Chapter1
Essay Questions
101.
Compare and contrast strategic planning with strategic management.
Strategic planning is more often used in the business world, whereas strategic
management is often used in academia. Sometimes, strategic management is used to
refer to strategy formulation, implementation and evaluation, with strategic planning
referring only to strategy formulation. The purpose of strategic management is to
exploit and create new and different opportunities for tomorrow; long-range
planning, in contrast, tries to optimize for tomorrow the trends of today.
Page: 5
102.
Which stage in the strategic-management process is most difficult? Explain why.
Strategy implementation is the most difficult stage in the strategic-management
process because it requires personal discipline, commitment and sacrifice.
Successful strategy implementation hinges upon managers’ ability to motivate
employees, which is more of an art than a science.
Page: 6
103.
Explain the relationship between strategic management and competitive
advantage for firms. How can a firm achieve sustained competitive advantage?
Ans: Strategic management is all about gaining and maintaining competitive
advantage. Competitive advantage is anything a firm does especially well
compared to rival firms. When a firm can do something that rival firms cannot
do, or owns something that rival firms desire, that can represent a competitive
advantage. Getting and keeping competitive advantage is essential for long-term
success of an organization. A firm must strive to achieve sustained competitive
advantage by (1) continually adapting to changes in external trends and events
and internal capabilities, competencies and resources, and by (2) effectively
formulating, implementing and evaluating strategies that capitalize upon those
factors.
Page: 8-9
104.
Define what strategists are. Describe what they do in an organization.
Strategists are individuals who are most responsible for the success or failure of an
organization. They help an organization gather, analyze and organize information.
They track industry and competitive trends, develop forecasting models and scenario
analyses, identify business threats and develop creative action plans. Strategic
planners usually serve in a support or staff role. Usually found in higher levels of
management, they typically have considerable authority for decision-making in the
firm.
Page: 9
105.
Explain environmental scanning.
Environmental scanning is the process of conducting research and gathering and
assimilating external information. It identifies, monitors and evaluates external
opportunities and threats.
Page: 11
106.
Discuss some forces that influence the formality of strategic-management systems.
Firms that compete in complex, rapidly changing environments, such as technology
companies, tend to be more formal in strategic planning. Firms that have many
divisions, products, markets and technologies also tend to be more formal in
applying strategic-management concepts. Greater formality in applying the strategicmanagement process is usually positively related with the cost, comprehensiveness,
accuracy and success of planning across all types and sizes of organization.
Page: 14-15
107.
List 10 major benefits of strategic management, as stated by Greenley.
There are 14 benefits stated by Greenley. Students are to list any 10 of the following:
(1) it allows for identification, prioritization and exploitation of opportunities, (2) it
provides an objective view of management problems, (3) it represents a framework
for improved coordination and control of activities, (4) it minimizes the effects of
adverse conditions and changes, (5) it allows major decisions to better support
established objectives, (6) it allows more effective allocation of time and resources
to identified opportunities, (7) it allows fewer resources and less time to be devoted
to correcting erroneous or ad hoc decisions, (8) it creates a framework for internal
communication among personnel, (9) it helps integrate the behavior of individuals
into a total effort, (10) it provides a basis for clarifying individual responsibilities,
(11) it encourages forward thinking, (12) it provides a cooperative, integrated and
enthusiastic approach to tackling problems and opportunities, (13) it encourages a
favorable attitude toward change, and (14) it gives a degree of discipline and
formality to the management of a business.
Page: 16-17
108.
Give at least seven reasons why some firms do no strategic planning.
Ans: Some reasons for poor or no strategic planning are as follows:
Poor reward structures, fire-fighting, waste of time, too expensive, laziness,
content with success, fear of failure, overconfidence, prior bad experience, selfinterest, fear of the unknown, honest difference of opinion, and suspicion.
Page: 17-18
109.
What are the pitfalls in strategic planning that management in an organization should
watch out for or avoid? Identify any five pitfalls.
There are 13 pitfalls. Students should list any five of the following: (1) using
strategic planning to gain control over decisions and resources; (2) doing strategic
planning only to satisfy accreditation or regulatory requirements; (3) too hastily
moving from mission development to strategy formulation; (4) failing to
communicate the plan to employees, who continue to work in the dark; (5) top
managers making many intuitive decisions that conflict with the formal plan; (6) top
managers not actively supporting the strategic-planning process; (7) failing to use
plans as a standard for measuring performance; (8) delegating planning to a
“planner” rather than involving all managers; (9) failing to involve key employees in
all phases of planning; (10) failing to create a collaborative climate supportive of
change; (11) viewing planning to be unnecessary or unimportant; (12) becoming so
engrossed in current problems that insufficient or no planning is done; and (13)
being so formal in planning that flexibility and creativity are stifled.
110.
Page: 18
Explain the significance of the ISO (International Organization for
Standardization). What are the purposes of ISO 9000, ISO 14000, and ISO
14001?
Ans: The ISO is based in Geneva, Switzerland and is a network of the national
standards institutes of 147 countries. The ISO is the world’s largest developer of
standards and is widely accepted worldwide. ISO standards are voluntary, since
the organization has no legal authority to enforce their implementation. However,
many companies that are not ISO certified often cannot get work. ISO 9000
focuses on quality control and ISO 14000 focuses on operating in an
environmentally-friendly manner. ISO 14000 refers to a series of voluntary
standards in the environmental field. ISO 14001 is similar to ISO 14000 because
it is also an environmental standard. ISO 14001 is a standard for Environmental
Management Systems. Standards include environmental auditing, environmental
performance evaluation, environmental labeling, and life-style assessment. ISO
14001 standards offer a universal technical standard for environmental
compliance.
Page: 21-22
111.
Explain what Drucker means when he says, “Trees die from the top.”
“Trees die from the top,” can be explained as ‘top management creates
organizational spirit.’ When top management’s spirit dies, so does the rest of the
company’s spirit. This leads to the downfall, or death, of the company.
Page: 22-24
112.
Compare and contrast business and military strategy.
Business and military strategy are very similar. A key aim of both business and
military strategy is “to gain competitive advantage.” They both also try to use their
own strengths to exploit competitor’s weaknesses. Happiness is not a result of
accidental strategies in either business or military organizations. The element of
surprise provides great competitive advantages in both military and business
strategy; information systems that provide data on opponents’ or competitors’
strategies and resources are also vitally important. Finally, both business and
military organizations must adapt to change and constantly improve to be successful.
While business and military strategy are the same in many ways, they have one
major difference—business strategy is formulated, implemented and evaluated with
an assumption of competition, whereas military strategy is based on an assumption
of conflict.
Page: 24-25
113.
What are the advantages and disadvantages of having international operations?
Explain.
International operations create many advantages for a company: 1) Foreign
operations can absorb excess capacity, reduce unit costs and spread economic risks
over a wider number of markets; 2) foreign operations can allow firms to establish
low-cost production facilities in locations close to raw materials and/or cheap labor;
3) competitors in foreign markets may not exist, or competition may be less intense
than in domestic markets; 4) foreign operations may result in reduced tariffs, lower
taxes and favorable political treatment in other countries; 5) joint ventures can
enable firms to learn the technology, culture and business practices of other people
and to make contacts with potential customers, suppliers, creditors and distributors
in foreign countries; 6) many foreign governments and countries offer varied
incentives to encourage foreign investment in specific locations; and 7) economies
of scale can be achieved from operations in global rather than solely domestic
markets. Larger-scale production and better efficiencies allow higher sales volumes
and lower price offerings.
There are also numerous potential disadvantages of having internal operations: 1)
nationalistic factions could seize foreign operations; 2) firms confront different and
often little-understood social, cultural, demographic, environmental, political,
governmental, legal, technological, economic and competitive forces when doing
business internationally. These forces can make communication difficult between
the parent firm and subsidiaries; 3) weaknesses of competitors in foreign lands are
often overestimated, and strengths are often underestimated. Keeping informed
about the number and nature of competitors is more difficult when doing business
internationally; 4) language, culture and value systems differ among countries, and
this can create barriers to communication and problems managing people; 5) gaining
an understanding of regional organizations is difficult but is often required in doing
business internationally; 6) dealing with two or more monetary systems can
complicate international business operations; and 7) the availability, depth and
reliability of economic and marketing information in different countries varies
extensively, as do industrial structures, business practices and the number and nature
of regional organizations.
Page: 27-28
Chapter2
Essay Questions
101.
Describe why a mission statement is so important in the strategic-management
process.
A clear mission statement is essential for effectively establishing objectives and
formulating strategies. It reveals what an organization wants to be and whom it
wants to serve. A business mission is the foundation for priorities, strategies, plans
and work assignments. It is the starting point for the design of managerial jobs and
for the design of managerial structures.
Page: 53
102.
Compare and contrast vision statement with mission statement.
Many organizations develop both a mission statement and a vision statement.
Whereas the mission statement answers the question, “What is our business,” the
vision statement answers the question, “What do we want to become?” When
employees and managers together shape or fashion the vision and mission
statements for a firm, the resultant documents can reflect the personal visions
managers and employees have in their hearts and minds about their own futures.
Shared vision creates a commonality of interests that can lift workers out of the
monotony of daily work and put them into a new world of opportunity and
challenge.
Page: 53-54
103.
Explain the process of developing a mission statement.
A widely used approach to developing a mission statement is first to select several
articles about mission statements and ask all managers to read these as background
information. Then ask managers themselves to prepare a mission statement for the
organization. A facilitator or committee of top managers should then merge these
statements into a single document and distribute this draft mission statement to all
managers. A request for modifications, additions and deletions is needed next, along
with a meeting to revise the document. To the extent all managers have input into
and support the final mission statement document, organizations can more easily
obtain managers’ support for other strategy formulation, implementation and
evaluation activities.
Page: 55
104.
King and Cleland recommend organizations carefully develop a written
mission statement for six reasons. List and describe five of these reasons.
There are six reasons King and Cleland give to develop a mission statement.
Students may list and describe any five of the following: (1) to ensure unanimity of
purpose within the organization, (2) to provide a basis, or standard, for allocating
organizational resources, (3) to establish a general tone or organizational climate, (4)
to serve as a focal point for individuals to identify with the organization’s purpose
and direction, and to deter those who cannot from participating further in the
organization’s activities, (5) to facilitate the translation of objectives into a work
structure involving the assignment of tasks to responsible elements within the
organization, and (6) to specify organizational purposes and then to translate these
purposes into objectives in such a way that cost, time and performance parameters
can be assessed and controlled.
Page: 56
105.
Describe the characteristics of an effective mission statement.
The major characteristics of an effective mission statement are a declaration of
attitude, a customer orientation and a declaration of social policy.
Page: 58-62
106.
A good mission statement effectively reflects the anticipations of customers
and reveals the utility that various products or services offer customers. Give
three examples of this.
Student answers may vary, but could include that: (1) AT&T’s mission statement
focuses on communication rather than on telephones; (2) Exxon’s mission statement
focuses on energy rather than on oil and gas; (3) Union Pacific’s mission statement
focuses on transportation rather than on railroads; and/or (4) Universal Studios’
mission statement focuses on entertainment rather than on movies.
Page: 60
107.
List and define the major components of an effective mission statement.
Students should list and define the following components of an effective mission
statement: (1) customers, (2) products or services, (3) markets, (4) technology, (5)
concern for survival, growth and profitability, (6) philosophy, (7) self-concept, (8)
concern for public image and (9) concern for employees.
Page: 63
108.
Define and give an example of the self-concept component in a mission statement.
The self-concept component of a mission statement asks the question, “What is the
firm’s distinctive competence or major competitive advantage?” An example of the
self-concept component is, “Crown Zellerback is committed to leapfrogging
ongoing competition within 1,000 days by unleashing the constructive and creative
abilities and energies of each of its employees.”
Page: 63-64
Chapter 3
Essay Questions
101.
What are the five major types of external forces that should be examined as part of
an external audit? Give an example of each type of force.
External forces can be divided into five broad categories: (1) economic forces, (2)
social, cultural, demographic and environmental forces, (3) political, governmental
and legal forces, (4) technological forces and (5) competitive forces. Relationships
among these forces and an organization are depicted in Figure 3-2.
Page: 75
102.
Discuss the process of performing an external audit.
To perform an external audit, a company first must gather competitive intelligence
and information about economic, social, cultural, demographic, environmental,
political, governmental, legal and technological trends. Once information is
gathered, it should be assimilated and evaluated. A meeting or series of meetings of
managers is needed to collectively identify the most important opportunities and
threats facing the firm. These key external factors should be listed on flip charts or a
blackboard. A prioritized list of these factors could be obtained by requesting that all
managers to rank the factors identified, from 1 for the most important
opportunity/threat to 20 for the least important opportunity/threat.
Page: 75-76
103.
Discuss the I/O approach in relation to competitive advantage.
The I/O approach to competitive advantage advocates that external factors are
more important than internal factors in a firm achieving competitive advantage.
Proponents of the I/O view contend that organizational performance will be
primarily determined by industry forces, rather than the firm’s internal functional
decisions made. Research findings suggest that approximately 20 percent of a
firm’s profitability can be explained by the industry, whereas 36 percent of the
variance in profitability is attributed to the firm’s internal factors. Effective
integration of both external and internal factors is the key to securing and keeping
a competitive advantage.
Page: 76
104.
Identify five key economic variables that could represent major opportunities or
threats to a bank in your town or city.
Student answers will vary. However, they should look at economic, social/cultural,
political/legal, technological and competitive factors. Refer to Table 3-1 on page 77.
Page: 77
105.
List three opportunities and three threats that could represent key factors facing your
college or university.
Student answers will vary. However, they should look at economic, social/cultural,
political/legal, technological and competitive factors.
Page: 77-89
106.
Explain how the Internet is changing businesses around the world.
The Internet is acting as a national and even global economic engine that is spurring
productivity. The Internet is saving companies billions of dollars in distribution and
transaction costs from direct sales to self-service systems. The Internet is changing
the very nature of opportunities and threats by altering the life cycles of products,
increasing the speed of distribution, creating new products and services, erasing
limitations of traditional geographic markets and changing the historical trade-off
between production standardization and flexibility. It is also altering economies of
scale, changing entry barriers and redefining the relationship between industries and
various suppliers, creditors, customers and competitors. An emerging consensus
holds that technology management is one of the key responsibilities of strategists.
Page: 86
107.
Agree or disagree with (and discuss) the following statement: “Corporate
intelligence is not corporate espionage because 95 percent of the information a
company needs to make strategic decisions is available and accessible to the public.”
Agree. Firms need an effective competitive intelligence (CI) program. The three
basic missions of a CI program are (1) to provide a general understanding of an
industry and its competitors, (2) to identify areas in which competitors are
vulnerable and to assess the impact strategic actions would have on competitors and
(3) to identify potential moves a competitor might make that would endanger a
firm’s position in the market. An effective CI program allows all areas of a firm to
access consistent and verifiable information in making decisions.
Page: 90
108.
According to Michael Porter, what are the five competitive forces that create vital
opportunities and threats for organizations? Which force do you feel is most
important in the computer industry today? Why?
The first one is rivalry among competing firms. The second is potential entry of new
competitors. The third is potential development of substitute products. The fourth is
bargaining power of suppliers. The last one is bargaining power of consumers.
Page: 94
109.
Discuss the following statement: “Planning would be impossible without
assumptions.”
By identifying future occurrences that could have a major effect on the firm and by
making reasonable assumptions about those factors, strategists can carry the
strategic-management process forward. Assumptions are needed only for future
trends and events that are most likely to have a significant effect on the company’s
business. Assumptions can serve as checkpoints on the validity of strategies. If
future occurrences deviate significantly from assumptions, strategists know that
corrective actions may be needed. Without reasonable assumptions, the strategyformulation process could not proceed effectively. Firms that have the best
information generally make the most accurate assumptions, which can lead to major
competitive advantages.
Page: 97
110.
Discuss the opportunities and threats China presents to an international firm
interested in doing business with China.
U.S. firms increasingly are doing business in China as market reforms create a more
businesslike arena daily. Risks that still restrain firms from initiating business with
China include the following: (1) poor infrastructure, (2) disregard for the natural
environment, (3) absence of a legal system, (4) rampant corruption, (5) lack of
freedom of press, speech and religion, (6) severe human-rights violations, (7) little
respect for patents, copyrights, brands and logos, (8) counterfeiting, fraud and
pirating of products, (9) little respect for legal contracts and (10) no generally
accepted accounting principles.
Both the European community and the U.S. have approved China’s membership in
the WTO. This action integrated the world’s most populated country into the global
trading order. Some key changes resulting from this action are as follows: (1)
foreign companies can take increased stakes in mobile phone companies; (2) tariffs
on high-tech products will be phased out and eliminated by 2005; (3) import tariffs
on automobiles will drop to 25 percent by mid-2006 from 90 percent today; (4)
foreign banks may conduct domestic currency business with Chinese firms; (5)
foreign banks may do business anywhere in China by 2006; (6) foreign firms will be
allowed a 49 percent stake in securities joint ventures by 2004; (7) foreign insurance
firms may own operations in China; and (8) retail oil distribution will open in China
by 2004.
Page: 99-100
111.
List five steps that comprise an effective framework for conducting an EFE Matrix.
Explain the details involved in performing any one of the steps.
The EFE Matrix can be developed in five steps: 1) list key external factors as
identified in the external-audit process with a total of from 10 to 20 factors,
including both opportunities and threats that affect the firm and its industry; 2)
assign to each factor a weight that ranges from 0.0 to 1.0; 3) assign a 1 to 4 rating to
each key external factor to indicate how effectively the firm’s current strategies
respond to the factor, where 4 = the response is superior, 3 = the response is above
average, 2 = the response is average, and 1 = the response is poor; 4) multiply each
factor’s weight by its rating to determine a weighted score; and 5) sum the weighted
scores for each variable to determine the total weighted score for the organization.
Page: 101-102
Chapter4
Essay Questions
101.
Explain the resource-based view and its relation to strategic management.
Ans: The resource-based view (RBV) approach to competitive advantage
contends that internal resources are more important than external factors for a
firm in achieving and sustaining competitive advantage, in contrast to the I/O
theory. According to this view, organizational performance is determined by
physical resources, human resources and organizational resources. RBV theory
asserts that resources are actually what help a firm exploit opportunities and
neutralize threats. The theory also asserts that in order to maintain a competitive
advantage, a resource must either be rare, not easily substitutable, or hard to
imitate. The RBV has continued to grow in popularity and continues to seek a
better understanding of the relationship between resources and sustained
competitive advantage.
Page: 117
102.
Identify and give an example of six cultural products.
Student answers will vary. However, they should include and give examples for any
of the following: rites, ceremonial, ritual, myth, saga, legend, story, folktale, symbol,
language, metaphors, values, belief and heroes/heroines.
Page: 118-119
103.
Identify any five differences when comparing American versus foreign cultures.
The chapter gives 11 differences between U.S. and foreign managers. Please refer to
page 122-123.
Page: 122-123
104.
Identify the five basic functions of management, and describe each function.
The five basic functions of management are planning, organizing, motivating,
staffing and controlling. Please refer to Table 4-3 on page 124 in the text for the
descriptions of each function.
Page: 123-124
105.
What four basic steps comprise the controlling function of management?
The controlling function of management is particularly important for effective
strategy evaluation. Controlling consists of four basic steps: (1) establishing
performance standards, (2) measuring individual and organizational performance,
(3) comparing actual performance to planned performance standards and (4) taking
corrective actions.
Page: 127
106.
There are seven basic functions of marketing. List and define these functions.
The seven basic functions of marketing are (1) customer analysis, (2) selling
products/services, (3) product and service planning, (4) pricing, (5) distribution, (6)
marketing research and (7) opportunity analysis. Students should define each of
these functions.
Page: 128
107.
According to James Van Horne, what are the three decisions that comprise the
functions of finance? Describe each function.
The three basic functions of finance, according to James Van Horne, are the
investment decision, the financing decision and the dividend decision. The
investment decision is the allocation and reallocation of capital and resources to
project, products, assets and divisions of an organization. The financing decision
determines the best capital structure for the firms and includes examining various
methods by which the firm can raise capital. Dividend decisions concern issues such
as the percentage of earning paid to stockholders, the stability of dividends paid over
time and the repurchase or issuance of stock.
Page: 132-133
108.
Identify the reasons dividends are sometimes paid out even when funds could be
better reinvested in the business or when the firm has to tap outside sources to pay
the dividends.
Dividends are sometimes paid out even when funds could be better reinvested in the
business or when the firm has to obtain outside sources of capital. The reasons for
these situations are as follows. (1) Paying cash dividends is customary. Failure to do
so could be thought of as a stigma. A dividend change is considered a signal about
the future. (2) Dividends represent a sales point for investment bankers. Some
institutional investors can buy only dividend-paying stocks. (3) Shareholders often
demand dividends, even in companies with great opportunities for reinvesting all
available funds. (4) A myth exists that paying dividends will result in a higher stock
price.
Page: 133
109.
Discuss the limitations of financial ratio analysis.
There are some limitations of financial ratio analysis. The first is that financial
ratios are based on accounting data, and firms differ in their treatment of such items
as depreciation, inventory valuation, R&D expenditures, pension plan costs, mergers
and taxes. Second, seasonal factors can influence comparative ratios. A third
limitation is that departures from industry averages do not always indicate a firm is
doing especially well or badly.
Page: 137
110.
According to Roger Schroeder, there are five basic functions or decision areas in
production. Describe these five functions.
The five basic functions or decision areas in production are process, capacity,
inventory, workforce and quality. Please refer to Table 4-5 on page 143 in the text
for descriptions of each function or decision area.
Page: 139
111.
Four basic approaches exist to determine R&D budget allocations. What are these
approaches? Which one would you recommend for a pharmaceutical company?
Why?
The four approaches to determining commonly used R&D budget allocations are:
(1) financing as many project proposals as possible; (2) using a percentage-of-sales
method; (3) budgeting about the same amount competitors spend for R&D; and (4)
deciding how many successful new products are needed and working backward to
estimate the required R&D investment.
Students should recommend the fourth approach for a pharmaceutical company,
deciding how many successful new products are needed, and work backward to
estimate the required R&D investment, because most firms have no choice but to
continually develop new and improved products because of changing consumer
needs and tastes, new technologies, shortened product life cycles and increased
domestic and foreign competition. Students should also mention that different
strategies require different R&D capabilities, so no one approach will be appropriate
for all companies at all times.
Page: 143
112.
Discuss the five steps involved in performing an IFE Matrix.
Ans: The first step is to list ten to twenty internal factors, including strengths and
weaknesses using percentages, ratios and comparative numbers. The second step
is to assign a weight that ranges from 0.00 (not important) to 1.0 (all-important) to
each factor based on its relative importance. The third step is to assign a 1 to 4
rating to each factor to indicate whether that factor represents a major weakness, a
minor weakness, a major strength, or a minor strength. Next, multiply each
factor’s weight by its rating to determine a weighted score for each variable.
Finally, sum the weighted scores for each variable to determine the total weighted
score for the organization.
Page: 147
Chapter5
Essay Questions
101.
Define and give an example of three integrative strategies.
The three integrative strategies are forward integration, backward integration and
horizontal integration. Forward integration is the gaining of ownership or increased
control over distributors or retailers. An example of forward integration is Gateway
Computer Company opening its own chain of retail computer stores. Backward
integration is the seeking of ownership or increased control of a firm’s suppliers. J.P.
Morgan outsourcing its technology operations to firms such as EDS and IBM is an
example of backward integration. Horizontal integration is the seeking of ownership
or increased control over competitors. An example of horizontal integration is when
Reader’s Digest Association acquired Reiman Publications LLC.
Page: 164-166
102.
List some guidelines for when forward integration would be a particularly good
strategy to pursue.
Some guidelines for when forward integration would be an especially effective
strategy are: (1) when an organization’s present distributors are especially expensive,
unreliable, or incapable of meeting the firm’s distribution needs; (2) when the
availability of quality distributors is so limited as to offer a competitive advantage to
those firms that integrate forward; (3) when an organization competes in an industry
that is growing and is expected to continue to grow markedly; (4) when an
organization has both the capital and human resources needed to manage the new
business of distributing its own products; (5) when the advantages of stable
production are particularly high; and (6) when present distributors or retailers have
high profit margins.
Page: 165
103.
Define and give an example of three intensive strategies.
Market penetration, market development and product development are the three
types of intensive strategies. Seeking increased market share for present products or
services in present markets through marketing efforts is called market penetration.
An example of this is when American Express launched a $100 million +
advertising campaign in 2002 to boost its lead over Citigroup in the credit card
industry. Market development is introducing present products or services into new
geographic areas. South African Breweries PLC trying to acquire Miller Brewing
Company for about $5 billion is an example of market development. Product
development is seeking increased sales by improving present products or services or
developing new ones. An example of product development is Miller Brewing
Company developing the new Skyy Blue citrus and “vodka-flavored” malt beverage.
Page: 167-168
104.
List some guidelines for when market development would be a particularly good
strategy to pursue.
Market development would be an effective strategy in all of the following situations:
(1) when new channels of distribution are available that are reliable, inexpensive and
of good quality; (2) when an organization is very successful at what it does; (3)
when new untapped or unsaturated markets exist; (4) when an organization has the
needed capital and human resources to manage expanded operations; (5) when an
organization has excess production capacity; and (6) when an organization’s basic
industry is becoming rapidly global in scope.
Page: 168
105.
Define and give an example of three diversification strategies.
Concentric, horizontal and conglomerate are the three types of diversification
strategies. Concentric diversification is adding new but related products or services.
When Hilton Hotels started selling timeshares to fill rooms, it began a concentric
diversification strategy. Adding new, unrelated products or services for present
customers is horizontal diversification. An example of this is the New York Yankees
baseball team merging business operations with the New Jersey Nets basketball
team. Conglomerate diversification is adding new, unrelated products or services.
ESPN developed a new division called ESPN Original Entertainment that shows
movies and mini-series.
Page: 169-171
106.
List some guidelines for when conglomerate diversification would be a particularly
good strategy to pursue.
Conglomerate diversification would be a particularly good strategy to pursue in the
following situations: (1) when an organization’s basic industry is experiencing
declining annual sales and profits; (2) when an organization has the capital and
managerial talent needed to compete successfully in a new industry; (3) when an
organization has the opportunity to purchase an unrelated business that is an
attractive investment opportunity; (4) when there exists financial synergy between
the acquired and acquiring firm; (5) when existing markets for an organization’s
present products are saturated; and (6) when antitrust action could be charged
against an organization that historically has concentrated on a single industry.
Page: 172
107.
Define and give examples of joint venture, retrenchment, divestiture and liquidation.
A joint venture is when two or more companies form a temporary partnership or
consortium for the purpose of capitalizing on some opportunity. An example of this
is when Dell Computer and EMC Corporation created a sales and development
alliance. Retrenchment is regrouping through cost and asset reduction to reverse
declining sales and profit. Net2Phone cutting 110 jobs in 2002 as part of its
restructuring plan is an example of retrenchment. Selling a division or part of an
organization is called divestiture. An example of this is Tyco International selling off
its plastics department, which accounts for about 4 percent of Tyco’s sales.
Liquidation is the selling off of a company’s assets, in parts, for their tangible worth.
When Service Merchandise liquidated in 2002, it closed all of its 216 stores in 32
states.
Page: 172-176
108.
Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and 13.
Chapter 7 bankruptcy is a liquidation procedure used only when a corporation sees
no hope of being able to operate successfully or to obtain the necessary creditor
agreement. Chapter 9 bankruptcy applies to municipalities. Chapter 11 bankruptcy
allows organizations to reorganize and come back after filing a petition for
protection. Chapter 12 bankruptcy provides special relief to family farmers with debt
equal to or less than $1.5 million. Chapter 13 bankruptcy is a reorganization plan
similar to Chapter 11, but it is available only to small businesses owned by
individuals with unsecured debts of less than $100,000 and secured debts of less
than $350,000.
Page: 173
109.
Discuss Michael Porter’s generic strategies and define the three bases of these
strategies.
According to Porter, strategies allow organizations to gain competitive advantage
from three different bases: cost leadership, differentiation and focus. Cost
leadership emphasizes producing standardized products at a very low per-unit cost
for consumers who are price-sensitive. Differentiation is a strategy aimed at
producing products and services considered unique industry-wide and directed at
consumers who are relatively price-sensitive. Focus means producing products
and services that fulfill the needs of small groups of consumers. Larger firms
typically compete on a cost leadership and/or differentiation basis, whereas
smaller firms often compete on a focus basis. Porter stresses the need for firms to
perform cost-benefit analyses to evaluate activities as well as the need for firms to
transfer skills and expertise among autonomous business units effectively in order
to gain competitive advantage.
Page: 176
110.
What are the characteristics of a firm that is successfully pursuing a cost leadership
strategy?
A successful cost leadership strategy usually permeates the entire firm, as evidenced
by high efficiency, low overhead, limited perks, intolerance of waste, intensive
screening of budget requests, wide spans of control, rewards linked to cost
containment and broad employee participation in cost control efforts.
Page: 177
111.
Discuss four common problems that cause joint ventures to fail.
One problem that causes joint ventures to fail is that managers who should
collaborate daily in operating the venture are not involved in forming or shaping
the venture. A second problem is if the venture benefits the partnering companies
but may not benefit customers who then complain about poorer service or criticize
the companies in other ways. A third problem occurs if the venture is not
supported equally by both partners, which creates problems. A final problem that
can cause a joint venture to fail is that the venture may begin to compete more
with one of the partners than the other.
Page: 180
112.
Name at least six reasons for performing mergers or acquisitions.
Reasons include: 1) to provide improved capacity utilization; 2) to make better
use of the existing sales force; 3) to reduce managerial staff; 4) to gain economies
of scale; 5) to smooth out seasonal trends in sales; 6) to gain access to new
suppliers, distributors, customers, products and creditors; 7) to gain new
technology; and 8) to reduce tax obligations.
Page: 182-184
Chapter 6
Essay Questions
101.
Explain the concept of matching in the strategy formulation framework. Give at least
three examples of matching.
Matching external and internal critical success factors is the key to effectively
generating feasible alternative strategies. See Table 6-1 on page 202 for examples of
matching.
Page: 202
102.
If you construct a SPACE Matrix and the directional vector points to the lower left
quadrant, what type of strategies would you recommend? Give several examples.
If the directional vector points to the lower-left quadrant of the SPACE Matrix,
students should suggest defensive strategies. Defensive strategies include
retrenchment, divestiture, liquidation and concentric diversification.
Page: 209
103.
Give five coordinates of a SPACE Matrix directional vector that would suggest
conservative strategies to be most appropriate.
Student answers will vary. However, five examples they may suggest are (-1,1),
(-2,2), (-3,3), (-4,4), and (-5,5).
Page: 210
104.
In a BCG Matrix, all divisions are called question marks, stars, cash cows or dogs.
Define each of these terms.
Question Marks have a low relative market share position, yet they compete in a
high-growth industry.
Stars represent the organization’s best long-run opportunities for growth and
profitability.
Cash Cows have a high relative market share position but compete in a low-growth
industry.
Dogs have a low relative market share position and compete in a slow- or nomarket-growth industry.
Page: 212-213
105.
Compare and contrast the IE Matrix with the BCG Matrix.
The IE Matrix is similar to the BCG Matrix in that both tools involve plotting
organizational divisions in a schematic diagram. Also, the size of each circle
represents the percentage sales contribution of each division, and pie slices reveal
the percentage profit contribution of each division in both the BCG and IE Matrix.
Some important differences between the IE Matrix and the BCG Matrix include: 1)
different axes; 2) the IE Matrix requires more information about the divisions than
the BCG Matrix; and 3) the strategic implications of each matrix are different.
Page: 212-214
106.
Explain the benefits and limitations of developing a Boston Consulting Group
Matrix.
The BCG Matrix has one major benefit: draws attention to the cash flow, investment
characteristics and needs of an organization’s various divisions.
The BCG Matrix has some limitations: 1) Viewing every business as either a star,
cash cow, dog or question mark is an oversimplification; many businesses fall right
in the middle of the BCG Matrix and thus are not easily classified, 2) the BCG
Matrix does not reflect whether or not various divisions or their industries are
growing over time; that is, the matrix has no temporal qualities, but rather it is a
snapshot of an organization as any given point in time; and 3) other variables besides
relative market share position and industry growth rate in sales are important in
making strategic decisions about various divisions.
Page: 213
107.
Using a Grand Strategy Matrix approach, what strategies are recommended for a
firm that is a weak competitor in a slow-growing market? Elaborate on what these
strategies could mean for a college or university.
A firm that is a weak competitor in a slow-growing market would be located in
Quadrant III. Quadrant III strategies include retrenchment, concentric
diversification, horizontal diversification, conglomerate diversification, divestiture
and liquidation.
Student answers will vary when elaborating on what these strategies could mean for
a college or university. However, students should mention that the college or
university could possibly have to be closed or facility and staff may have to be
drastically reduced which leads to unhappy students in very large classes.
Page: 219
108.
Describe the positive features and limitations of QSPM.
There are three positive features of QSPM: 1) Sets of strategies can be examined
sequentially or simultaneously; 2) there is no limit to the number of strategies that
can be evaluated or the number of sets of strategies that can be examined at once
using the QSPM; and 3) the last positive feature is that it requires strategists to
integrate pertinent external and internal factors into the decision process.
The QSPM is not without some limitations: 1) It always requires intuitive judgments
and educated assumptions; 2) The ratings and attractiveness scores require
judgmental decisions, even though they should be based on objective information;
and 3) it can be only as good as the prerequisite information and matching analyses
upon which it is based.
Page: 224-225
109.
Discuss the appropriate role of a board of directors in an organization.
Some principles are: No more than two directors are current or former company
executives. No directors do business with the company or accept consulting or legal
fees from the firm. The audit, compensation and nominating committees are made
up solely of outside directors. Each director owns a large equity stake in the
company, excluding stock options. At least one outside director has extensive
experience in the company’s core business and at least one has been CEO of an
equivalent-sized company. Fully employed directors sit on no more than four boards
and retirees sit on no more than seven. Each director attends at least 75 percent of
all meetings. The board meets regularly without management present and evaluates
its own performance annually. The audit committee meets at least four times a year.
The board is frugal on executive pay, diligent in CEO succession oversight
responsibilities, and prompt to act when trouble arises. The CEO is not also the
Chairperson of the Board. Shareholders have considerable power and information to
choose and replace directors. Stock options are considered a corporate expense.
There are no interlocking directorships (where a director or CEO sits on another
director’s board).
Page: 229
Chapter7
Essay Questions
101.
What are five differences between strategy formulation and strategy
implementation?
Strategy formulation is positioning forces before the action, whereas strategy
implementation is managing forces during the action. Strategy formulation
focuses on effectiveness, whereas strategy implementation focuses on efficiency.
Strategy formulation is primarily an intellectual process, whereas strategy
implementation is primarily an operational process. Strategy formulation requires
good intuitive and analytical skills, whereas strategy implementation requires
special motivation and leadership skills. Strategy formulation requires
coordination among a few individuals, whereas strategy implementation requires
coordination among many individuals.
Page: 242
102.
List four major reasons annual objectives are essential for strategy
implementation.
Annual objectives are essential for strategy implementation because they (1)
represent the basis for allocating resources, (2) are a primary mechanism for
evaluating managers, (3) are the major instrument for monitoring progress toward
achieving long-term objectives and (4) establish organizational, divisional and
departmental priorities.
Page: 244
103.
Name at least ten examples that may require a management policy.
Possible answers include: 1) To offer extensive or limited management
development workshops and seminars. 2) To centralize or decentralize employeetraining activities. 3) To recruit through employment agencies, college campuses
and/or newspapers. 4) To promote from within or to hire from the outside. 5) To
promote on the basis of merit or on the basis of seniority. 6) To tie executive
compensation to long-term and/or annual goals. 7) To offer numerous or few
employee benefits. 8) To negotiate directly or indirectly with labor unions. 9) To
delegate authority for large expenditures or to retain this authority centrally. 10)
To allow much, some, or no overtime work. 11) To establish a high- or lowsafety stock of inventory. 12) To use one or more suppliers. 13) To buy, lease, or
rent new production equipment. 14) To stress quality control greatly or not. 15)
To establish many or only a few production standards. 16) To operate one, two,
or three shifts. 17) To discourage using insider information for personal gain. 18)
To discourage sexual harassment. 19) To discourage smoking at work. 20) To
discourage insider trading. 21) To discourage moonlighting.
Page: 247
104.
There are three major approaches for minimizing and resolving conflict in
an organization. Define these three approaches and give an example of each.
Various approaches for managing and resolving conflict can be classified into three
categories: avoidance, diffusion and confrontation. Avoidance includes such actions
as ignoring the problem in hopes the conflict will resolve itself, or physically
separating the conflicting individuals. Diffusion can include playing down
differences between conflicting parties while accentuating similarities and common
interests, compromising so there is neither a clear winner nor loser, resorting to
majority rule, appealing to a higher authority, or redesigning present positions.
Confrontation is exemplified by exchanging members of conflicting parties so each
can gain an appreciation of the other’s point of view, or holding a meeting at which
conflicting parties present their views and work through their differences.
Student answers will vary on the examples given for each approach.
Page: 249
105.
What are the advantages and disadvantages of a divisional organizational
structure?
A divisional structure has some clear advantages. The first is that accountability is
clear. Also, it creates career development opportunities for managers, allows local
control of local situations, leads to a competitive climate within an organization and
allows new businesses and products to be added easily.
A divisional structure does have its limitations. A divisional structure is costly
because each division requires functional specialists who must be paid, there exists
some duplication of staff services, facilities and personnel, and better-qualified
individuals require higher salaries. It is also costly because it requires an elaborate
headquarters-driven control system. Finally, certain religions, products, or customers
may sometimes receive special treatment, and it may be difficult to maintain
consistent, company-wide practices.
Page: 252
106.
There are four basic ways a divisionally structured firm could be
organized. What are these four ways? Give an example of each.
The four basic ways a divisionally structured firm could be organized are 1) by
geographic area. An example of this would be any organization with similar branch
facilities located in widely dispersed areas; 2) by product or service. Huffy is an
example of divisional structure by product; 3) by customer. Book publishing
companies often organize their activities around customer groups as college,
secondary schools and private commercial schools; and 4) by process. An example
of this is a manufacturing business organized into six divisions: electrical work,
glass cutting, welding, grinding, painting and foundry work. Each division would be
responsible for generating revenues and profits.
Page: 252-253
107.
Compare and contrast restructuring and reengineering.
Restructuring involves reducing the size of the firm in terms of number of
employees, number of divisions or units and number of hierarchical levels in the
firm’s organizational structure. Restructuring is concerned primarily with
shareholder well-being rather than employee well-being.
In contrast, reengineering is concerned more with employee and customer wellbeing than shareholder well-being. Reengineering involves reconfiguring or
redesigning work, jobs and processes for the purpose of improving cost, quality,
service and speed. Whereas restructuring is concerned with eliminating or
establishing, shrinking or enlarging, and moving organizational departments and
divisions, the focus of reengineering is changing the way work is actually carried
out. Reengineering is characterized by many tactical decisions, whereas
restructuring is characterized by strategic decisions.
Page: 255-257
108.
What are the three commonly used strategies or approaches for
implementing changes in an organization? Give an advantage and/or disadvantage for
each type of approach.
Although there are various approaches for implementing changes, three commonly
used strategies are a force change strategy, an educative change strategy and a
rational or self-interest change strategy. A force change strategy involves giving
orders and enforcing those orders; this strategy has the advantage of being fast, but
low commitment and high resistance plague it. An educative change strategy is one
that presents information to convince people of the need for change; the
disadvantage of an educative change strategy is that implementation becomes slow
and difficult. However, this type of strategy evokes greater commitment and less
resistance than does the force change strategy. Finally, a rational or self-interest
change strategy is one that attempts to convince individuals the change is to their
personal advantage. When this appeal is successful, strategy implementation can be
relatively easy.
Page: 260
109.
List 10 special natural environment issues.
Students can choose any 10 from the following 12 special natural environment
issues: (1) ozone depletion, (2) global warming, (3) depletion of rain forests, (4)
destruction of animal habitats, (5) protecting endangered species, (6) developing
biodegradable products and packages, (7) waste management, (8) clean air, (9) clean
water, (10) erosion, (11) destruction of natural resources and (12) pollution control.
Page: 262
110.
Explain the nature and role of ESOPs in strategic management.
An ESOP is a tax-qualified, defined-contribution employee-benefit plan whereby
employees purchase stock of the company through borrowed money or cash
contributions. ESOPs empower employees to work as owners. Besides reducing
worker alienation and stimulating productivity, ESOPs allow firms other benefits,
such as substantial tax savings. Principal, interest and dividend payments on ESOPfunded debt are tax-deductible. Banks lend money to ESOPs at interest rates below
prime. This money can be repaid in pretax dollars, lowering the debt service as much
as 30 percent in some cases. Research confirms ESOPs can have a dramatically
positive effect on employee motivation and corporate performance, especially if
ownership is coupled with expanded employee participation and involvement in
decision-making. Market surveys indicate customers prefer to do business with firms
that are employee-owned.
Page: 271
111.
List eight benefits of a diverse workforce.
Students may choose any eight of the following 13 major benefits of having a
diverse workforce: (1) improves corporate culture, (2) improves employee morale,
(3) leads to a higher retention of employees, (4) leads to an easier recruitment of new
employees, (5) decreases complaints and litigation, (6) increases creativity, (7)
decreases interpersonal conflict between employees, (8) enables the organization to
move into emerging markets, (9) improves client relations, (10) increases
productivity, (11) improves the bottom line, (12) maximizes brand identity and (13)
reduces training costs.
Essay Questions
101.
What are five differences between strategy formulation and strategy
implementation?
Strategy formulation is positioning forces before the action, whereas strategy
implementation is managing forces during the action. Strategy formulation
focuses on effectiveness, whereas strategy implementation focuses on efficiency.
Strategy formulation is primarily an intellectual process, whereas strategy
implementation is primarily an operational process. Strategy formulation requires
good intuitive and analytical skills, whereas strategy implementation requires
special motivation and leadership skills. Strategy formulation requires
coordination among a few individuals, whereas strategy implementation requires
coordination among many individuals.
Page: 242
102.
List four major reasons annual objectives are essential for strategy
implementation.
Annual objectives are essential for strategy implementation because they (1)
represent the basis for allocating resources, (2) are a primary mechanism for
evaluating managers, (3) are the major instrument for monitoring progress toward
achieving long-term objectives and (4) establish organizational, divisional and
departmental priorities.
Page: 244
103.
Name at least ten examples that may require a management policy.
Possible answers include: 1) To offer extensive or limited management
development workshops and seminars. 2) To centralize or decentralize employeetraining activities. 3) To recruit through employment agencies, college campuses
and/or newspapers. 4) To promote from within or to hire from the outside. 5) To
promote on the basis of merit or on the basis of seniority. 6) To tie executive
compensation to long-term and/or annual goals. 7) To offer numerous or few
employee benefits. 8) To negotiate directly or indirectly with labor unions. 9) To
delegate authority for large expenditures or to retain this authority centrally. 10)
To allow much, some, or no overtime work. 11) To establish a high- or low-
safety stock of inventory. 12) To use one or more suppliers. 13) To buy, lease, or
rent new production equipment. 14) To stress quality control greatly or not. 15)
To establish many or only a few production standards. 16) To operate one, two,
or three shifts. 17) To discourage using insider information for personal gain. 18)
To discourage sexual harassment. 19) To discourage smoking at work. 20) To
discourage insider trading. 21) To discourage moonlighting.
Page: 247
104.
There are three major approaches for minimizing and resolving conflict in
an organization. Define these three approaches and give an example of each.
Various approaches for managing and resolving conflict can be classified into three
categories: avoidance, diffusion and confrontation. Avoidance includes such actions
as ignoring the problem in hopes the conflict will resolve itself, or physically
separating the conflicting individuals. Diffusion can include playing down
differences between conflicting parties while accentuating similarities and common
interests, compromising so there is neither a clear winner nor loser, resorting to
majority rule, appealing to a higher authority, or redesigning present positions.
Confrontation is exemplified by exchanging members of conflicting parties so each
can gain an appreciation of the other’s point of view, or holding a meeting at which
conflicting parties present their views and work through their differences.
Student answers will vary on the examples given for each approach.
Page: 249
105.
What are the advantages and disadvantages of a divisional organizational
structure?
A divisional structure has some clear advantages. The first is that accountability is
clear. Also, it creates career development opportunities for managers, allows local
control of local situations, leads to a competitive climate within an organization and
allows new businesses and products to be added easily.
A divisional structure does have its limitations. A divisional structure is costly
because each division requires functional specialists who must be paid, there exists
some duplication of staff services, facilities and personnel, and better-qualified
individuals require higher salaries. It is also costly because it requires an elaborate
headquarters-driven control system. Finally, certain religions, products, or customers
may sometimes receive special treatment, and it may be difficult to maintain
consistent, company-wide practices.
Page: 252
106.
There are four basic ways a divisionally structured firm could be
organized. What are these four ways? Give an example of each.
The four basic ways a divisionally structured firm could be organized are 1) by
geographic area. An example of this would be any organization with similar branch
facilities located in widely dispersed areas; 2) by product or service. Huffy is an
example of divisional structure by product; 3) by customer. Book publishing
companies often organize their activities around customer groups as college,
secondary schools and private commercial schools; and 4) by process. An example
of this is a manufacturing business organized into six divisions: electrical work,
glass cutting, welding, grinding, painting and foundry work. Each division would be
responsible for generating revenues and profits.
Page: 252-253
107.
Compare and contrast restructuring and reengineering.
Restructuring involves reducing the size of the firm in terms of number of
employees, number of divisions or units and number of hierarchical levels in the
firm’s organizational structure. Restructuring is concerned primarily with
shareholder well-being rather than employee well-being.
In contrast, reengineering is concerned more with employee and customer wellbeing than shareholder well-being. Reengineering involves reconfiguring or
redesigning work, jobs and processes for the purpose of improving cost, quality,
service and speed. Whereas restructuring is concerned with eliminating or
establishing, shrinking or enlarging, and moving organizational departments and
divisions, the focus of reengineering is changing the way work is actually carried
out. Reengineering is characterized by many tactical decisions, whereas
restructuring is characterized by strategic decisions.
Page: 255-257
108.
What are the three commonly used strategies or approaches for
implementing changes in an organization? Give an advantage and/or disadvantage for
each type of approach.
Although there are various approaches for implementing changes, three commonly
used strategies are a force change strategy, an educative change strategy and a
rational or self-interest change strategy. A force change strategy involves giving
orders and enforcing those orders; this strategy has the advantage of being fast, but
low commitment and high resistance plague it. An educative change strategy is one
that presents information to convince people of the need for change; the
disadvantage of an educative change strategy is that implementation becomes slow
and difficult. However, this type of strategy evokes greater commitment and less
resistance than does the force change strategy. Finally, a rational or self-interest
change strategy is one that attempts to convince individuals the change is to their
personal advantage. When this appeal is successful, strategy implementation can be
relatively easy.
Page: 260
109.
List 10 special natural environment issues.
Students can choose any 10 from the following 12 special natural environment
issues: (1) ozone depletion, (2) global warming, (3) depletion of rain forests, (4)
destruction of animal habitats, (5) protecting endangered species, (6) developing
biodegradable products and packages, (7) waste management, (8) clean air, (9) clean
water, (10) erosion, (11) destruction of natural resources and (12) pollution control.
Page: 262
110.
Explain the nature and role of ESOPs in strategic management.
An ESOP is a tax-qualified, defined-contribution employee-benefit plan whereby
employees purchase stock of the company through borrowed money or cash
contributions. ESOPs empower employees to work as owners. Besides reducing
worker alienation and stimulating productivity, ESOPs allow firms other benefits,
such as substantial tax savings. Principal, interest and dividend payments on ESOPfunded debt are tax-deductible. Banks lend money to ESOPs at interest rates below
prime. This money can be repaid in pretax dollars, lowering the debt service as much
as 30 percent in some cases. Research confirms ESOPs can have a dramatically
positive effect on employee motivation and corporate performance, especially if
ownership is coupled with expanded employee participation and involvement in
decision-making. Market surveys indicate customers prefer to do business with firms
that are employee-owned.
Page: 271
111.
List eight benefits of a diverse workforce.
Students may choose any eight of the following 13 major benefits of having a
diverse workforce: (1) improves corporate culture, (2) improves employee morale,
(3) leads to a higher retention of employees, (4) leads to an easier recruitment of new
employees, (5) decreases complaints and litigation, (6) increases creativity, (7)
decreases interpersonal conflict between employees, (8) enables the organization to
move into emerging markets, (9) improves client relations, (10) increases
productivity, (11) improves the bottom line, (12) maximizes brand identity and (13)
reduces training costs.
Page: 273-274