its
overall value chain system include
 a. pressuring distributors and other forward channel allies to reduce their costs.
 b. working 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 activity-based costing.
 e. cutting prices enough to eliminate the cost disadvantage in the forward end of the value chain.
21. A
22.
is something a company does especially well in comparison to its competitors.
involves comparing a company's costs, activity by activity, against the costs of key
rivals and identifying which internal activities are a source of cost advantage or disadvantage.
23. A company's
identifies the activities, functions, and business processes that are
performed in designing, producing, marketing, delivering, and supporting its product(s) or service(s).
24.
focuses on cross-company comparisons of how well basic functions, activities, and
processes in a company's value chain are performed relative to other companies and organizations.
25.
entails developing cost estimates for specific tasks and activities in a company's
value chain; the cost data it provides is substantially different from traditional approaches to cost
accounting.
ANSWERS
1. T
2. T
3. T
4. T
5. T
6. b, d, f, g, h
7. a, d, e, f, h
8. a, b, c
9. a, c, d, e
10. a, d, e, f
11. b, c, e
12. a, g
13. a, b, d
14. b
15. a, b, c
16. e, f
17. a, d, e, f, g, h, j
18. a, b, c, d, e
19. a, e
20. a, b, c
21. distinctive competence
22. strategic cost analysis
23. value chain
24. benchmarking
25. activity-based costing
Chapter 5 Self-Test
1. The five generic competitive strategies are
 a. market share leadership.
 b. focused differentiation.
 c. overall low-cost leadership.
 d. overall quality leadership.
 e. broad differentiation.
 f. best-cost provider.
 g. focused low-cost.
 h. technology leadership.
 i. customer service leadership.
2.A company's competitive 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.
3. Which of the following is a distinctive feature of a low-cost leadership strategy?
 a. The strategic target is value-conscious buyers.
 b. The production emphasis is on continuously searching for ways to reduce costs without sacrificing acceptable quality and
essential features.
 c. The marketing emphasis is on making virtues out of product features that lead to low cost.
 d. The product line consists of a few basic models having minimal frills and acceptable quality.
 e. Sustaining the strategy depends on frequent advances in technology and occasional product innovations.
4. Which of the following is a distinctive feature of a best-cost provider strategy?
 a. The strategic target is value-conscious buyers.
 b. A marketing emphasis on under-pricing those rival brands with comparable features and attributes
 c. A product line consisting of wide selection, many product variations, and emphasis on differentiating features
 d. Sustaining the strategy depends on constant product innovation, excellent R&D skills, and periodic technological
breakthroughs
 e. A competitive advantage based on more value for the money
5. Striving to be the industry's overall low-cost provider
 a. works well in markets where many buyers are price-sensitive.
 b. entails pursuing cost-saving initiatives that will yield a sustainable cost advantage over rivals.
 c. depends more on expertise in controlling the two primary cost drivers than on revamping the value chain to bypass some
cost-producing activities altogether.
 d. involves doing a better job than rivals of performing internal value chain activities efficiently and of managing the factors that
drive the costs of value chain activities.
 e. requires making the lowest quality products possible.
 f. is a particularly powerful strategy when the industry's product is essentially the same from rival to rival.
 g. can involve trying to revamp the value chain to bypass or eliminate certain low value-added activities.
6. A low-cost provider strategy
 a. provides attractive defenses against the five competitive forces.
 b. is virtually risk-free because low-cost leaders are always able to make a profit given their low-cost status.
 c. is an attractive competitive approach when buyers of the industry's product purchase relatively large quantities 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.
7. Differentiation strategies
 a. are an attractive competitive approach when buyer preferences and requirements are too diverse to be satisfied either by a
standardized product or by sellers with identical capabilities.
 b. work best when the basis for differentiation is superior quality or superior customer service.
 c. create much greater buyer loyalty than low-cost provider strategies.
 d. can enhance profitability whenever the extra 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 low-cost or best-cost 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 can't be copied
or easily,
matched by rivals.
8. Creating buyer value via differentiation
 a. has to be grounded solidly in unique extras 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 non-economic or intangible ways.
 f. requires 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 uniqueness.
 g. nearly always involves restructuring the value chain to eliminate some activities altogether.
 h. can involve delivering value to customers via capabilities that rivals don't have or can't afford to match.
9. Differentiation strategies are competitively attractive because
 a. successful differentiation erects entry barriers in the form of customer loyalty and uniqueness 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 price premium the
differentiating attributes can command in the marketplace.
 e. appealing differentiating features help fend off threats from substitute
products not having comparable features.
10. Differentiation strategies work best when
 a. the basis for differentiation is not linked to unique resource strengths, competencies, and competitive capabilities.
 b. buyer needs and uses of a product or service are diverse and cannot be satisfied by a standardized product.
 c. few rivals are following a similar differentiation approach.
 d. the most appealing approaches to differentiation are hard or expensive for rivals to duplicate.
 e. there are not many ways to differentiate that have value to buyers.
 f. a company pursues top-of-the-line differentiation at the upper end of the price spectrum.
11. The strategy of being a best-cost provider
 a. combines a strategic emphasis on low cost with a strategic emphasis on more than minimally acceptable quality, service,
features, and performance.
 b. is usually somewhat less profitable than either top-of-the-line differentiation or low-cost 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 under-price brands with comparable quality/service/performance/features and
thereby deliver superior buyer value.
 f. requires 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 know-how 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.
12. The characteristics of a focused strategy based either on low-cost or differentiation include
 a. concentrating on a narrow piece of the total market.
 b. 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 rivals via extra advertising, above-average expenditures for promotional programs,
and heavy use of point-of-sale merchandising techniques.
 e. an emphasis on using backward vertical integration to satisfy the specialized requirements of niche members.
13. Focusing on a limited market niche
 a. is more attractive when the niche offers good growth potential and is big enough to be profitable.
 b. 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 multi-segment rivals to satisfy the specialized 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 specialize in serving the same target segment.
 g. is a vulnerable strategy if rivals have the opportunity to employ end-run offensives to thwart the focuser's 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.
14. Vertical integration
 a. can be a good strategy if it results in strengthening the firm's competitive position; otherwise, it is ill-advised.
 b. forward into wholesale distribution and retail operations is one of the best strategic options to lowering the costs of accessing
end-users and becoming the overall low-cost provider.
 c. is the most frequently 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 questions about whether it makes good business sense to get involved in performing more activities along the
industry value chain.
15. Cooperative strategies, alliances, or partnerships can produce such benefits as
 a. making vertical integration easier and cheaper.
 b. improving supply chain efficiency.
 c. gaining cost-saving 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 acquire 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 low-cost provider strategy and a differentiation strategy.
 i. allowing a company to fill gaps in its resources or to offset internal resource weaknesses.
16. Competitive advantage
 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 capitalize on competitor weaknesses.
 d. is more sustainable with a differentiation strategy than a low-cost provider strategy.
 e. is harder to achieve with an end-run 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 of strategic offensive and then protected and perhaps sustained with some combination of
defensive and offensive strategies.
17. A strategic offensive aimed at going head-to-head against key 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 most-likely-to-succeed 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 equal-or-better product offering;
otherwise the offensive is probably destined to hurt profitability because of the extra costs of supporting such an offensive.
18. Guerrilla offensives
 a. are particularly well-suited offensives for market leaders to wage against small challengers.
 b. utilize the principle of surprise and the principle of hit-and-run.
 c. are an excellent 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. frequently involve expanding capacity ahead of rivals in hopes of bluffing out rivals from following with expansions 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 overextended or have spread their resources so thinly as to be temporarily
vulnerable.
19. Defensive 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 would-be 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 frequently than offensive strategies because they are usually less risky.
 d. can entail actions that signal would-be challengers that there is a real threat of strong retaliation if a challenge is mounted.
 e. often work better if they present a moving-target type of defensive as opposed to a defense of the status quo.
 f. can involve deflecting market challenges by forgoing some short-run 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 first-mover advantages via preemptive strikes that
foreclose imitation by rivals.
20. First-mover advantages and disadvantages
 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 de-integration and unbundling.
 d. concern when to make a strategic move.
 e. are more important considerations in a technology-based differentiation strategy than in a best-cost 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.
21.A company has
defending against competitive forces.
whenever it has an edge over rivals in attracting customers and
22. The Achilles heel of alliances and cooperative strategies is the danger of
other companies for essential expertise and capabilities over the long term.
on
23. Competitive advantage is nearly always achieved by launching successful
(1)
strategies;
(2)
strategies can protect competitive advantage but rarely are the basis of achieving it.
24. An
strategy seeks to avoid head-on competitive challenges (tied to such tactics
as aggressive price-cutting, escalated advertising, or efforts to out-differentiate rivals) and, instead, involve
maneuvering around competitors by aggressively entering unoccupied or less contested market territory by
introducing next-generation products and/or technologies so as to gain first-mover advantages.
25.A
strategy involves moving first to secure an advantageous position that rivals
are foreclosed or discouraged from duplicating.
ANSWERS
1. b, c, e, f, g
2. a, d, e, f
3. b, c, d
4. a, b, e
5. a, b, d, f, g
6. a, c, e
7. a, d, f, g, h
8. b, c, d, e, f, h
9. a, b, d, e
10. b, c, d
11. a, e, f
12. a, b
13. a, b, c, d, f
14. a, g, h
15. b, c, d, e, f, i
16. a, b, f, g
17. a, b, e
18. b, d, g
19. a, d, e, f
20. d, g, h
21. competitive advantage
22. becoming dependent
23. (1) offensive (2) defensive
24. end-run offensive
25.
strike
preemptive
Chapter 6 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 difficult 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 profitable 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 effects.
f. generally requires participants to wrestle with (1) how to finance the start-up phase, (2) what market
segments to pursue, and (3) what -kind of competitive advantage to build.
g. usually entails risk-taking entrepeneurship, a bold strategy (often keyed to product superiority), efforts to
capture first-mover advantages and preparing to defend against new entry by profit-seeking outsiders.
2. In high-velocity market environments








a. the key drivers are vigorous price competition and powerful buyers whose needs are changing rapidly.
b. it is typical to have rapid-fire 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 R&D and staying on the cutting edge of
technological know-how.
d. competitive success often hinges on such organizational capabilities as speed, agility, resource flexibility, and
innovativeness in finding 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 first 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 fit newly emerging market
conditions) and being able to quickly match rivals on whatever technological approaches and product
features they are able to pioneer successfully.
3. Which of the following are characteristics of a maturing industry?








a. Most competitors are driven to pursue a low-cost provider strategy.
b. The industry becomes more profitable because market demand is dependable and stable.
c. Entry barriers fall.
d. There is more head-to-head competition for market share.
e. Buyers become more sophisticated, often driving a harder bargain on repeat purchases. a f. Competition
often produces a greater emphasis on which seller offers the best combination of price and service. a g.
Product innovation and process-related technological changes begin to come at a faster and faster pace.
h. The industry begins to consolidate to a smaller number of players.
i. Profit margins start to get squeezed and industry profitability begins to erode.
j. Companies 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.
4. 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 offensive strategies.






c. typically pursue short-term cash flow maximization rather than long-term profit maximization.
d. sometimes rely on a focus strategy that involves identifying, creating, and exploiting growth segments within
the overall industry.
e. often pursue differentiation 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 profitable 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.
5. 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-sized market share.
c. usually requires use of low-cost leadership and broad-appeal differentiation 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 specialization, customer specialization, or
geographic specialization.
e. normally requires both forward and backward integration in order to achieve a viable long-term market
position.
f. tends to be more profitable and more likely to result in sustainable competitive advantage when a company
employs a focused differentiation strategy instead of a focused low-cost strategy.
6. In a fragmented industry





a. the standout competitive feature is the absence of market leaders with king-sized market shares.
b. participants generally have the strategic freedom to pursue broad or narrow market targets and low-cost or
differentiation-based competitive advantages.
c. the market is usually local (which is why it takes thousands of sellers to cover all the different local markets).
d. one of the suitable competitive strategy options is to construct and operate "formula" 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.
7. Companies are motivated to expand internationally and compete in additional country markets







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 fluctuating 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 capitalize on their competencies and resource strengths.
g. to spread their business risk across a wider market base.
8. Competing in international markets poses a bigger strategy-making challenge than competing in only the
company's home market because of




a. manufacturing cost variations among countries.
b. the risks of exchange rate fluctuations.
c. variations in host government trade policies.
d. differing competitive conditions in different country markets. e. differing buyer needs and habits from country
to country.
9. Where multi-country competition prevails,





a. prices and competitive conditions are strongly linked across country markets to form a world market.
b. there is no "international market," just a collection of self-contained country markets.
c. the risk of fluctuating exchange rates is greatly reduced.
d. it makes strategic sense for a company's 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 (utilizing either company-owned or foreign
controlled distribution channels).
10. Which of the following is a valid competitive strategy option for a company that wants to participate in
international markets?





a. A global low-cost provider strategy
b. A multi-country follow-the-leader strategy
c. A strategy of licensing foreign firms to use the company's technology or to produce and distribute the
company's products.
d. A content follower strategy
e. A global differentiation strategy where the same differentiation approach is used in each country market
where the company competes



f. A global focus strategy aimed at the same market niche or segment in each country where the company
competes a g. Maintaining a one-country production base and exporting goods to foreign markets F7 h. A
multi-country cross-subsidization strategy
i. A critical market strategy
j. A strategic alliance strategy aimed at having more alliances in more country markets than any other rival.
11. In globally competitive markets





a. the pattern of competition is fundamentally different from country to country.
b. prices and competitive conditions are closely linked across country markets.
c. a company's competitive position in one country both affects and is affected 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-subsidization strategy is preferable to a profit sanctuary strategy.
12. Multi-country and global strategies differ in which of the following respects?





a. The 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 "important" country markets.
b. The 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. The 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. With 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. With a multi-country strategy companies may set up autonomous subsidiaries to customize operations to fit
host country conditions whereas with a global strategy major strategic decisions are closely coordinated and
more unified across individual country markets.
13. With a global approach to competing, the achievement of competitive advantage depends on








a. deploying and locating value chain activities (R&D, 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
differentiation than rivals.
b. having more profit sanctuaries than rivals.
c. doing a better job of cross-subsidization 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 fluctuating exchange rates.
14. Forming strategic alliances with major foreign companies








a. is generally the least risky, most likely to succeed, and mostly profitable approach to competing
internationally.
b. may offer 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 effective and dependable way to gain competitive advantage in international markets.
f. is usually more effective in combating competitive disadvantage than in gaining competitive advantage.
g. poses organizational hurdles because of the potential for conflicting objectives, conflicting opinions about
how to proceed, disagreements over who is to have authority over what, the added costs of coordination and
communication, and difficulties of trying to collaborate in competitively sensitive areas.
h. should be viewed as temporary rather than permanent.
15. Competitors in international markets can be distinguished not only by strategy differences but also by
differences in their long-term objectives and strategic intent; 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 subsidization.
e. short-term cross subsidization.



f. competing only in critical markets.
g. constant offensive attack.
h. concentrating on building a stronger domestic market position but still pursuing sales in several or many
foreign markets (to boost sales and profits over what can be achieved domestically).
16. Profit sanctuaries






a. refer to country markets where a company derives substantial profits 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 offensive against domestically
competitors whose only profit 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 profit
sanctuaries have a competitive advantage over companies with a single (or no) profit 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 profit
sanctuaries can utilize the profits and cash flows generated in their sanctuaries to support new strategic
offensives to gain customers and market share in additional countries.
17. To sustain their market positions, industry leaders usually need to consider which of the following strategic
options?








a. A multi-country strategy
b. A multiple profit sanctuary strategy
c. A stay-on-the-offensive strategy
d. A strategy that encourages rivals to be content followers rather than aggressive challengers
e. A cross-subsidization strategy
f. A content follower strategy
g. A harvest strategy
h. A fortify-and-defend strategy
18. 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 differentiation 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 firm's resource strengths and capabilities can yield a
competitive edge.
g. a vertical integration strategy.
h. an export strategy.
i. a content follower strategy.
j. a turnaround strategy.
19. Strategic efforts to turnaround crisis-ridden companies typically involve 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 company's assets to raise cash to pay down debt and to revitalize 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 size.
20. Which of the following do NOT qualify as a "commandment" for crafting successful business strategies?







a. Place top priority on crafting and executing strategic moves that will enhance a company's long-term
competitive position.
b. Always harvest a weak business and re-deploy the cash flows to more profitable business opportunities.
c. Avoid compromise or middle-of-the-road strategies that try to balance lower costs against greater
differentiation and that result in average costs, average quality, average features, average service, and
average appeal.
d. Sell or close a crisis-ridden business immediately; turnaround strategies are doomed to fail.
e. Invest in creating a sustainable competitive advantage.
f. Be wary of attacking capable, resourceful rivals without solid competitive advantage and ample financial
strength.
g. Consider that attacking competitive weakness is usually more profitable and less risky than attacking
competitive strength.

h. Remember that differentiation strategies rarely defeat low-cost provider strategies.
21.
another national market.
exists when competition in one national market is independent of competition in
22.
are country markets where a company has a strong or protected market position
and derives substantial profit.
23. A
strategy involves keeping reinvestment to a bare-bones minimum, taking actions
to minimize operating expenses, and operating the business in a manner calculated to maximize short-term
cash flows in preparation for an orderly market exit.
24. A big disadvantage of
expertise and capabilities.
is the danger of depending on another company for essential
25.
involves using profits earned in one or more country markets to cover the added
costs of waging a competitive offensive against key rivals in their home markets or to support the costs of
entering a strategically-critical country market.
ANSWERS
1. a, b, f, g
2. b, c, d, h
3. d, e, f, h, I, j
4. d, e, g
5. b, d
6. a, b, d
7. a, c, e, f, g
8. a, b, c, d, e
9. b, d
10. a, c, e, f, g
11. b, c, d
12. a, b, c, d, e
13. a, f
14. c, d, f, g, h
15. a, b, h
16. a, b, d, f
17. c, d, h
18. b, c, e, f, I
19. a, b, c, d
20. b, d, h
21. Multicountry competition
22. profit sanctuaries
23. harvest
24. strategic alliances
25. Cross-subsidization
Chapter 7 Self-Test
1. The task of crafting corporate strategy for a diversified company concerns
a. making 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 marketing 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.




2. Companies that are prime candidates for diversifying 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 expand into other industries.
e. weakly positioned companies in slow-growth industries.
f. those who have competitors that are diversifying.
g. firms that have 25% or greater market shares in their present business.
3. Diversification results in enhanced shareholder value when





a. the company's profits are higher after diversification than before diversification.
b. the company's return on shareholder equity 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 market 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.
4. Whether a particular diversification move is capable of enhancing share-holder value can be evaluated via







a. the attractiveness test.
b. the acquisition test.
c. the entry barrier test.
d. the cost-of-entry test.
e. the competition test and the return-on-investment test.
f. the better-off test.
g. the synergy test and the financial test.
5. The strategic options for a company that elects to diversify include
a. expanding into new geographic areas.
b. expanding into a group of geographically related country markets.
c. building positions in related businesses.
d. acquiring a number of companies in businesses that are unrelated to its present business so as to spread its investment risk
across many industries.
 e. pursuing a combination of related and unrelated diversification.
 f. partial or full vertical integration.
 g. expanding its product line to include a much broader and more diverse selection for customers.




6. Acquisition of an existing business







a. is the most popular means of diversifying into another industry.
b. is usually more costly than entering via internal start-up.
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 quicker entry into the target market (as compared to internal start-up).
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.
7. The big drawbacks to entering a new industry via internal start-up include





a. passing the attractiveness test for enhanced shareholder value.
b. the costs of overcoming entry barriers.
c. passing the better-off test for enhanced shareholder value.
d. the reduced opportunities for capturing strategic fit benefits.
e. the extra time it takes to build a strong and profitable competitive position.
8. Joint ventures are an attractive way to enter new businesses when
 a. it is uneconomical or risky for a company to undertake entry on its own
 b. pooling the resources and competencies of two or more independent organizations produces a venture arrangement with
more of the skills 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 quotas, tariffs, other trade restrictions, nationalistic political interests, and cultural
roadblocks.
9. A related diversification 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. exploits economies of scale whereas an unrelated diversification strategy exploits economies of scope.
d. offers more competitive advantage potential than an unrelated diversification strategy.
e. is usually based on market-related strategic fit rather than operating fits or management fits.
10. The competitive advantage potential of related diversification
 a. stems from greater degrees of industry attractiveness than is found with unrelated diversification.
 b. can come partly from the ability to transfer expertise 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. While strategic fit relationships can occur throughout the value chains of different businesses,
a. distribution and customer-related strategic fits are the most common and offer the best potential for economies of scope.
b. most fits are manufacturing-related.
c. most fits fall into the categories of being market-related, technology related, operating-related, or management-related.
d. operating fits tend to be most important, market fits second most important, management fits third most important, and
technology fits fourth most important.
 e. most companies prefer to concentrate on technology-related fits and capturing the benefits of skills transfer because of the
greater chances of success and the big payoff in gaining a technology-based competitive advantage.




12. A strategy of unrelated diversification
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 risk 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 cost-of-entry tests than does a related diversification strategy.
 f. has appeal from the standpoint of avoiding too many diverse kinds of strategic fits.




13. The drawbacks to unrelated diversification include






a. the inability to pursue joint ventures.
b. the greater business risk.
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 work out as planned.
f. too much diversity in the strategic fits among the different businesses.
14. For unrelated diversification to result in enhanced shareholder value, corporate managers
 a. must pursue acquisition opportunities in many different kinds of industries both to broadly diversify financial risk 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 stand-alone 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 excellent job of negotiating favorable prices in acquiring the companies chosen for the diversification effort.
 f. must be shrewd in selling previously-acquired businesses at their peak and getting premium prices (before it becomes clear to
outsiders that the business probably faces eroding long-term 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.
15. Which of the following accurately characterize approaches to shareholder value via diversification?
 a. Unrelated diversification is an easier and safer way to build shareholder value than is related diversification.
 b. Related diversification seeks to build shareholder value by converting the strategic fits among related businesses into an extra
measure of competitive advantage and using this advantage to achieve better profitability and long-term performance.
 c. With unrelated diversification, a company's competitive advantages do not extend beyond what each business is able to
achieve on its own.
 d. Unrelated diversification involves less competitive risk than related diversification because the competitive positions of
different businesses are not linked together by strategic fit.
 e. Creating shareholder value via unrelated diversification is predicated on shrewd deployment of corporate financial resources
and executive skill in spotting financially rewarding business opportunities.
16. Divestiture 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 long-term direction and overall corporate strategy.
 d. is a last resort strategic option because it almost always means taking a large asset writeoff.
 e. merits consideration anytime top management concludes it can sell it for more than its original acquisition cost.
17. Portfolio restructuring
 a. involves revamping a diversified company's business makeup through a series of divestitures and new acquisitions.
 b. is the most-used technique of shifting from a related diversification strategy to an unrelated diversification strategy.
 c. merits consideration when a diversified company's long-term performance prospects are poor due to a business portfolio
comprised of too many slow-growth, declining, or competitively weak businesses.
 d. focuses on efforts to restore money-losing businesses to profitability instead of divesting them.
 e. is usually undertaken when corporate management concludes that the company is in too many businesses and needs to
concentrate its efforts on a few core businesses.
18. Multinational diversification strategies







a. are complex because they involve both a diversity of businesses and a diversity of national markets.
b. usually are predicated on unrelated diversification approaches rather than related diversification approaches.
c. are potentially powerful when built around related diversification.
d. are ill-suited for capturing economies of scope.
e. are ill-suited for creating multiple profit sanctuaries.
f. offer potent advantages for out-competing a one-business domestic company.
g. offer potent advantages for out-competing a one-business multinational company.
19. The sources of competitive advantage for a DMNC include
 a. transferring expertise in a core technology to related products and businesses (as Honda 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 quality.
 d. superior customer service.
 e. greater potential to employ cross-subsidization tactics against one business domestic competitors and one-business
multinational competitors.
 f. a lower risk of asset write-offs in divesting poorly-performing business units.
 g. less risk that any one business will fall upon hard times.
 h. leveraging its brand name by diversifying into businesses able to use the same brand.
20.A one-business domestic company is weakly positioned to defend its market position against a determined,
aggressive DMNC because
 a. diversification is a more powerful strategy than single-business concentration.
 b. it has only one profit sanctuary (its home market), which leaves it vulnerable to low prices from a DMNC with multiple profit
sanctuaries.
 c. the DMNC may have economy-of-scope advantages growing out of a related diversification strategy.
 d. the DMNC can use financial resources generated from its other businesses to fund a long-term competitive offensive in the
domestic company's home market and gradually sap the domestic company's financial strength (by eroding the size of its
home market profit sanctuary).
 e. it is more vulnerable to economic recessions.
21. Which of the following are strategic options for improving a diversified company's performance?
a. Acquire new businesses
b. Divest weak-performing businesses
c. Employ portfolio restructuring
d. Retrench to a narrower diversification base
e. Pursue multinational diversification
f. Pursue greater value chain diversity and make sure all businesses that the firm diversifies into pass the competition test and
the profit test
 g. Pursue turnaround strategies for poorly performing businesses in the company's business lineup






22. For a potential diversification move to pass the
test, the diversifying
company must bring added potential for competitive advantage to the new business it enters or the new
business must offer added competitive advantage potential to the company's present business.
23.
(1)
exists when different businesses have sufficiently
related
(2)
that there are opportunities for skills transfer and cost-reduction, thus
forming a basis for competitive advantage.
24.
arise from the ability to eliminate costs by operating two or more
businesses under the same corporate umbrella.
25. Related diversification represents a
whereas unrelated diversification is principally a
value.
(1)
(2)
approach to building shareholder value
approach to creating shareholder
ANSWERS
1. 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
11.
c
12.
a, b, c
13.
c, d
14.
c, d, e, f, g
15.
b, c, e
16.
a, b, c
17.
a, c
18.
a, c, f, g
19.
a, b, e, h
20.
b, c, d
21.
a, b, c, d, e, g
22.
better-off
23.
strategic fit, value chains
24.
economies of scope
25.
strategic, financial
Chapter 8 Self-Test
1. For a diversified company to be a strong performer a substantial portion of its revenues and profits must come
from business units judged to be in attractive industries.
True
False
2. In arriving at quantitative measures of an industry's attractiveness, it is weak methodology to use an
unweighted rating system and assume that the various measures of industry attractiveness are equally
important.
True
False
3. Relative market share is a better indicator of a business's competitive strength and market position than is
absolute market share.
True
False
4. Relative market share is calculated by dividing a company's market share by the market share of its largest
rival.
True
False
5. Shareholder interests are generally best served by concentrating corporate resources on businesses that can
contend for market leadership in their industries.
True
False
6. One factor to consider in determining the attractiveness of an industry that that a company has diversified into
is whether it has valuable strategic fit relationships with other industries represented in the company's business portfolio.
True
False
7. Firms emphasizing related diversification should divest businesses with little or no strategic fit unless these
businesses are unusually good financial performers or offer superior growth opportunities.
 True
False
8. The businesses in a diversified 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
requirements of its businesses without stretching itself too thinly.
 True
 False
9. In deciding whether to divest 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 divested; cash cows should almost
never be divested.
True
False
10. A cash hog business is one whose internal cash flows are not big enough to cover annual capital
requirements and thus requires regular infusions of financial capital; a cash cow business is one which
generates positive cash flows more than sufficient to cover its annual capital requirements.
True
False
11. To identify a diversified company's strategy, one needs to consider
a. the extent to which the firm is diversified.
b. the makeup of the value chain of each business the firm has diversified into.
c. whether the firm is pursuing related or unrelated diversification, or a mixture of both.
d. what strategic group each of the firm's 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 five competitive forces in each industry the firm operates in.
12. To evaluate the overall attractiveness of the industries a company has diversified into, it is important to
a. do a SWOT 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 industry's attractiveness relative to the others.
f. consider how appealing the mix of industries is as a group.
g. determine the strategic fits among the key success factors of each industry the firm is in.
13. Which of the following are pertinent in evaluating the attractiveness of a particular industry that a company
has diversified into?
a. The intensity of competition
b. How many firms in the industry are fully vertically integrated
c. What competitive strategy each industry rival has adopted
d. Emerging industry opportunities and threats
e. Resource requirements
f. Seasonal and cyclical factors
g. The number of strategic groups in the industry
h. Industry profitability
i. The degree of risk inherent in being in the industry
j. Whether the industry has special environmental, regulatory, social, or human impact problems
14. Developing quantitative ratings of which of a diversified company's industries are most attractive and least
attractive involves
a. selecting an appropriate set of industry attractiveness measures.
b. determining the makeup of each industry's value chain.
c. assigning weights to each of the industry attractiveness measures.
d. rating each industry on each attractiveness measure (using a 1 to 5 or 1 to 10 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.
15. The more that a diversified company's business portfolio includes subsidiaries with competitively valuable
strategic fits, the greater is its potential for
a. realizing positive cash flows and being a cash cow.
b. realizing 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 profit sanctuaries than rivals.
16. Critiquing a diversified company's strategy, assessing its business makeup, and deciding how to improve the
competitive strength and performance potential of its businesses involves
a. applying the cost-0f-entry test.
b. doing a SWOT 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 company's business units to determine which are really strong
contenders in their industries.
f. doing a five forces analysis.
g. determining the competitive advantage potential of any value chain relationships and strategic fits 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-subsidization opportunities.
17. The 9-cell industry attractiveness-business strength matrix
a. uses quantitative measures of long-term industry attractiveness and business strength/competitive position to
plot each business's 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 specific 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 offer the best strategic fit and resource fit. a e. is a useful tool for
gauging the overall attractiveness of a diversified company's collection of businesses.
18. To arrive at a quantitative measure of business strength/competitive position each business unit in a
diversified 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 unit's competencies and competitive capabilities match industry key success factors.
d. growth in revenues and profits over the last five years.
e. brand name recognition and reputation.
f. which business has the best strategy.
g. profitability relative to competitors.
h. technology and innovation capabilities.
i. degree of bargaining leverage with suppliers and customers.
19. To determine whether a business fits well strategically in a diversified company's business portfolio, it is
useful to consider whether
a. a business unit has valuable strategic fit with other businesses in the portfolio.
b. the business has a relative market share above 50%.
c. it has the same strategic objectives 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 company's long-term strategic direction and can contribute to achieving the
company's strategic vision.
20. The most important considerations in comparing the performance of different businesses in a diversified
company's portfolio are
a. sales growth.
b. profit growth. D c. the debt-to-assets ratio.
d. inventory turnover ratios.
e. percentage contribution to the company's 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 flow generation.
j. the relative number of customers and percentage growth in the customer base.
21. Ranking a diversified company's businesses in terms of priority for new capital investment
a. should be done principally on the basis of relative long-term industry attractiveness and secondarily on the basis
of strategic fit with other businesses.
b. should be based on how much it will take to substantially enhance the competitive standing of each business;
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 fit considerations and long-term growth potential.
d. should be based chiefly on relative competitive strength, recent performance and potential for achieving high
positive cash flows.
e. should take into account all those business aspects relevant to deciding whether a business's outlook and
prospects are excellent, good, fair, or poor; 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.
22. If a diversified company cannot realistically hope to achieve its performance objectives with its current lineup
of businesses, then it can try to close the performance gap by
a. divesting weak-performing or money-losing businesses.
b. adding new businesses to the corporate portfolio.
c. issuing more shares of common stock and using the proceeds to pay off corporate debt.
d. lowering corporate performance objectives.
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 company's resource base.
23. In the case of companies with an unrelated diversification strategy, decisions to add more unrelated
businesses to the portfolio lineup tend to be based on
a. the company's financial 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.
24. Corporate strategy in major enterprises
a. tends to be crafted all at once in comprehensive fashion, following a full-scale portfolio review.
b. usually emerges incrementally, a step at a time, as confidence 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, objectives, and strategies.
c. changes more slowly than in single-business enterprises because it is harder to make adjustments in corporate
strategy than in business strategy.
d. tends to be more driven by financial considerations than by strategic fit and competitive advantage
considerations.
e. requires more formal analysis and brainstorming than is typically required in single-business enterprises
because fitting the pieces of corporate strategy together is more complex than fitting the pieces of business
strategy together.
25. In reviewing a diversified company's portfolio and deciding on what strategic moves are needed to improve
overall corporate performance, one needs to consider such factors as whether
a. the company has enough businesses in very attractive industries.
b. the company's business mix is over-weighted with marginally performing businesses, question marks,
slow-growth businesses, or businesses in decline.
c. the company has the financial strength to support the new investment needs of its businesses.
d. the portfolio contains businesses that the company really doesn't 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. T
2. T
3. T
4. T
5. T
6. T
7. T
8. T
9. F
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
T
a, c, e, f, g
c, e, f
a, d, e, f, h, i, j
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 9 Self-Test
1. The multi-skill, multi-activity character of core competencies makes building and strengthening them an
exercise in managing human skills, intellect, and knowledge bases and in networking the efforts of different
workgroups and departments.
True
False
2. One of the first strategy-implementing steps is to put together a solid management team with good personal
chemistry and the mix of experiences, skills, and know-how to implement and execute the strategy.
True
False
3. Of all the different organizational structures, a functional structure has the best overall advantages, the
easiest-to-overcome disadvantages, and the best fit with most strategies.
True
False
4. Reengineering is an organizational tool to reduce business process fragmentation and to cut bureaucratic
overheads.
True
False
5. A decentralized business unit structure is the best organizational arrangement for coordinating the related
activities of related businesses.
True
False
6. Implementing strategy
a. is a task that must be done by the chief executive officer and the heads of major organizational 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 organization performs value chain activities to the requirements for good strategy
execution.
c. is easier and less time-consuming than crafting strategy.
d. is a job 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 company's strategy
successfully.
e. can be considered successful if the organization achieves its strategic and financial objectives.
f. tests a manager's ability to direct organizational change, motivate people, achieve continuous improvement in
strategy-critical business processes, and meet or beat performance targets.
7. The principal management tasks 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 organization 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 proficiently.
i. tying rewards and incentives to the achievement of performance objectives and good strategy execution.
j. exerting the internal leadership needed to drive implementation forward and to keep improving on how the
strategy is being executed.
8. The organization-building actions most relevant to competent strategy execution are
a. delegating authority to down-the-line managers and employees.
b. effectively and persuasively communicating the case for organizational change to managers and employees.
c. selecting able people for key positions.
d. organizing 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 organization structures.
g. making certain that the organization 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 efficiencies.
9. Building core competencies and competitively valuable capabilities in per- forming one or more
strategy-critical activities in the value chain
a. can yield a sustainable competitive advantage over rivals by providing a basis for superior strategy execution.
b. should be the first thing managers do in establishing an organizational structure.
c. requires spending more money on developing competence-related capabilities than competitors.
d. is primarily the responsibility of the employee training department and first-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 organization-building challenge, not one where outsiders (suppliers, strategic) allies ought to have
an important role.
i. can sometimes be accomplished through collaborative efforts with external allies and/or by acquiring or merging
with another company.
10. Core competencies and competitively valuable organizational capabilities
a. usually emerge from the specialized skills or work efforts 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 efforts performed at different value chain locations.
d. can usually be imitated or duplicated by rivals within less than a year, provided they exert concerted effort.
e. need to be an organization-building responsibility of senior managers.
f. that are finely honed and kept current with shifting circumstances can provide a big executional advantage.
g. are more effective when developed in partnership with key suppliers and other strategic allies.
11. Employee training and retraining
a. tends to be strategically important in organizational efforts to create skills-based competencies.
b. is a function that the CEO 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
different kinds of jobs that present employees now have to perform.
e. merit high-priority on the strategy-implementing agenda when a firm revises its strategy in ways that call for
new skills or different know-how.
12. To organize the work effort in a strategy-supportive fashion and fit organizational 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 organization 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 centralized and primary activities should be decentralized.
e. reporting and coordinating arrangements for support activities need to be woven into an organizational design
that facilitates enhanced performance of strategy-critical value chain activities.
f. It is often both desirable and cost effective to partner with outsiders to add to a company's arsenal of
competitive capabilities and to perform strategy-critical value chain activities.
13. Organizational arrangements that lead to pieces of strategically-relevant ®INCORRECT activities 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 effort
from many people).
d. occurs most frequently in matrix structures and decentralized business unit structures.
e. generally signal that management has strayed too far from strict adherence to a centralized functional
organization 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.
14. Partnering with outsiders to develop or gain access to competitively valuable capabilities
a. entails high risk and should be avoided if at all possible.
b.makes strategic sense when outsiders can add to a company's resource strengths and contribute materially to
better strategy execution.
c. is okay for remedying resource deficiencies but not for building resource strengths.
d.is best accomplished using a matrix organization structure.
e. is usually more costly and less effective than building and developing the capability internally.
f. requires establishing internal organizational arrangements to manage the relationships with outsiders and to
build the necessary bridges between the partnering organizations.
15. In determining the degrees of authority and independence to give each organizational unit,
a. it is better to rely more on the principle of centralized 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 centralized hierarchical structure is superior to a decentralized flat structure.
c. the recent trend is for companies to shift away from authoritarian, multi-layered hierarchical structures to flatter,
more decentralized structures that stress employee empowerment.
d.centralizing 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 centralized).
e. centralizing authority over the related activities of separate businesses makes sense when there are
opportunities to share a common sales force, utilize common distribution channels, or rely upon a common
field service organization to handle customer requests for technical assistance or to provide maintenance and
repair services.
16. Outsourcing activities not critical to effective strategy execution
a. 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 downsized internal bureaucracies.
c. can result in a flatter organizational 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.
17. The strategic advantages of functional and process organization structures include
a. providing an excellent training ground for future general managers.
b. providing a way to centralize 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 firm's value chain consists of a
series of discipline-specific activities or business processes).
e. forcing profit 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 effects and scale economies associated with functional or process
specialization.
i. being the best organizational design for empowering people.
18. The disadvantages of a functionally specialized organization structure include
a. being more complex to manage than other organizational designs.
b. 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 major customer-market-technological
changes.
h. the creation of an organizational environment where functional departments operate as vertical silos and where
inter-functional rivalry works against team-play and interdepartmental cooperation.
19. Geographic forms of organization have the advantage of
a. allowing strategy to be tailored to the specifics of each geographical market.
b. avoiding problems of whether to locate staff 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 conflict.
e. avoiding functional empire-building.
f. delegating profit/loss responsibility to the lowest strategic level.
g. improving functional coordination within each different 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.
20. The advantages of a decentralized line-of-business organization structure include
a. facilitating what decisions to centralize and what decisions to decentralize.
b.putting responsibility for crafting and implementing business strategy in closer proximity to each business's
unique environment.
c. allowing each business unit to organize around its own value chain system, key activities, and functional
requirements.
d.providing an effective organizational arrangement for detouring rivalry for corporate resources and for attention
from headquarters.
e. freeing the CEO to handle corporate strategy issues.
f. putting profit/loss accountability for business results on the shoulders of business-unit managers.
g.being the lowest-cost way to manage a diversified company.
h.providing the most efficient structure for capturing strategic fit benefits in diversified companies.
21. Among the strategic disadvantages of a decentralized business unit @INCORRECT organization are
a. the absence of a built-in mechanism for coordinating related value chain activities across related business units.
b. the difficulty of developing suitable bonus and incentive compensation OF THE 6 CORRECT ANSWERS,
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 difficulties associated with operating each business unit as a stand-alone profit center.
i. the problem it creates in deciding of how much authority to delegate to business-unit managers.
22. Organizing a broadly diversified company into strategic business units (SBUs) offers the advantages of
a. fewer layers of management.
b. lower overhead costs.
c. easy clarification of the roles and authority of the CEO, the SBU head, and the business-unit head.
d. promoting the coordination of related value chain activities across businesses within the same SBU.
e. promoting the coordination of related value chain activities across businesses not in the same SBU.
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 objective and more
effective.
h. promoting more decisions on the basis of "what's best for the organization as a whole."
i. creating needed checks and balances among competing viewpoints.
23. The disadvantages of a matrix organization structure include
a. the potential for creating a transactions logjam and disproportionate amounts of time being spent on
communications.
b. the added difficulty of capturing strategic fit benefits.
c. the added difficulty 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 difficulty of maintaining balance between the two lines of authority in the matrix.
g. its promotion of an organizational 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.
j. working against efforts to empower employees and managers.
24. Among the most frequently used ways to supplement a company's basic building-block organization design
are
a. cross-functional task forces.
b. SBU teams.
c. matrix teams.
d. venture teams.
e. self-contained work teams.
f. empowered decentralization.
g. special project teams.
h. process teams.
i. functionally-specialized work teams.
j. the creation of relationship managers.
25. The organizational structures of the future are likely to feature
a. a pronounced shift away from decentralized structures and empowerment back to functional specialization and
tight centralized control.
b. reduced use of geographic forms of organization and SBU structures.
c. fewer boundaries between vertical ranks, different 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 efforts internally between different functional specialties and between people in different
geographic locations.
ANSWERS
1. T
2. T
3. F
4. T
5. F
6. b, d, e, f
7. a, c, e, f, h, i, j
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, j
25. c, d, g
Chapter 10 Self-Test
1. Cost-effective strategy implementation requires that budgets for organizational units be
prepared ahead of the plans and schedule for implementing strategy -- otherwise
organizational resources are likely to be wasted.
True
False
2. In deciding how many policies and procedures to prescribe and how tight they should
be, a good guideline is to prescribe enough policies to give organizational members
clear direction and make them tight enough to place desirable boundaries on their
actions; then empower people to act within these boundaries however they think makes
sense.
True
False
3. The best policies and procedures are those that give employees sufficient leeway to do
activities whatever way they believe is best.
True
False
4. Benchmarking, best practice implementation, and some form of TQM are basic tools for
implementing strategies keyed to defect-free manufacturing, superior product quality,
superior customer service, and total customer satisfaction.
True
False
5. The essential difference between reengineering and TQM is that reengineering aims at
redesigning the value chain while TQM programs aim at continuously improving how
particular value chain activities are performed.
True
False
6. TQM programs can be a very effective follow-on to reengineering efforts.
True
False
7. Installing state-of-the-art systems to support daily business operations is one of the
keys to better strategy implementation and execution because innovative and
well-conceived operating systems can give employees the capability to perform their
jobs more efficiently and can strengthen organizational capabilities enough to provide a
competitive edge over rivals.
True
False
8. Getting employees to buy into the strategy and commit to making it work is best done
by talking to everyone about how important new strategic practices and achievement of
performance targets are to the company's future and its ability to provide job security.
True
False
9. Negative motivational approaches (the fear of punitive consequences) generally work
better than positive motivational approaches.
True
False
10.The strategy-implementers foremost attention-getting, commitment generating device
is the size of the changes in departmental operating budgets.
True
False
11.The most dependable way to keep company personnel focused on achieving the
objectives laid out in the strategic plan is to generously reward individuals and groups
who achieve their assigned performance targets and to deny rewards to those who
don't.
True
False
12.The key to creating a reward system that promotes good strategy execution is to make
strategically relevant measures of performance the dominating basis for designing
incentives, evaluating individual and group efforts, and handing out rewards.
True
False
13.A strategy-implementers standard for judging whether individuals and organizational
units have done a good job must be whether they achieved their performance targets,
not whether they tried hard or did their best.
True
False
14.It is flawed management to tie incentives and rewards to satisfactory performance of
duties and assigned functions in hopes that the by-products will be the desired
business outcomes and company achievements.
True
False
15.Unless meaningful incentive rewards and career consequences are attached to
successfully implementing strategic initiatives and hitting strategic performance targets,
few company personnel will attach much significance to the company's strategic plan.
True
False
16.Strategy-implementers need to be deeply involved in the budget-making process
because
a. too little funding of strategy-critical organizational units impedes their ability to execute
their pieces of the strategic plan proficiently.
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 size of each unit's operating budget.
d. without budget reallocations it is hard, if not impractical, to match organization structure
to the chosen strategy.
e. aggressive resource reallocation is a prerequisite to reengineering, empowerment, and
decentralization.
17.Prescribing policies and operating procedures aid the task of implementing strategy by
a. helping empower product champions and create self-managed work teams.
b. 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 efforts along
the intended path.
d. indicating how reengineering needs to be accomplished.
e. specifying how big operating budgets will need to be for organizational 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 TQM, best practices, and internal support systems.
h. helping alter the internal work climate and corporate culture in ways that produce a
stronger fit with the strategy being implemented.
18. Identifying and adopting best practices
a. starts with benchmarking how well a company performs specific tasks and activities
against best-in-industry or best-in-world performers.
b. is integral to effective, efficient strategy implementation.
c. needs to be directed chiefly at manufacturing and customer service activities, since
these two areas are generally the most critical to successful strategy implementation.
d. is a prerequisite to effective reengineering of core business processes.
e. provides a basis for setting internal performance targets that gauge organizational
competence in executing strategy.
19. Reengineering, TQM, and the identification and adoption of best practices
a. are tools managers can use to promote better strategy execution.
b. are more effective when used sparingly -- normally in strategy-critical areas of the
business; it is usually a mistake to introduce them on a wide scale throughout the
organization.
c. should be undertaken in tandem, not separately.
d. yield their best results in flat, decentralized organization environments rather than in
centralized, vertical structures.
e. have been used widely in Japan and only rarely in U.S. and European companies.
f. need to be instituted before management has a clear fix on the indicators of successful
strategy execution, not after.
20. Building a total quality culture entails
a. management articulation of a quality vision and establishment of specific, measurable
quality goals.
b. hiring only those job 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 effort.
g. recognizing and rewarding individual and team efforts regularly and systematically.
h. empowering employees.
i. preaching that there's no such thing as good enough (because competitors aren't resting
on their laurels and customers are always looking for something better) and that
continuous improvement is the only thing which can protect the organization's
competitiveness.
21. Well-conceived, state-of-the-art support systems
a. facilitate better strategy execution.
b. can strengthen organizational capabilities enough to provide a competitive edge over
rivals.
c. can help a company mobilize information, use knowledge effectively, redeploy resources
quickly, and respond faster.
d. reduce the need for rigidly prescribed policies and procedures.
e. typically have the effect of raising a firm's unit costs because of the high dollar outlays
required to develop and install such systems.
22. In designing strategy-supportive 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 define jobs and assignments in terms of the duties and
functions to be performed, not the results to be accomplished.
c. achievement of the organization's strategic and financial objectives should be the basis
for incentive compensation.
d. the performance payoff should be a major, 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 affect.
23. Total quality management (TQM)
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 organization are committed to doing all tasks and value-chain
activities better and better --there's 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.
24. Creating strategy-supportive 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 first-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 job
performance along avenues that are calculated to improve strategy execution.
25. Motivating employees to do their best in trying to make the strategy work 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
job insecurity.
e. making sure that all employees are rewarded regularly for their efforts and that the
amount of incentive compensation is pretty much equal from employee to employee.
ANSWERS
1. F
2. T
3. F
4. T
5. F
6. T
7. T
8. F
9. F
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
a, b, d, f, g, h, i
25.
1.
a, b, cANSWERS
Chapter 11 Self-Test
1. It is difficult to implement a strategy successfully when a firm's culture is not well
aligned with the beliefs, practices, behaviors, and business approaches that the strategy
calls for.
True
False
2. Companies, especially large ones, typically have multiple cultures or subcultures.
True
False
3. When 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.
True
False
4. The task of reshaping a firm's culture to better fit strategy generally takes from a few
weeks to a month in small firms to as much as a year in large companies.
True
False
5. Symbolic actions to change the corporate culture are more important than substantive
actions.
True
False
6. Charisma and personal magnetism are key traits that a CEO needs in order to
successfully lead efforts to change corporate culture.
True
False
7. High ethical standards are nice, even desirable, but they have little impact on a
company's long-term strategic success or on efforts to build a healthy corporate culture.
True
False
8. In a strong-culture company where strategy and culture are well-aligned, managers are
less dependent on policies, procedures, rules, and supervision to enforce what people
should and should not do because deeply imbedded cultural norms can be counted
upon to guide behavior.
True
False
9. Organizational politics is generally much more of a factor in selecting a strategy than in
implementing the strategy.
True
False
10. Corrective adjustments to strategy and to strategy implementation should be proactive
rather than reactive.
True
False
11.A 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 organization 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 financial and strategic objectives, and its
strategic vision. its supervisory practice, its operating style, and its internal work
environment.
12. Once established, company cultures tend to be perpetuated by
a. 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 financial and strategic objectives).
e. screening and selecting new employees according to how well their values, attitudes,
and personality fit in.
f. systematic indoctrination of new members in the culture's 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
penalizing those who don't.
i. deliberately avoiding diversification or acquisition so as not to upset the internal cultural
balance or risk a cultural clash.
13. In 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 one's job.
b. no changes in organization structure will be needed.
c. no new internal support systems will have to be developed.
d. benchmarking, reengineering, and TQM programs will not be needed.
e. a strong strategy-supportive culture promotes the very kinds of work habits, behaviors,
values, and practices needed for proficient strategy execution.
f. it promotes strong employee identification with the company's vision, performance
targets, and strategy.
14. A company's culture can be said to be strong and cohesive when
a. the CEO 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 organizational members and explaining how they relate to the company's business
environment.
d. the principles and values are widely shared by company personnel.
e. the organization structure has undergone no major changes for a number of years.
f. it is well matched to the company's strategy.
g. employee turnover rates are low.
15. Characteristics that contribute to unhealthy or low-performance cultures include
a. a frequently changing strategy.
b. a frequently changing organization structure.
c. a highly politicized internal environment where influential managers have enough clout
to operate their fiefdoms 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.
16. Adaptive cultures are characterized by such traits as
a. leaders who are more strongly committed to timeless business principles and the
well-being of organizational stakeholders than to any specific 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.
17. Changing a company's culture and aligning it with the requirements for strategic
success
a. are among the toughest management tasks.
b. 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
effort.
f. may require replacing old-culture traditionalist managers with "new breed" managers.
18. Instilling and ingraining a company's values 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 job 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 CEO openly and unequivocally endorsing the values and ethics code and leading the
enforcement of ethical standards.
f. having all officers sign statements affirming their belief in the company's values and
their agreement to abide by the ethics code, then circulating these signed statements
among all company personnel.
19. The managerial task 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 MBWA).
d. making sure that policies and procedures are supportive of effective 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 TQM. h. enforcing ethical standards.
i. keeping the internal organization responsive, innovative, and alert for new opportunities.
j. pushing corrective actions to improve strategy execution and overall strategic
performance.
20. Successful culture-change efforts
a. require a major reorganization to achieve a strategy-supportive organization structure.
b. require strong, forceful top management leadership because considerable internal clout
is needed to bring about major cultural change. c. require major 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 company's code of ethics and altering ethical standards
accordingly.
g. frequently involve reengineering core business processes, benchmarking, and promoting
TQM.
h. involve recognizing and rewarding people who exhibit the desired new cultural traits and
who lead or promote successful cultural change efforts.
21.
refers to a company's values, beliefs, traditions,
operating style, and internal work environment.
22. From a strategy implementation perspective, the best types of corporate culture are
cultures.
23. The difference between a values statement and a code of ethics is that a
is a cornerstone for building a corporate culture whereas a
(2)
a basis for developing a corporate conscience.
(1)
is
24. MBWA stands for
.
25 A company's culture can be characterized as
if many subcultures
exist, few values are widely shared, and there are few company traditions.
ANSWERS
1. T
2. T
3. F
4. F
5. F
6. F
7. F
8. T
9. F
10. F
11. a, b, g, h, j
12. a, e, f, g, h
13. a, e, f
14. b, c, d
15. c, d, e, f
16. a, b, e, f, g
17. a, b, c, d, e, f
18. a, b, c, e
19. a, c, e, h, i, j
20. b, d, e, h
21. corporate culture
22. adaptive
23. values statement
24. code of ethics
25. managing by walking around
26. weak