TEST BANK for Essentials of Strategic Management: The Quest for Competitive Advantage 7th Edition by by StudyGuide

CHAPTER 1: Strategy, Business Models, and Competitive Advantage MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Managers in all types of businesses must develop a clear answer for which of the following questions?

A) Where are we now? B) Where do we want to go from here? C) What is the set of actions that we need to take to outperform the company’s competitors and achieve superior profitability? D) When will we know we are there? E) What moves and approaches do we need to gain advantage in the marketplace?

A company’s strategy consists of

A) actions to develop a more appealing business model than rivals. B) plans involving alignment of organizational activities and strategic objectives. C) offensive and defensive moves to generate revenues and increase profit margins. D) competitive moves and approaches that managers have developed to grow the business, attract and please customers, conduct operations, and achieve targeted objectives. E) its strategic vision, its strategic objectives, and its strategic intent.

3) The competitive moves and business approaches a company’s management is using to grow the business, compete successfully, attract and please customers, conduct operations, respond to changing economic and market conditions, and achieve organizational objectives is referred to as its

A) strategy. B) moves to imitate key rivals. C) strategic mission. D) business model. E) strategic vision.

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The essence of strategy is

A) developing lasting success that can support growth and secure the company’s future over the long term. B) re-creating a business model with regularity. C) matching rival businesses’ products and quality dimensions in the marketplace. D) building profits for short-term success. E) realigning the market to provoke change in rival companies.

A company’s strategy has a chance of succeeding only when it is predicated on

A) building revenues, controlling costs, and generating an attractive profit. B) actions, business approaches, and competitive moves aimed at appealing to buyers and setting the company apart from rivals. C) management’s concepts of “where we have been,” “where we are headed,” and “where we need to go.” D) the approval of a business model by a company’s board of directors that spells out how to outcompete with rivals and make the company profitable. E) educated choices that management has made regarding which financial and operating plans to pursue.

6) Under Armour, a multinational sports apparel company, plans entry into a new geographical location, Vietnam, considered an emerging market, with its established and bestselling product line: women’s running shorts. How should Under Armour not craft a strategy to enhance future profits in Vietnam?

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A) create a sales plan that aims to enhance initial sales and market penetration with low prices based on high operational costs B) devise a marketing plan that aims at mass customer segments with attractive advertisements and offers on products C) implement a diversification plan that aims at adding health and fitness centers to its existing line of products D) chart an acquisition plan that aims at acquiring local smaller-scale sports apparel manufacturers that seek funding and offer a complementary product lineup E) establish a distribution plan to set up more supply outlets than any other rivals in the location

Which of the following is not an element of a company’s business strategy?

A) actions to respond to changing market conditions or other external factors B) actions to strengthen competitiveness via strategic alliances and collaborative partnerships C) actions to strengthen internal capabilities and competitively valuable resources D) actions to manage the functional areas of the business E) actions to revise the company’s financial and strategic performance targets

8) Which of the following is an issue not likely to be addressed by a company’s business strategy?

A) actions to respond to changing economic and market conditions B) actions to supplement the company’s resources and capabilities through alliances and joint ventures C) reactions to offensive moves by rival sellers D) actions and approaches used in managing the functional areas of the business E) actions and approaches to mimic rivals’ moves in the marketplace.

The most important aspect(s) of a company’s business strategy

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A) are the actions and moves in the marketplace that managers take to gain a sustainable competitive advantage. B) is figuring out how to maximize profits and shareholder value. C) concerns how to improve the efficiency of its business model. D) deals with how management plans to maximize profits while, at the same time, operating in a socially responsible manner. E) is figuring out how to become the industry’s low-cost provider.

10) A creative, distinctive strategy that delivers a sustainable, competitive advantage is important because

A) without a proven strategy, a company is likely to fall into bankruptcy. B) without a competitive advantage, a company cannot have a profitable business model. C) a strategy that yields a competitive advantage over rivals is a company’s most reliable means of achieving above-average profitability and financial performance. D) a competitive advantage is what enables a company to achieve its strategic objectives. E) how a company goes about trying to please customers and outcompete rivals is what enables senior managers to choose an appropriate strategic vision for the company.

11)

A company’s business model

A) specifies the goals of above-average profitability and outstanding financial performance. B) is unrelated to its customer value proposition and profit formula. C) has nothing to do with whether it can execute its customer value proposition profitably. D) is management’s blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit. E) specifies exactly how it intends to outcompete rivals to achieve its strategic vision.

12)

A company’s business model consists of its

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A) mission statement and its SWOT analysis. B) customer value proposition and its vision statement. C) operating and financial plans. D) profit formula and strategic vision. E) profit formula and customer value proposition.

13)

A company achieves sustainable competitive advantage when

A) it has a profitable business model. B) a sufficiently large number of buyers have a lasting preference for its products or services as compared to the offerings of competitors. C) it is able to maximize shareholder wealth. D) it is consistently able to achieve both its strategic and financial objectives. E) its strategy and its business model are well matched and in sync.

14) A creative, distinctive strategy that sets a company apart from rivals and that gives it a sustainable competitive advantage

A) is a reliable indicator that the company has a profitable business model. B) is a company’s most reliable ticket to above-average profitability. C) signals that the company has a bold, ambitious strategic intent that places the achievement of strategic objectives ahead of the achievement of financial objectives. D) is the best indicator that the company’s strategy and business model are well matched and properly synchronized. E) allows a company’s managers to ignore competitors’ responses to any moves that the company might make.

15) FaberRoad, a respected courier brand, is fast losing its market share to competitors who do overnight deliveries of packages or offer lower prices. The company’s research department has found that many customers care more about knowing exactly when a package will arrive than getting it the next day. Which strategy would best address the current state of FaberRoad and help it regain its market?

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A) employing night delivery drivers at a high cost and maintenance charges B) developing radio tags that could be attached to packages to allow for real-time tracking by customers’ PCs and mobile phones C) diversifying the different types of packages that can be transported and enabling booking through calls D) acquiring small transportation companies with cheaper trucks and tempos, rebranding, and using them for deliveries E) engaging in expensive advertising with new tag lines and famous celebrities to enhance its brand image in the market

16) A salsa manufacturing company that enjoys the least bargaining power with its suppliers would most likely be

A) involved in mass production of its products to cater to an expanding customer base. B) actively catering to a broad, price-sensitive customer base. C) manufacturing high quality salsa and related products from readily available raw materials for a broad customer base. D) selling salsa and related products deemed to be highly popular and easily available across most supermarkets. E) offering high-cost specialized salsas that could be consumed only by customers with specific food allergies.

17) Which of the following is a not a frequently used strategic approach to setting a company apart from rivals and achieving a sustainable competitive advantage?

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A) striving to be the industry’s low-cost provider, thereby aiming for a cost-based competitive advantage B) outcompeting rivals on the basis of such differentiating features as higher quality, wider product selection, added performance, better service, more attractive styling, or technological superiority C) pursuing a best-cost strategy, giving customers more value for the money by satisfying buyers’ expectations on key quality/features/performance/service attributes, while beating their price expectations D) focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of serving the special needs and tastes of buyers comprising the niche E) copying rivals on their competitive moves.

18) Which of the following is not a frequently used strategic approach to setting a company apart from rivals and achieving a sustainable competitive advantage?

A) aiming for a cost-based competitive advantage B) outcompeting rivals on the basis of such differentiating features as higher quality, wider product selection, added performance, better service, or more attractive styling C) simply trying to mimic the successful strategies of rivals D) focusing on a narrow market niche and winning a competitive edge by doing a better job than rivals of satisfying the needs and tastes of buyers comprising the niche E) developing expertise and resources that give the company competitive capabilities that rivals can’t easily imitate or trump with capabilities of their own

19) BloomsJay Resorts Inc. has multiple tropical resorts in various locations. In a crowded market that caters to all kinds of consumers, this resort caters mainly to gays with guaranteed hassle-free holiday experiences at a premium price. What strategy is BloomsJay using to gain competitive advantage?

A) a low-cost provider strategy B) a broad differentiation strategy C) a focused low-cost strategy D) a focused differentiation strategy E) a best-cost provider strategy

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20) Arnie’s Noshes, a fast-food facility near a college campus, offers healthy, sustainably grown vegetarian and vegan fast food at higher prices than its competitors in the market and has a drive-through and indoor-seated, casual-dining operation. What strategy is Arnie’s Noshes using to gain competitive advantage?

A) a best-cost provider strategy B) a low-cost provider strategy C) a focused low-cost provider strategy D) a broad differentiation strategy E) a focused differentiation strategy

21) An evolving strategy for a rideshare business like Uber or Lyft is not likely to be triggered by

A) their need to keep strategy in step with changing circumstances, market conditions, and changing customer needs and expectations. B) the proactive efforts of their managers to fine-tune and improve one or more pieces of the strategy. C) their need to abandon some strategy features that have been faltering or are no longer working well. D) their need to respond to the newly initiated actions and competitive moves of manufacturers of autonomous vehicles. E) their need to respond to short-term swings in the stock market that impact timing of an initial public offering (IPO).

22) Different companies across different industries adopt any one of the five generic strategies to gain competitive advantage. Which of the following businesses is most likely to use a low-cost provider strategy?

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A) A fashion clothing line uses sought-after designers and natural fabrics. B) A mortgage company specializes in lending money for second homes. C) An online retailer delivers organic groceries overnight. D) A baby products retailer sells unassembled baby furniture produced in China. E) A dairy products manufacturer uses exotic substitutes to produce lactose-free dairy products.

23)

A company achieves sustainable competitive advantage when

A) its distinctive product offering is trumped by rivals’ products. B) it pursues a best-cost provider strategy. C) competitors erode or imitate its efforts to attain a competitive advantage. D) an attractively large number of buyers develop a durable preference for rivals’ offerings of products or services. E) it develops capabilities proven difficult for competitors to imitate or best.

24) Which of the following is not one of the basic reasons that a company’s strategy evolves over time?

A) an ongoing need to abandon those strategy features that are no longer working well B) the proactive efforts of company managers to improve the company’s financial performance and secure a competitive advantage C) the need on the part of company managers to make no adjustments to the company’s business model D) the need to respond to the actions and competitive moves of rival firms E) the need to keep strategy in step with changing industry and competitive conditions

25)

Changing circumstances and ongoing managerial efforts to improve the strategy

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A) account for why a company’s strategy evolves over time. B) explain why a company’s strategic vision undergoes almost constant change. C) make it very difficult for a company to have concrete strategic objectives. D) make it very hard to know what a company’s strategy really is. E) are only necessary when rivals are gaining market share.

26)

It is normal for a company’s strategy to end up being

A) left unchanged from management’s original planned set of actions and business approaches since making on-the-spot changes is too risky. B) a combination of defensive moves to protect the company’s market share and offensive initiatives to set the company’s product offering apart from rivals. C) like the strategies of other industry members since all companies are confronting much the same market conditions and competitive pressures. D) a blend of deliberate planned actions to improve the company’s competitiveness and financial performance and as-needed unplanned reactions to unanticipated developments and fresh market conditions. E) a mirror image of its business model, so as to avoid impairing company profitability.

27)

Crafting a strategy involves

A) blending deliberate, planned initiatives with emergent, unplanned reactive responses to changing circumstances, while abandoning planned strategy elements that have failed in the marketplace. B) developing a five-year strategic plan and then fine-tuning it during the remainder of the plan period. C) trying to imitate as much of the market leader’s strategy as possible so as not to end up at a competitive disadvantage. D) doing everything possible (in the way of price, quality, service, warranties, advertising, and so on) to make sure the company’s product and/or service is very clearly differentiated from the product and or service offerings of rivals. E) All of these accurately characterize the managerial process of crafting a company’s strategy.

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28)

A company is unlikely to develop an emergent strategy due to

A) strategic moves by rival firms. B) unexpected shifts in customer preferences. C) fast-changing technological developments. D) new market opportunities. E) Rivals’ value chain deficiencies.

29)

Which of the following statements about a company’s realized strategy is true?

A) A company’s realized strategy is mostly hidden to outside view and is deliberately kept under wraps by top-level managers. B) A company’s realized strategy is typically planned well in advance and usually deviates little from the planned set of actions. C) A company’s realized strategy generally changes very little over time unless a newly appointed CEO decides to take the company in a new direction with a new strategy. D) A company’s realized strategy is typically a blend of deliberate and/or planned initiatives and emergent and/or unplanned reactive strategy elements. E) A company’s realized strategy is developed mostly on the fly because of the constant efforts of managers to keep rival companies at a disadvantage.

30)

A company’s realized business strategy is made up of

A) deliberate and/or planned initiatives that have proven themselves in the marketplace and newly launched initiatives aimed at further boosting performance. B) emergent and/or reactive adjustments to unanticipated strategic moves by rivals, unexpected changes in customer preferences, and new market opportunities. C) tactical plans to imitate the key elements of the strategies employed by rivals. D) both deliberate and/or planned initiatives that have proven themselves in the marketplace and newly launched initiatives aimed at further boosting performance and emergent and/or reactive adjustments to unanticipated strategic moves by rivals, unexpected changes in customer preferences, and new market opportunities. E) choices among low-cost provider and differentiation strategies.

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31)

Consider the following three companies and their strategies.

• Company A is an established database management company that acquires a well-reputed but small publishing house to enter the booming publishing industry. • Company B, a sports management house, declared bankruptcy during a recent recession but now has created a television network that airs regional sports events. • Company C, a package delivery business, is a startup based on delivery efficiency models created by a few students, and delivers almost all kinds of packages. The use of strategies by these three companies can be accurately analyzed by saying that

A) Company B employs an emergent strategy, whereas Companies A and C employ deliberate strategies. B) all three companies employ deliberate strategies. C) all three companies employ emergent strategies. D) Company C employs a deliberate strategy; Companies A and B employ emergent strategy. E) Companies A and C employ emergent strategies; Company B employs a deliberate strategy.

32) To which of the following firms is the term “repeatedly evolving strategy” most applicable?

A) a government agency that makes plans for a set period of time and implements them phase by phase through the tenure B) a mobile company, established in a saturated market, that aims at quarterly release of new products C) a new cosmetics manufacturer in a market that replicates the products of a competitor at a moderate quality and lower price D) a nationalized bank that lends at a lower interest rate but with a zero processing fee in a market crowded with privatized banks running at high cost E) a firearms regulatory agency, set up by the government, that publishes industry standards for safety, reliability, and quality of arms and ammunition

33)

Managers of every company should be willing and ready to modify the strategy because

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A) market conditions and circumstances are changing over time or the current strategy is clearly failing. B) the task of crafting strategy is a one-time event. C) the strategic vision necessitates periodic updating. D) frequent changes in strategy make it very more difficult for rivals to imitate. E) all strategies are reactive.

34)

Which of the following firms uses an emergent strategy?

A) A local hardware store offers a ten-percent discount for seniors on the first Wednesday of every month. B) An online book reseller diversifies into custom book publishing. C) An oil-change franchisor continues geographical expansion despite a recession. D) A health food manufacturer integrates forward into drive-through health food restaurants. E) A microbrewer invests in building community water wells during a drought.

35) A luxury hot-tub manufacturer offered monogrammed bathrobes as a gimmick when their hot tubs did not sell. Their monogrammed bathrobes became famous among some women and led to a line of exclusive bath products for women. The bathtub manufacturer established shops in various regional locations and hired celebrities to market their products to enhance sales. Today, its products are sold through retail outlets and online sites throughout the world. Which of the following is accurate?

A) Offering scented bubble-bath foams and massage coupons was an emergent strategy. B) Creating a sub-brand that offered exclusive bath products for women was an emergent strategy. C) Establishing shops in regional locations was an emergent strategy. D) Roping in celebrities to market their products was an emergent strategy. E) Creating a worldwide presence through retail outlets and online sites was an emergent strategy.

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36) An industrial air-conditioner manufacturing giant decides to outsource its operations to a new geographical location with cheaper labor amidst ongoing labor strikes in a few of its existing locations (due to proposed job cuts and relocation of the plant offshore). This draws criticism in its home market and affects its current market position and productivity. Which of the following would be an appropriate reactive (emergent) strategy while moving forward?

A) hiring and training new talent to begin operations in the emerging market B) acquiring a local computer chip marketing and distribution specialist firm in the new location C) canceling the idea of outsourcing and retaining the existing workforce to run operations D) shifting the existing workforce to the new geographical location and paying them according to new standards E) canceling the job cuts till the market situation and entry operations stabilize

37)

A winning strategy is one that

A) builds strategic fit, is socially responsible, and maximizes shareholder wealth. B) is highly profitable and boosts the company’s market share. C) results in a company becoming the dominant industry leader. D) fits the company’s internal and external situation, builds sustainable competitive advantage, and improves company performance. E) can pass the ethical standards test, the strategic intent test, and the profitability test.

38)

A well-conceived strategy builds a company’s

A) profitability and financial strength. B) competitive strength and market standing. C) distinctive competencies and sustainability. D) competitive edge. E) ethical worthiness and corporate social responsibility.

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39) You have been asked to advise Waltham Furniture, a company that seeks to serve a target middle-class customer demographic obsessed with the quality and price of products. Your proposed value proposition for this company to offer to its customers would be to

A) identify the unique features of your client’s furniture without comparing it with a rival’s products. B) offer copycat furniture at low cost but an average quality compared to your client’s rivals. C) offer the same quality of furniture as your client’s rivals but at a high cost based on greater market share and higher brand value. D) provide comparable quality furniture at a much lower price than your rivals but leave the final assembly of purchased furniture to customers accompanied by an easy-to-follow assembly guide. E) market and sell only average quality furniture compared to your rivals at an imperceptible difference in price.

40)

In evaluating proposed or existing strategies, managers should

A) initiate new initiatives even though they don’t seem to match the company’s internal and external situation. B) scrutinize the company’s existing strategies on a regular basis to ensure they offer a good strategic fit, create a competitive advantage, and result in above-average performance. C) evaluate the firm’s business model at least every three years. D) ensure core capabilities are incorporated for establishing a competitive advantage. E) align existing strategies with new strategies to emphasize incremental gains.

41) Which of the following questions ought to be used to distinguish a winning strategy from a so-so or flawed strategy?

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A) Does the strategy contain a sufficient number of emergent and/or reactive elements? B) Is the company putting too little emphasis on growth and profitability and too much emphasis on behaving in an ethical and socially responsible manner? C) Is the strategy built on a company’s weakness, or does it require resources that are deficient in the company? D) Is the strategy well matched to the company’s situation, helping the company achieve a sustainable competitive advantage and resulting in better company performance? E) Does the strategy strike a good balance between maximizing shareholder wealth and maximizing customer satisfaction?

42) A pharmaceutical giant acquires a manufacturer of rare specialty drugs to improve its falling share prices and invests all its wealth into the deal. Due to a deficit, it agrees to do a joint venture for the acquisition and involves a major automobile giant to fund the deal. After a rocky start, the companies now have a strong market position and generate good profits. Which of the following regarding the company’s strategy is true?

A) It fails the performance test. B) It fails the competitive advantage and the fit tests. C) It is a winning strategy. D) It fails in all three tests. E) It fails the fit test, but passes the competitive advantage and performance tests.

43)

In evaluating proposed or existing strategies managers should

A) evaluate the firm’s business model at least every three years. B) align existing strategies with new strategies to emphasize incremental gains. C) scrutinize the company’s existing strategies on a regular basis to ensure they offer a good strategic fit, create a competitive advantage, resulting in an above-average performance. D) plan and implement new initiatives regardless of whether or not these match the company’s internal and external situation. E) ensure core capabilities are incorporated for establishing a competitive advantage.

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44) For John Sidanta, CEO and founder of Primaplast, a manufacturer of biodegradable plastic drinking straws made from recycled material, crafting and executing a strategy is a toppriority managerial task because

A) it helps Primaplast management create tight fits between a company’s strategic vision and business model. B) it allows Primaplast company personnel, and especially senior executives, to know the answer to “who are we, what do we do, and where are we headed?” C) it is Primaplast management’s prescription for doing business, its roadmap to competitive advantage, a game plan for pleasing customers, and its formula for improving performance, especially in light of impending community and some food service outlets’ bans on conventional plastic drinking straws. D) it provides Primaplast with clear guidance as to what the company’s business model and strategic intent are, and helps keep managerial decision-making from being rudderless. E) it establishes how well Primaplast executives perform these tasks and are the key determinants of executive compensation.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 45) Briefly define each of the following terms: a. strategy b. business model c. sustainable competitive advantage

46)

List five elements of an enterprise’s business strategy.

47)

Explain the difference between a company’s business model and a company’s strategy.

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48)

What is the nitty-gritty issue surrounding a company’s business model?

49) What is the connection between a company’s strategy and its quest for sustainable competitive advantage?

50) Should a company’s strategy be tightly connected to its quest for competitive advantage? Why or why not? What difference does it makes whether a company has a sustainable competitive advantage or not?

51) Why are capabilities critical to a company’s quest for a sustainable competitive advantage?

52)

Why does a company’s strategy tend to evolve over time?

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53)

Why is a company’s realized strategy a blend of proactive and adaptive approaches?

54)

Provide at least two examples of a company’s competitively valuable capabilities.

55)

Define and explain the importance of the two elements of a company’s business model.

56) What are the three criteria that determine whether or not a company has a winning strategy?

57) What are the three questions that managers can use to distinguish a winning strategy from a so-so or flawed strategy? Briefly explain why each question is important.

58) Why are capabilities needed to build a sustainable competitive advantage so important to a winning business strategy? Cite one of the company examples in the chapter to illustrate your answer.

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59) Explain why some companies get to the top of industry rankings and stay there, while others do not.

60)

Explain what affects a company’s ultimate success or failure in the marketplace.

61) SandCloud, a venture-backed established company in the beachwear and toweling markets, decides to donate a part of its profits to a children’s charity to improve its market image. Soon afterwards, SoundCloud launched a website that offers new clothes and beach accessories that could be donated to various children’s charities by interested parties. The company gained positive publicity and its sales went up. What would you say about this strategy?

62) Keurig, a coffee machine manufacturer, sells high-quality espresso machines at a very low price but provides low-cost refills of varietal coffee pods at a relatively higher price than rivals. Explain this business model.

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63) Pizza Port, a craft brewing and pizza chain in Southern California, manufactures thincrust pizzas and offers one free pint of beer with the purchase of four large pizzas. What can you say about its Value-Price-Cost Framework?

64) Mad Magazine plans to eliminate future newsstand sales and eliminate any new content and provide magazines to subscribers only, and the space formerly occupied by new content will instead be for high-priced advertisements. Somehow it fails to generate new subscribers or highpriced advertisers in in its magazine. What do we understand from this failure?

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Answer Key Test name: Chap 01_7e 1) C 2) D 3) A 4) A 5) B 6) A 7) E 8) E 9) A 10) C 11) D 12) E 13) B 14) C 15) B 16) E 17) E 18) C 19) D 20) E 21) E 22) D 23) E 24) C 25) A 26) D Version 1

27) A 28) E 29) D 30) D 31) B 32) B 33) A 34) E 35) B 36) E 37) D 38) E 39) D 40) B 41) D 42) C 43) C 44) C 45) A strategy consists of the actions and moves in the marketplace that managers are taking to gain a competitive edge over rivals. A company’s business model is management’s blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit. A company is said to achieve a sustainable competitive advantage when an attractively large number of buyers develop a durable preference for its products or services over the offerings of competitors, despite the efforts of competitors to overcome or erode that advantage.

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46) The five elements of an enterprise’s business strategy include: (1) creating products and services that attract and please customers; (2) acting to position the company in its industry; (3) developing and deploying resources to build valuable competitive capabilities; (4) acting to insure how important functions (R&D, supply chain activities, production, sales and marketing, distribution, finance, and human resources) will be operated; and (5) acting to achieve the company’s performance targets. 47) While the company’s strategy sets forth an approach to offering superior value, a company’s business model is management’s blueprint for delivering a valuable product or service to customers in a manner that will yield an attractive profit, incorporating its customer value proposition and its profit formula. 48) The nitty-gritty issue surrounding a company’s business model is whether it can execute its customer value proposition profitably. Just because company managers have crafted a strategy for competing and running the business does not automatically mean the strategy will lead to profitability. It may or it may not. 49) The heart and soul of any strategy consists of the approaches to the marketplace that managers are taking to gain a sustainable competitive edge over rivals. Five of the most frequently used and dependable strategic approaches to setting a company apart from rivals and winning a sustainable competitive advantage are: (1) a low-cost provider strategy, (2) a broad differentiation strategy, (3) a focused low-cost strategy, (4) a focused differentiation strategy, and (5) a best-cost provider strategy.

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50) Yes, because a sustainable competitive advantage can allow a company to attract sufficiently large numbers of buyers who have a lasting preference for its products or services over those offered by rivals, despite the efforts of competitors to offset that appeal and overcome that company’s advantage. As to whether or not a sustainable competitive advantage makes a difference, the larger and more durable the competitive advantage, the better a company’s prospects for winning in the marketplace and earning superior long-term profits relative to rivals. 51) Clever rivals can nearly always copy the attributes of a popular product or service, but it is substantially more difficult for rivals to match the know-how and specialized capabilities a company has developed and perfected over a long period. 52) A company’s strategy tends to evolve over time due to (1) changing circumstances and (2) ongoing management efforts to improve the company’s strategy. 53) A company’s realized strategy is a combination of both deliberate or proactively planned elements and unplanned or adaptive emergent elements. This is because changing circumstances and ongoing management efforts to improve the strategy cause a company’s strategy to evolve over time—a condition that makes the task of crafting a strategy a work in progress, not a one-time event.

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54) See Concepts & Connections 1.2 (Starbucks’ Strategy in the Specialty Coffee Market). Several competitively valuable capabilities include: (1) training staff to provide customized products to customers, (2) elevating the customer experience via ambience and store design, (3) creating a supply chain that provides only the highest quality raw materials and ingredients, (4) demonstrating a commitment to corporate social responsibility, (5) pursing opportunities for both domestic and international expansion, and (6) broadening and periodically refreshing the product mix. 55) A company’s business model incorporates its customer value proposition and its profit formula. The customer value proposition lays out the company’s approach to satisfying buyer wants and needs at a price customers will consider a good value; that is, the greater the value provided and the lower the price, the more attractive the value proposition is to customers. The profit formula describes the company’s approach to determining a cost structure that will allow for acceptable profits given the pricing tied to its customer value proposition; that is, the lower the costs given the customer value proposition, the greater the ability of the business model to be a moneymaker. 56) A winning strategy must (1) fit the company’s external and internal situation, (2) build sustainable competitive advantage, and (3) improve company performance.

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57) The three questions to distinguish a winning strategy from a so-so or flawed strategy are: (1) How well does the strategy fit the company’s situation? (2) Is the strategy helping the company to achieve a sustainable competitive advantage? (3) Is the strategy producing good company performance? Regarding its fit with a company’s internal and external situation, a strategy has to be well matched and must fit competitive conditions in the industry and other aspects of the enterprise’s external environment. At the same time, it should be tailored to the company’s collection of competitively important resources and capabilities. Regarding strategy and the achievement of sustainable competitive advantage, strategies that fail to achieve a durable competitive advantage over rivals are unlikely to produce superior performance for more than a brief period of time; the bigger and more durable the competitive edge that the strategy helps build, the more powerful it is. Regarding strategy and performance, the mark of a winning strategy is a strong company performance; the caliber of a company’s strategy can be measured by (1) gains in profitability and financial strength and (2) advances in the company’s competitive strength and market standing. 58) A strategy should be tailored to the company’s collection of competitively important resources and capabilities. It’s unwise to build a strategy upon the company’s weaknesses or pursue a strategic approach that requires resources that are deficient in the company. Examples include: (1) FedEx’s superior capabilities in next-day delivery of small packages and (2) Hyundai’s advanced manufacturing processes and unparalleled quality control system. The capabilities of both of these companies have proven difficult for competitors to imitate or best and have allowed each to build and sustain competitive advantage.

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59) The better conceived a company’s strategy and the more competently it is executed, the more likely that the company will be a standout performer in the marketplace. In stark contrast, a company that lacks clear-cut direction, has a flawed strategy, or can’t execute its strategy competently is a company whose financial performance is probably suffering, whose business is at long-term risk, and whose management is sorely lacking. That is, how well a company performs is directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed. 60) Among all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts the company’s direction, develops competitively effective strategic moves and business approaches, and pursues what needs to be done internally to produce good day-in, dayout strategy execution and operating excellence. Indeed, good strategy and good strategy execution are the most telling signs of good management. 61) SandCloud has adopted a proactive strategy and used its existing market position to create a new market opportunity. This planned initiative improved the company’s financial performance and secured a competitive edge.

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62) Selling high-quality Keurig machines at a very low price is the company’s customer value proposition, and then selling low-cost refills at a relatively higher price is the company’s profit formula. The two elements of a company’s business model are (1) its customer value proposition and (2) its profit formula. The customer value proposition lays out the company’s approach to satisfying buyer wants and needs at a price that customers will consider a good value. The profit formula describes the company’s approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition. 63) Thin-crust pizzas allow the pizza maker to cut down on dough costs. That is its profit formula, and free soft drinks with a larger pack is both a profit formula and a value proposition for customers. The two elements of a company’s business model are (1) its customer value proposition and (2) its profit formula. The customer value proposition lays out the company’s approach to satisfying buyer wants and needs at a price that its customers will consider a good value. The profit formula describes the company’s approach to determining a cost structure that will allow for acceptable profits, given the pricing tied to its customer value proposition.

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64) Changing to a subscription-only model, relying solely on previouslycreated content, and utilizing space for advertisements might have been conceived as a great strategy to earn recurring revenues and higher profits for Mad Magazine, but poor planning and execution of this strategy led to its failure. Good strategy and good strategy execution are the most telling signs of good management. The rationale for using the twin standards of good strategy making and good strategy execution to determine whether a company is well managed is therefore compelling: The better conceived a company’s strategy and the more competently it is executed, the more likely the company will be a standout performer in the marketplace.

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CHAPTER 2: Strategy Formulation, Execution, and Governance MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) You have been asked to evaluate Kampus Kombucha’s mission statement, “To heal and refresh everyone we touch.” You would most likely observe thatKampus Kombucha’s mission statement

A) specifies the buyer needs that it seeks to satisfy and the customer groups or markets it serves. B) specifically informs customers and employees “who we are, what we do, and why we are here.” C) portrays this company’s aspirations for the future. D) describes more of an objective and a result of what this company does instead of its purpose. E) is vague, fairly uninformative, and blurs the essence of this company’s business activities.

2) Which of the following is an integral part of the managerial process of crafting and executing strategy?

A) developing a proven business model B) setting objectives and using them as yardsticks for measuring the company’s performance and progress C) deciding how much of the company’s resources to employ in the pursuit of sustainable competitive advantage D) communicating the company’s mission and purpose to all employees E) deciding on the composition of the company’s board of directors

3) Which of the following are integral parts of the managerial process of crafting and executing strategy?

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A) deciding on the company’s strategic intent, setting financial objectives, crafting a strategy, and choosing what business approaches and operating practices to employ B) developing a proven business model, deciding on the company’s strategic intent, and crafting a strategy C) setting objectives, crafting a strategy, implementing and executing the chosen strategy, and deciding how much of the company’s resources to employ in the pursuit of sustainable competitive advantage D) coming up with a statement of the company’s mission and purpose, setting objectives, choosing what business approaches to employ, selecting a business model, and monitoring developments E) developing a strategic vision, setting objectives, crafting a strategy, and initiating corrective adjustments

4) is to

When companies adopt the strategy formulation, strategy execution process, the first step

A) monitor internal and external developments and initiate corrective adjustments to the business model when necessary. B) adopt a proven business model, decide on the company’s top management team, and craft a strategy. C) execute the company’s chosen strategy efficiently and effectively. D) set objectives and develop a profitable business model to meet those objectives. E) develop a strategic vision, mission, and values.

The strategic management process is shaped by

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A) management’s strategic vision, strategic and financial objectives, and strategy. B) the decisions made by the compensation and audit committees of the board of directors. C) external factors such as the industry’s economic and competitive conditions and internal factors such as the company’s collection of resources and capabilities. D) a company’s customer value proposition and profit formula. E) actions to strengthen competitive capabilities and correct weaknesses, actions to strengthen market standing and competitiveness by acquiring or merging with other companies, and actions to enter new geographic or product markets.

TOMS Shoes’ company values are

A) focused on the wealth maximization of shareholders. B) strictly limited in number (not more than two per company). C) barely distinguishable among those of other rivals in the footwear industry. D) directly linked to this company’s strategic vision, whereas its mission has other underlying assets. E) an integral part of this company’s DNA, if executives seek to ingrain designated core values into corporate culture.

The strategic management process is shaped by

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8) When a company is confronted with significant industry change that mandates radical revision of its strategic course, the company is said to have encountered a(n)

A) learning and growth perspective. B) strategic inflection point. C) strategic roadblock. D) new strategic opportunity. E) opportunity for corporate entrepreneurship.

A company’s strategic plan consists of

A) its balanced scorecard and its business model. B) a vision of where it is headed, a set of performance targets, and a strategy to achieve them. C) its strategy and management’s specific, detailed plans for implementing it. D) a company’s plans for improving value-creating internal processes. E) a strategic vision, a strategy, and a business model.

10)

The strategy formulation, strategy execution process

A) is usually delegated to members of a company’s board of directors so as not to infringe on the time of busy executives. B) includes establishing a company’s mission, developing a business model aimed at making the company an industry leader, and crafting a strategy to implement and execute the business model. C) embraces the tasks of developing a strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and then monitoring developments and initiating corrective adjustments in light of experience, changing conditions, and new opportunities. D) is principally concerned with sizing up an organization’s internal and external situation, so as to be prepared for the challenge of developing a sound business model. E) is primarily the responsibility of top executives and the board of directors; very few managers below this level are involved.

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11)

A company’s strategic vision concerns

A) a company’s directional path and future product-customer-market-technology focus. B) why the company does certain things in trying to please its customers. C) management’s story line of how it intends to make a profit with the chosen strategy. D) “who we are and what we do.” E) what future actions the enterprise will likely undertake to outmaneuver rivals and achieve a sustainable competitive advantage.

12)

Management’s strategic vision for an organization

A) charts a strategic course for the organization (“where we are going”) and outlines the company’s future product-customer-market-technology focus. B) describes in fairly specific terms the organization’s business model, strategic objectives, and strategy. C) spells out how the company will become a big moneymaker and boost shareholder value. D) addresses the critical issue of “why our business model needs to change and how we plan to change it.” E) spells out the organization’s strategic moves that will be undertaken to achieve competitive advantage.

13) Top management’s views about where the company is headed and what its future product-customer-market-technology will be

A) indicates what kind of business model the company is going to have in the future. B) constitutes the strategic vision for the company. C) signals what the firm’s strategy will be. D) serves to define the company’s mission. E) indicates what the company’s long-term strategic plan is.

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14) Which one of the following is not an accurate attribute of an organization’s strategic vision?

A) a clearly articulated view of “where we are going” B) describing the company’s future product-customer-market-technology focus C) pointing an organization in a particular direction and charting a strategic path for it to follow D) providing managers with a reference point for making strategic decisions E) specifying how the company intends to implement and execute its business model

15)

Well-conceived visions are

A) vague and indefinite, to allow room for a company to change direction. B) generic to many organizations. C) primarily comprised of feel-good statements about the company’s past history. D) innocuous one-sentence statements. E) a reference point for managers in making strategic decisions.

16) Which of the following are characteristics of an effectively worded strategic vision statement?

A) graphic, directional, and focused B) challenging, competitive, and “set in concrete” C) balanced, responsible, and rational D) realistic, customer-focused, and market-driven E) achievable, profitable, and ethical

17) Which one of the following is not a characteristic of an effectively worded strategic vision statement?

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A) directional (is forward-looking, describes the strategic course that management has charted and the kinds of product-market-customer-technology changes that will help the company prepare for the future) B) easy to communicate (is explainable in 10 to 15 minutes, can be reduced to a memorable slogan) C) graphic (paints a picture of the kind of company management is trying to create and the market position or positions the company is striving to stake out) D) consensus-driven (commits the company to a “mainstream” directional path that most all stakeholders will enthusiastically support) E) focused (is specific enough to provide guidance to managers in making decisions and allocating resources)

18) A superior example of a company vision that is short, specific, memorable, clearly articulated, and forward-looking is

A) Hilton Hotel’s vision “to fill the earth with light and the warmth of hospitality.” B) Whole Foods’ vision “to be a dynamic leader in the quality food business. We are a mission-driven company that aims to set the standards of excellence for food retailers. We are building a business in which high standards permeate all aspects of our company. Quality is a state of mind at Whole Foods Market.” C) Keurig’s vision “to become the world’s leading personal beverage systems company.” D) Nike’s vision “to create products, services and experiences for today’s athlete while solving problems for the next generation.” E) Google’s vision “to organize the world’s information and make it universally accessible and useful.”

19)

Which of the following are common shortcomings of company vision statements?

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A) too broad, vague or incomplete, bland/uninspiring, not distinctive, and too reliant on superlatives B) unrealistic, unconventional, and unprofessional C) too specific, too inflexible, and can’t be achieved in five years D) too broad, too narrow, and too risky E) not customer-driven, out-of-step with emerging technological trends, and too ambitious

20) Effectively communicating the strategic vision down the line to lower-level managers and employees has the value of

A) not only explaining “where we are going and why” but, more importantly, also inspiring and energizing company personnel to unite to get the company moving in the intended direction. B) helping company personnel understand why “making a profit” is so important. C) making it easier for top executives to set strategic objectives. D) helping lower-level managers and employees better understand the company’s business model. E) All of these choices are correct.

21)

A benefit of a vivid, engaging, and convincing strategic vision is

A) avoiding the need for consensus in support of top management’s own view about the company’s long-term direction. B) increasing risk of rudderless decision making by managers at all levels of the organization. C) creating debate among company personnel behind managerial efforts to get the company moving in the intended direction. D) helping an organization prepare for to make short-term moves in the marketplace. E) providing a beacon for lower-level managers in forming departmental missions.

22)

A company’s mission statement typically addresses which of the following questions?

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A) Who are we? What do we do? and Why are we here? B) What objectives and level of performance do we want to achieve? C) Where are we going and what should our strategy be? D) What approach should we take to achieve sustainable competitive advantage? E) Why have we chosen a particular business model to achieve our objectives and our vision?

23)

Ideally, a company’s mission statement should be sufficiently descriptive and

A) provide scant indication of a company’s services and products that give the company its own identity. B) identify the pressing agenda items for members of its board of directors. C) specify the allocation of resources that underlie the basis of its competitive advantage. D) relate to the future state of the organization that managers seek to attain. E) identify the specific customer or market that the company intends to serve.

24) The difference between the concept of a company mission statement and the concept of a strategic vision is that

A) a mission statement typically concerns a company’s present business scope (“who we are and what we do”), whereas the principal concern of a strategic vision is with the company’s future business scope (long-term direction and future product-customer-markettechnology focus). B) the mission is to make a profit, whereas a strategic vision concerns how to attract customers. C) a mission statement deals with what to accomplish on behalf of shareholders and a strategic vision concerns what to accomplish on behalf of customers. D) a mission statement concerns what to do to achieve short-run objectives and a strategic vision concerns what to do to achieve long-run performance targets. E) a mission statement deals with “where we are headed,” whereas a strategic vision provides the critical answer to “how will we get there.”

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25)

A company’s values concern

A) whether and to what extent it intends to operate in an ethical and socially responsible manner. B) how aggressively it will seek to maximize profits and enforce high ethical standards. C) the beliefs and operating principles built into the company’s “balanced scorecard” for measuring performance. D) the beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company’s business and pursuing its strategic vision and mission. E) the beliefs, principles, and ethical standards that are incorporated into the company’s strategic intent and business model.

26)

A company’s values relate to such things as

A) how it will balance its pursuit of financial objectives against the pursuit of its strategic objectives. B) how it will balance the pursuit of its business purpose/mission against the pursuit of its strategic vision. C) fair treatment, integrity, ethical behavior, innovativeness, teamwork, top-notch quality, superior customer service, social responsibility, and community citizenship. D) whether it will emphasize stock price appreciation or higher dividend payments to shareholders, and whether it will put more emphasis on the achievement of short-term performance targets or long-range performance targets. E) All of these choices are correct.

27)

A company’s core values typically do not include such things as

A) entrepreneurial spirit, excellent customer service, and building shareholder value. B) giving back to the community, doing the right thing, and entrepreneurial spirit. C) fair treatment, integrity, ethical behavior, innovativeness, and teamwork. D) top-notch quality, superior customer service, social responsibility, and community citizenship. E) minimizing innovation, rewarding individuality, and setting financial performance targets.

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28)

The primary managerial purpose of setting objectives is to

A) ensure that deliberately vague language such as “reducing costs” and “becoming more efficient” is used to provide managers with more latitude in setting stretch objectives for the company. B) designate strategic outcomes as lagging indicators. C) balance the scorecard of financial and strategic objectives. D) designate financial outcomes as leading indicators. E) convert the strategic vision into specific performance targets.

29)

A company needs financial objectives

A) to overtake key competitors on such important measures as net profit margins and return on investment. B) because without adequate profitability and financial strength, the company’s ultimate survival is jeopardized. C) to indicate to employees that financial objectives always take precedence over strategic objectives. D) to convince shareholders that top management is acting in their interests. E) to translate the company’s business model into action items.

30)

Strategic objectives

A) are more essential in achieving a company’s strategic vision than are financial objectives. B) are generally less important than financial objectives. C) are more difficult to achieve and harder to measure than financial objectives. D) relate to strengthening a company’s overall market standing and competitive vitality. E) help managers track an organization’s true progress better than do financial objectives.

31)

A balanced scorecard for measuring company performance

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A) entails putting equal emphasis on financial and strategic objectives. B) entails striking a balance between financial objectives and strategic objectives. C) balances the drive for profits with social responsibility obligations. D) prevents the drive for achieving strategic objectives from overwhelming the pursuit of financial objectives. E) entails creating a set of financial objectives balanced among profitability measures and liquidity measures.

32) A balanced scorecard that includes both strategic and financial performance targets is a conceptually strong approach for judging a company’s overall performance because

A) financial performance measures are lagging indicators that reflect the results of past decisions and organizational activities, whereas strategic performance measures are leading indicators of a company’s future financial performance. B) it entails putting equal emphasis on good strategy execution and good business model execution. C) a balanced scorecard approach pushes managers to avoid setting objectives that reflect the results of past decisions and organizational activities, and, instead, to set objectives that will serve as leading indicators of a company’s future financial performance. D) it assists managers in putting roughly equal emphasis on short-term and long-term performance targets. E) it more or less forces managers to put equal emphasis on financial and strategic objectives.

33)

Why should long-run objectives take precedence over short-run objectives?

A) The focus is placed on improving performance in the near term. B) Long-run objectives are necessary for achieving long-term performance and stand as a barrier to undue focus on short-term results. C) Long-run objectives will satisfy shareholder expectations for progress. D) Long-run objectives will force the company to deliver performance improvement in the current period. E) None of these are correct.

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34)

Well-stated objectives are

A) succinct and concise so as to identify the company’s risk and return options. B) representative of customers’ aspirations for company performance. C) directly related to the dividend payout ratio for stockholder returns. D) broad and take into account views of all the stakeholders. E) specific, quantifiable or measurable, challenging, and contain deadlines for achievement.

35)

Company objectives

A) are needed only on a companywide basis related to a company’s short-term and long-term profitability. B) need to be broken down into performance targets for each of its separate businesses, product lines, functional departments, and individual work units. C) play the important role of establishing the direction in which the company needs to be headed. D) are important because they help guide managers in deciding what the company’s strategy map should look like. E) should be set in a manner that does not conflict with the performance targets of lower-level organizational units.

36)

A company needs performance targets or objectives

A) for its operations as a whole and for each of its separate businesses, product lines, functional departments, and individual work units. B) because they provide parameters for the company’s strategy map. C) to unify the company’s strategic vision and business model. D) to help guide managers in deciding what strategic path to take in the event that a strategic inflection point is encountered. E) to prevent lower-level organizational units from establishing their own objectives.

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37)

Which of the following is the best example of a well-stated financial objective?

Gradually boost market share from 10 percent to 15 percent over the next several

years. B) Achieve lower costs than any other industry competitor. C) Boost revenues by a percentage margin greater than the industry average. D) Increase earnings per share by 15 percent annually. E) Maximize total company profits and return on investment.

38)

The task of stitching together a strategy

A) entails addressing a series of “hows”: how to grow the business, how to please customers, how to outcompete rivals, how to respond to changing market conditions, and how to achieve strategic and financial objectives. B) is primarily an exercise in deciding which of several freshly emerging market opportunities to pursue. C) should be dictated by what is comfortable to management from a risk perspective and what is acceptable in terms of capital requirements. D) requires trying to copy the strategies of industry leaders as closely as possible. E) is mainly an exercise in good planning.

39)

Crafting strategy requires

A) a collaborative effort that includes managers in various position at various organizational levels. B) executive management involvement only. C) participation by all employees. D) a collaborative effort between the CEO and board members only. E) All of these choices are correct.

40)

Corporate strategy

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A) is primarily concerned with strengthening a company’s market position and building competitive advantage. B) is subject to being changed much less frequently than either a company’s objectives or its mission statement. C) should be based on a flexible strategic vision and mission. D) ensures consistency in strategic approach among businesses of a diversified, multibusiness corporation. E) determines balanced scorecard financial and strategic objectives.

41)

Business strategy concerns

A) strengthening the company’s market position and building competitive advantage. B) ensuring consistency in strategic approach among the businesses of a diversified company. C) selecting a business model to use in pursuing business objectives. D) selecting a set of financial and strategic objectives for a particular line of business. E) choosing appropriate internal business processes for a specific line of business.

42) The following scenario does not contain the key characteristics of a well-stated organizational objective:

A) Jet Blue’s plans to grow 150 flights a day to 200 over the coming years. B) lululemon’s plans to expand its brand globally through international market penetration, opening 11 new stores in Asia and Europe, which include the first stores in China, South Korea, and Switzerland. C) General Mills’ plans to build a more agile organization by streamlining support functions by allowing for more fluid use of resources and idea sharing around the world, enhancing e-commerce know-how to capture more growth in this emerging channel. D) Yahoo!’s created extreme stretch goals to return that company to profitability and raise its stock price. E) TOMS Shoes’ one-for-one model builds the cost of giving away a pair of shoes into the price of each pair it sells, enabling the company to make a profit while still giving away shoes to the needy.

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43)

Functional strategies

A) specify what actions a company should take to resolve specific strategic issues and problems. B) concern the actions, approaches, and practices related to particular functions or processes within a business. C) are concerned with how to unify the firm’s several different operating strategies into a cohesive whole. D) are normally crafted by the company’s CEO and other senior executives. E) are normally crafted by operating-level managers.

44)

Functional area strategies

A) are concerned with how to unify the firm’s several different operating strategies into a cohesive whole. B) specify how to build and strengthen the skills, expertise, and competencies needed to execute operating-level strategies successfully. C) support and add power to the corporate-level strategy. D) concern the actions, approaches, and practices to be employed in managing particular functions within a business. E) are normally crafted by operating-level managers.

45) You are the owner of the Voracious Vegetarian, a single-business healthy fast-food restaurant. What would be your company’s strategy-making hierarchy?

A) business strategy, divisional strategies, and departmental strategies B) business strategy, divisional strategy, and operating strategy C) business strategy, functional strategies, and operating strategies D) corporate strategy, divisional strategies, and departmental strategies E) managerial strategy, business strategy, and divisional strategies

46)

Operating strategies primarily entail

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A) how best to implement and execute the company’s different business-level strategies. B) how best to carry out the company’s corporate strategy. C) how best to manage initiatives of strategic significance within each functional area. D) the specific plans for building competitive advantage in each major department and operating unit. E) what the firm’s operating departments are doing and how they plan to unify the company’s functional and business strategies.

47) Which of the following is not among the principal managerial tasks associated with managing the strategy execution process?

A) ensuring that policies and procedures facilitate rather than impede effective execution B) creating a company culture and work climate conducive to successful strategy implementation and execution C) surveying employees on how employee job satisfaction can be improved D) exerting the internal leadership needed to drive implementation forward E) tying rewards and incentives directly to the achievement of performance objectives

48) Management is obligated to monitor new external developments, evaluate the company’s progress, and make corrective adjustments in order to

A) determine whether the company has a balanced scorecard for judging its performance. B) decide whether to continue or change the company’s strategic vision, objectives, strategy and/or strategy execution methods. C) determine what changes should be made to its customer value proposition. D) determine whether the company’s business model is well matched to changing market and competitive circumstances. E) stay on track in achieving the company’s mission and strategic vision.

49)

A company’s direction, objectives, and strategy

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A) never have to be revisited, even if time pressures or internal conditions warrant. B) are set in stone as the end of the planning process. C) are primarily a now-and-then task. D) are insulated from disruptive changes that a company might experience in its external environment. E) are never final, as managing strategy is an on-going, dynamic process.

50)

Proficient strategy execution

A) directly involves only the CEO and board of directors of the firm. B) is achieved unevenly, coming quickly in some areas and more slowly in others. C) entails accomplishing desired outcomes and then examining what went right and what went wrong. D) is an every-now-and-then task. E) is always the product of much organizational learning.

51) When things are not going well, the corrective adjustments that top executives need to make include

A) discerning whether or not to promote better achievement of strategic performance targets ahead of financial performance targets. B) deciding whether the company would be better off making adjustments that curtail the achievement of strategic objectives or that curtail the achievement of financial objectives. C) knowing when to replace poorly performing subordinates and when to do a better job of coaching them to do the right things. D) having the analytic skills to separate the problems due to a bad strategy from the problems due to bad strategy execution. E) deciding when adjustments are needed and what adjustments to make.

52) The primary roles/obligations of a company’s board of directors in the strategy-making, strategy-executing process include

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A) playing the lead role in forming the company’s strategy and then directly supervising the efforts and actions of senior executives in implementing and executing the strategy. B) providing guidance and counsel to the CEO in carrying out his or her duties as chief strategist and chief strategy implementer. C) overseeing the company’s financial accounting and reporting practices, evaluating the caliber of senior executives’ strategy-making and strategy-executing skills, and instituting a compensation plan that rewards top executives for results that serve shareholder interests. D) working closely with the CEO, senior executives, and the strategic planning staff to develop a strategic plan for the company. E) reviewing and approving the company’s business model, and reviewing and approving the proposals and recommendations of the CEO as to how to execute the business model.

53) The obligations of an investor-owned company’s board of directors in the strategymaking, strategy-executing process include

A) coming up with compelling strategy proposals to debate against those put forward by top management. B) taking the lead in formulating the company’s strategic plan but then delegating the task of implementing and executing the strategic plan to the company’s CEO and other senior executives. C) taking the lead in developing the company’s business model and strategic vision. D) overseeing the company’s financial accounting and financial reporting practices and evaluating the caliber of senior executives’ strategy-making/strategy-executing skills. E) approving the company’s operating strategies, functional-area strategies, business strategy, and overall corporate strategy.

54) Which one of the following is not among the chief duties or responsibilities of a company’s board of directors insofar as the strategy-making, strategy-executing process is concerned?

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A) Hire and fire senior-level executives and work with the company’s chief strategic planning officer to improve the company’s performance. B) Inquire about and exercise strong oversight over the company’s direction, strategy, and business approaches. C) Evaluate the caliber of senior executives’ strategy-making/strategy-executing skills. D) Institute a compensation plan for top executives that rewards them for actions and results that serve stakeholders’ interests and most especially those of shareholders. E) Oversee the company’s financial accounting and financial reporting practices.

55) The corporate governance failure at Volkswagen in 2015 included all of the following except

A) a strong independent board of directors that was responsible for making independent judgments about the validity and wisdom of management’s proposed strategic actions. B) inadequate monitoring of the CEO and other senior executives. C) fraudulent defeat devices that enabled diesel vehicles to pass stringent emissions tests. D) ineffective oversight of the accounting principles employed to accurately determine earnings. E) the company had a policy that precluded former executives from serving on its board.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 56) What are the five stages of the strategy formulation, strategy execution process and what does each stage involve? The five stages are provided in the feedback.

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57)

Define and briefly explain what is meant by each of the following terms:

a. strategic inflection point b. strategic vision c. strategic objective d. strategic plan e. balanced scorecard

58) A well-conceived strategic vision helps prepare a company for the future. True or false? Explain and justify your answer.

59) Explain why an organization needs a strategic vision. What purpose does a strategic vision serve?

60)

What is the difference between a mission statement and a strategic vision?

61) What is the meaning of the term “balanced scorecard”? What are the merits of using a balanced scorecard in judging a company’s performance?

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62) What are the two types of objectives included in the balanced scorecard? Define and provide five examples of each.

63) The achievement of financial objectives tends to be a lagging indicator of a company’s performance while the achievement of strategic objectives tends to be a leading indicator of a company’s future financial performance. True or false? Support and explain your answer.

64)

Explain why a company’s strategy is really a bundle of strategies.

65)

A single-business company has three levels of strategy. Name and describe each level.

The three levels of strategy are provided in Feedback.

66) Identify and briefly explain four actions that top executives can take that are key elements in directing organizational action and building capabilities behind the drive for good strategy execution to meet or beat performance targets.

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67) Identify and briefly explain three actions that top executives can take to help instill a spirit of high achievement into the corporate culture and mobilize organizational energy behind the drive for good strategy execution and operating excellence.

68) Identify and briefly discuss at least two examples of faulty oversight by a company’s board of directors in corporate governance and/or the strategy formulation, strategy execution process.

69) Six years after her company’s founding, in 2009, 25-year-old Elizabeth Holmes, founder and CEO of Theranos, a Palo Alto, California-based company that manufactured and marketed medical devices for testing blood, tolda small group at StanfordUniversity that her ticket to success was “conviction” that you could “make something work, no matter what.” On June 15, 2018, Holmes and Theranos’s former president Ramesh “Sunny” Balwani wereindictedon multiple counts ofwire fraudand conspiracy to commit wire fraud. According to the indictment, investors, doctors, and patients were defrauded. Holmes herself had falsely claimed in 2014 that the company had annual revenues of $100 million, a thousand times more than the actual figure of $100,000. Prosecutors claimed they had engaged in an “elaborate, years-long fraud” wherein they “deceived investors into believing that its key product—a portable blood analyzer—could conduct comprehensive blood tests from finger drops of blood.” It was alleged the defendants were aware of the unreliability and inaccuracy of their products but concealed that information. If convicted, they each face a maximum fine of $250,000 and 20 years in prison.Normatively speaking, which actions should Theranos’ board of directors have taken to provide good governance oversight and prevent this fraud from occurring?

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70) Brad Black and Susan Griffin-Black are cofounders and top managers of one of the last large independently-owned organic beauty companies, EO Products. Explain the strategy the partners could use to strengthen EO Products’ market position and build a competitive advantage over its rivals. Differentiate between a business strategy and a corporate strategy.

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Answer Key Test name: Chap 02_7e 1) E 2) B 3) E 4) E 5) C 6) E 7) C 8) B 9) B 10) C 11) A 12) A 13) B 14) E 15) E 16) A 17) D 18) E 19) A 20) A 21) E 22) A 23) E 24) A 25) D 26) C Version 1

27) E 28) E 29) B 30) D 31) B 32) A 33) B 34) E 35) B 36) A 37) D 38) A 39) A 40) D 41) A 42) D 43) B 44) D 45) C 46) C 47) C 48) B 49) E 50) E 51) E 52) C 53) D 54) A 55) E

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56) The managerial process of crafting and executing a company’s strategy is an ongoing, continuous process consisting of five integrated stages: (1) developing a strategic vision, (2) setting objectives, (3) crafting strategy, (4) implementing and executing the chosen strategy, and (5) evaluating and analyzing the external environment and the company’s internal situation and performance. 57) Students should be able to outline these particular aspects of the first three stages of the five-stage strategy formulation and execution process as depicted in Figure 2.1: (1) developing a strategic vision, (2) setting objectives, and (3) crafting a strategy.Strategic inflection point: the point at which the industry has changed to such a degree that the company’s vision is obsolete. Examples will vary.Strategic vision: top management’s views about the company’s direction and future productcustomer-market-technology focus. Examples will vary.Strategic objective: an organization’s performance targets. Examples will vary.Strategic plan: maps out where a company is headed, establishes strategic and financial targets, and outlines the competitive moves and approaches to be used in achieving the desired business results. Examples will vary.Balanced scorecard: system used to see that financial objectives and strategic objectives are balanced. Examples will vary. 58) True. Developing a strategic vision is necessarily future-oriented in that it charts a company’s long-term direction. 59) A clearly articulated strategic vision communicates management’s aspirations to stakeholders about “where we are going” and helps steer the energies of company personnel in a common direction. The defining characteristic of a well-conceived strategic vision is what it says about the company’s future strategic course: “where we are headed and what our future product-customer-market-technology focus will be.”

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60) The defining characteristic of a well-conceived strategic vision is what it says about the company’s future strategic course: “where we are headed and what our future product-customer-market-technology focus will be.” The mission statements of most companies say much more about the enterprise’s present business scope and purpose: “why we exist.” 61) The balanced scorecard is a widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing. Merely tracking a company’s financial performance overlooks the fact that what ultimately enables a company to deliver better financial results is the achievement of strategic objectives that improve its competitiveness and market strength. 62) The balanced scorecard is a widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing. The two types of objectives included in the balanced scorecard are strategic (e.g., market share, customer retention, customer satisfaction, customer acquisition, new product introduction, reduction of product development cycles, etc.) and financial (e.g., annual percent increases in sales and earnings per share, returns on capital employed, increases in internal cash flows for investment, and improved credit ratings).

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63) In contrast to strategic objectives, which are leading indicators of a company’s market standing and competitive vitality, a company’s financial objectives are really lagging indicators that reflect the results of past decisions and organizational activities. The results of past decisions and organizational activities are often unreliable indicators of a company’s future prospects. Companies that have been poor financial performers are sometimes able to turn things around, and good financial performers on occasion fall upon hard times. Hence, the best and most reliable predictors of a company’s success in the marketplace and future financial performance are strategic objectives. 64) Crafting a strategy is a collaborative team effort that includes managers in various positions and at various organizational levels, involving corporate strategies (in multibusiness firms), business strategies (by division or in single-business firms), functional strategies, and operating strategies. 65) A single-business company has three levels of strategy: business strategy, functional-area strategies, and operating strategies.

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66) Management’s action agenda for executing the chosen strategy emerges from assessing what the company will have to do to achieve the targeted financial and strategic performance. In most situations, managing the strategy execution process includes the following principal aspects: • Creating a strategy-supporting structure • Staffing the organization to obtain needed skills and expertise • Developing and strengthening strategy-supporting resources and capabilities • Allocating ample resources to the activities critical to strategic success • Ensuring that policies and procedures facilitate effective strategy execution • Organizing the work effort along the lines of best practice • Installing information and operating systems that enable company personnel to perform essential activities • Motivating people and tying rewards directly to the achievement of performance objectives • Creating a company culture conducive to successful strategy execution • Exerting the internal leadership needed to propel implementation forward

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67) Each company manager has to think through the answer to the question “What needs to be done in my area to execute my piece of the strategic plan, and what actions should I take to get the process under way?” How much internal change is needed depends on how much of the strategy is new, how far internal practices and competencies deviate from what the strategy requires, and how well the present work culture supports good strategy execution. In most situations, managing the strategy execution process includes the following principal aspects: • Creating a strategy-supporting structure • Staffing the organization to obtain needed skills and expertise • Developing and strengthening strategy-supporting resources and capabilities • Allocating ample resources to the activities critical to strategic success • Ensuring that policies and procedures facilitate effective strategy execution • Organizing the work effort along the lines of best practice • Installing information and operating systems that enable company personnel to perform essential activities • Motivating people and tying rewards directly to the achievement of performance objectives • Creating a company culture conducive to successful strategy execution • Exerting the internal leadership needed to propel implementation forward 68) According to the illustration in Concepts and Connections 2.4, Volkswagen did not have a strong independent board of directors that (1) was willing to accept responsibility, (2) even questioned whether or not it was the appropriate role of the board to be aware of such problems, and (3) whose chairman, Ferdinand Piech, was a former chief executive and a member of the Porsche family that had a 50 percent interest in the company. Version 1

69) Theranos’s board of directors failed to fulfill at least some of the following four important obligations: 1. overseeing the company’s financial accounting and financial reporting practices. 2. critically appraising the company’s direction, strategy, and business approaches. 3. evaluating the caliber of senior executives’ strategic leadership skills. 4. instituting a compensation plan for top executives that rewards them for actions and results that serve shareholder interests. 70) Business strategy is concerned with strengthening the market position, building competitive advantage, and improving the performance of a single line of business unit. Business strategy is primarily the responsibility of business unit heads, although corporatelevel executives may well exert strong influence. Corporate strategy concerns how to improve the combined performance of the set of businesses the company has diversified into by capturing cross-business synergies and turning them into competitive advantage. It addresses the questions of what businesses to hold or divest, which new markets to enter, and how to best enter new markets (by acquisition, creation of a strategic alliance, or through internal development, for example). It is orchestrated by the CEO and other senior executives and establishes an overall strategy for managing a set of businesses in a diversified, multibusiness company.

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CHAPTER 3: Evaluating a Company’s External Environment MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) A company’s broad “macro-environment” refers to

A) the industry and competitive arena in which the company operates. B) general economic conditions plus the factors driving change in the markets being served. C) all the strategically significant forces and factors outside a company’s boundaries— general economic conditions, population demographics, societal values and lifestyles, technological factors, and governmental legislation and regulation. D) the competitive market environment that exists between a company and its competitors. E) the dominant economic features of a company’s industry.

The homebuilding industry is not affected by such macro-influences as

A) changes in mortgage interest rates, rules, and regulations that make it easier/harder for homebuyers to obtain mortgages. B) trends in household incomes and buying power. C) the distinctive competences of incumbent firms. D) disasters and other unanticipated events in the natural environment. E) shifting preferences of families for renting versus owning a home, and/or homes of various sizes, styles, and price ranges.

3) Which of the following is not a major question to ask in thinking strategically about industry and competitive conditions in a given industry?

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A) How many companies in the industry have good track records for revenue growth and profitability? B) What strategic moves are rivals likely to make next? C) What are the key factors for future competitive success? D) Does the outlook for the industry offer good prospects for profitability? E) What forces are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability?

4) Which of the following is not one of the principal components of strategic significance in the PESTEL analysis?

A) technological factors that include the pace of change and technical developments possessing the potential to impact society. B) changes in laws and regulations that give rise to the birth of new industries, new knowledge, and disruptive technologies. C) economic conditions that include the general economic climate and specific factors such as interest rates, inflation rate, and unemployment rate, as well as conditions in the stock and bond markets that can affect consumer confidence. D) sociocultural forces including societal values, attitudes, cultural factors, and lifestyles that impact business. E) environmental forces that include the competitive structure, the degree of industry fragmentation, and the mobility barriers that inhibit business

5) Which of the following is not a factor to consider in identifying an industry’s dominant economic features?

A) market size, growth rate, and prospects B) scope of competitive rivalry including geographic area C) market demand-supply conditions D) strength of both driving forces and competitive forces E) role and pace of technological change

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6) Which of the following is likely to have the biggest strategy-shaping impact on ondemand transportation providers such as Uber and Lyft?

A) Tesla and ZipCar announce a joint venture for electric automobile sharing services. B) Amazon launches a mobile delivery service via drones. C) Apple and Ford launch a global network of autonomous driverless cars, buses, and trucks on demand via a mobile app. D) Greyhound develops and markets a mobile app for customers to purchase inter-city bus tickets. E) Yellow Cab company launches mobile app campaigns for community-connection and awareness.

7) Which of the following factors represents the strategically relevant political factors in the macro-environment that will influence the performance of all firms across the board?

A) the strength of the federal banking system B) the exogenous forces related to the general environmental demand C) social factors that could fuel a political agenda and create greater transparency D) bailouts and energy policies that are industry-specific E) tax policy, fiscal policy, and tariffs providing impetus for antitrust matters

8) Each of the following exemplifies the impact of the macro-environment on a company’s strategic opportunities except

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A) Ford and Volkswagen announce a strategic partnership to cooperate on the development of autonomous electric vehicles in order to shorten the development cycle and share the enormous costs of deploying new technologies. B) Samsung, stung by a burgeoning trade war between the United States and China that is impacting the sales of smartphones in both nations, forecasts a 56 percent drop in quarterly operating profits. C) Jeff Bezos’s Amazon.com Inc. announces plans to launch 3,236 communications satellites, joining in a new space race to offer Internet service from low orbits and squaring off to challenge the fleet of communications satellites planned by Elon Musk’s SpaceX. D) concerned over unfair trade practices and diminishing consumer choices, Great Britain’s competition regulator announces an investigation into a $575 million investment led by Amazon in the London-based food-delivery service Deliveroo, one of the top international companies in the business of delivering restaurant meals. E) Manchester, England craft brewer Seven Brothers partners with the American cereal manufacturer Kellogg’s to create Throw Away I.P.A., a smooth, mellow beer made from Corn Flakes, in an effort to help reduce the amount of greenhouse gas emissions from food wastes.

9) is the most powerful and widely known tool used to assess the state of competition in an industry.

A) PESTEL analysis B) SWOT analysis C) Financial ratio analysis D) Strategic group mapping E) Porter’s Five Force Model.

10) Sonia, the owner of a local consulting business that provides small and medium-sized organizations with hardware and software and support for information systems has asked you to explain the five forces model of industry attractiveness to her. What would not be considered one of the five forces?

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A) competitive pressures stemming from the threat of rivals entering the information systems industry B) competitive pressures stemming from the relative bargaining power of suppliers to the information systems industry C) competitive pressures coming from the providers of substitute information systems services D) competitive pressures stemming from incremental innovations within the information systems industry E) competitive pressures stemming from existing rival firms in the information systems industry

11)

Which of the following is not one of the five typical sources of competitive pressures?

A) the power and influence of industry driving forces B) the bargaining power of suppliers and seller-supplier collaboration C) the threat of new entrants into the market D) the attempts of companies in other industries to win customers over to their own substitute products E) the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry

12)

The most powerful of the five typical sources of competitive pressures is usually

A) the competitive pressures associated with the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry. B) the competitive pressures that stem from the ready availability of attractively priced substitute products. C) the benefits that emerge from close collaboration with suppliers and the competitive pressures that such collaboration creates. D) the bargaining power and leverage that large customers are able to exercise. E) associated with the potential entry of new competitors.

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13) Using the five forces model of competition to determine the character and strength of the competitive forces within a given industry involves

A) building the picture of competition in two steps: (1) determining which rival has the biggest competitive advantage and (2) assessing whether the competitive advantages possessed by various industry members allow most industry members to earn above-average profits. B) building the picture of competition in three steps: (1) identify the different parties involved, along with specific factors that bring about competitive pressures; (2) evaluate how strong the pressures stemming from each of the five forces are (strong, moderate or weak); and (3) determining whether the collective impact of the five competitive forces is conducive to earning attractive profits in the industry. C) gauging the overall strength of competition based on how many industry rivals are operating with a competitive advantage and how many are operating at a competitive disadvantage. D) assessing whether the collective impact of all five forces is weak enough to allow industry members to go on the offensive or use a defensive strategy to insulate against fierce competitive pressures. E) evaluating whether competition is being intensified or weakened by the industry’s driving forces and key success factors.

14)

The marketplace being a competitive battlefieldis primarily due to the

ongoing race among rivals to achieve the fastest rate of growth in revenues and

profits. B) ongoing efforts of industry members to introduce innovative products/services as fast followers into the marketplace. C) ability of industry rivals to build strong defenses against the industry’s driving forces. D) constant rivalry of firms to strengthen buyer patronage among competing sellers of a product or service, in order to win a competitive edge over rivals. E) efforts of industry incumbents to lower cost products/services at a faster rate than their rivals.

15) Whether buyer bargaining power poses a strong or weak source of competitive pressure on industry members depends in part on

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A) whether most buyers possess roughly equal or varying degrees of bargaining power. B) how many buyers are engaged in collaborative partnerships with sellers. C) whether entry barriers are high or low. D) whether the overall quality of the items being furnished by industry members is rising or falling. E) whether buyer demand is strong or declining.

16)

Competitive pressures stemming from buyer bargaining power tend to be weaker when

A) the number of buyers is small, such that each customer’s business tends to be particularly important to a seller. B) buyer demand is growing slowly or maybe even declining. C) the costs incurred by buyers in switching to competing brands or to substitute products are relatively high. D) buyers are well informed about sellers’ products, prices, and costs. E) the buyer group consists of a few large buyers, and the seller group consists of numerous small firms.

17)

Which of the following conditions acts to weaken buyer bargaining power?

A) when buyers are unlikely to integrate backward into the business of sellers B) when buyers are well informed about sellers’ products, prices, and costs C) when the costs incurred by buyers in switching to competing brands or to substitute products are relatively low D) when buyers have the ability to postpone purchases if they don’t like the prices offered by sellers E) when buyers are few in number and/or often purchase in large quantities

18) Which of the following is not a factor that causes buyer bargaining power to be stronger?

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A) Some buyers are a threat to integrate backward into the business of sellers. B) The industry is composed of a few large sellers, and the customer group consists of numerous buyers that purchase in fairly small quantities. C) Buyers have considerable discretion over whether and when they purchase the product. D) Buyers are well informed about sellers’ products, prices, and costs. E) The costs incurred by buyers in switching to competing brands or to substitute products are relatively low.

19) In which of the following circumstances are competitive pressures associated with the bargaining power of buyers not relatively strong?

A) when buyer demand is growing rapidly B) when buyers are relatively well informed about sellers’ products, prices, and costs C) when buyers pose a major threat to integrate backward into the product market of sellers D) when sellers’ products are weakly differentiated, making it easy for buyers to switch to competing brands E) when buyers have considerable discretion over whether and when they purchase the product

20) Which of the following factors is not a relevant consideration in judging whether buyer bargaining power is relatively strong or relatively weak?

A) The number of buyers is small, or a customer is particularly important to the seller. B) Buyers are relatively well informed about sellers’ products, prices, and costs. C) Buyer needs and expectations are changing slowly or rapidly. D) Buyer demand is weak or strong and slowly or rapidly growing. E) Buyers pose a credible threat of integrating backward into the business of sellers.

21)

The competitive pressures from substitute products tend to be stronger when

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A) buyers are relatively comfortable with the quality and performance of substitutes, and the costs to buyers of switching over to the substitutes are low. B) there are more than 10 sellers of substitute products. C) substitutes exhibit the latest in technological innovation. D) buyers have high psychic costs in severing existing brand relationships and establishing new ones. E) demand for the industry’s product is not very price sensitive.

22)

Just how strong the competitive pressures are from substitute products depends on

A) whether the available substitutes are strongly or weakly differentiated and whether buyers make purchases frequently or infrequently. B) whether attractively priced substitutes are readily available and the ease with which buyers can switch to substitutes. C) whether the available substitutes are products or services. D) whether the producers of substitutes have ample budgets for new product R&D. E) the speed with which buyer needs and expectations are changing.

23) Which of the following is not a good example of a substitute product that triggers stronger competitive pressures?

A) Lyft or Uber as a substitute for rental cars B) Airbnb as a substitute for hotels and motels C) Dasani water as a substitute for Aquafina water D) smartphones as substitutes for film cameras E) Netflix and Amazon streaming video on demand as a substitute for DVD players

24) In which of the following instances are industry members not subject to stronger competitive pressures from substitute products?

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A) The costs to buyers of switching over to the substitutes are low. B) Buyers are dubious about using substitutes. C) The quality and performance of the substitutes is well matched to what buyers need to meet their requirements. D) Buyer brand loyalty is weak. E) Substitutes are readily available at competitive prices.

25) Whether supplier-seller relationships in an industry represent a strong or weak source of competitive pressure is a function of

A) whether the profits of suppliers are relatively high or low. B) the number of suppliers that each seller/industry member purchases from on average. C) how aggressively rival industry members are trying to differentiate their products. D) the extent to which suppliers can exercise sufficient bargaining power to influence the terms and conditions of supply in their favor and the extent of seller-supplier collaboration in the industry. E) whether the prices of the items being furnished by the suppliers are rising or falling.

26)

The bargaining leverage of suppliers is greater when

A) only a small number of suppliers exist and when it is difficult for industry members to switch to attractive substitutes. B) industry members incur low costs in switching their purchases from one supplier to another. C) industry members purchase in large quantities and thus are important customers of the suppliers. D) it makes good economic sense for industry members to vertically integrate backward. E) the supplier industry is composed of a large number of relatively small suppliers.

27) In which one of the following instances is supplier bargaining power and leverage not weakened?

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A) when industry members pose a credible threat of backward integration into the business of suppliers B) when the cost of switching from one supplier to another is low C) when the buying firms purchase in large quantities and thus are important customers of the suppliers D) when the item being supplied is a commodity E) when the items purchased from suppliers are in short supply

28) Which one of the following is not a factor that affects the strength of supplier bargaining power?

A) whether needed inputs are in short or ample supply B) whether industry members are a strong threat to integrate backward into the business of suppliers C) whether industry members are struggling to make good profits because of slowgrowing market demand D) whether the costs of industry members to switch their purchases to alternative suppliers or substitutes are high or low E) whether the item being supplied is a commodity that is readily available from many suppliers

29) Which one of the following is not a reason industry members are often motivated to enter into collaborative partnerships with key suppliers?

A) to reduce the costs of switching suppliers B) to speed the availability of next-generation components C) to enhance the quality of parts and components being supplied and reduce defect rates D) to squeeze out important cost savings for both themselves and their suppliers E) to reduce inventory and logistics costs

30) In which one of the following instances is supplier bargaining power and leverage not weakened?

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A) when industry members pose a credible threat of backward integration into the business of suppliers B) when sales to a strategic partner constitute a big percentage of their total sales C) when the items purchased from suppliers are in short supply D) when the buying firms purchase in large quantities and thus are important customers of the suppliers E) when the cost of switching from one supplier to another is low

31)

When the collective impact of the five competitive forces is moderate to weak,

A) an industry is said to be competitively unattractive. B) it is the best of all possible worlds for companies with mediocre strategies and second-rate implementation. C) suppliers and customers are in strong bargaining positions, there are plentiful substitutes, and low barriers allow ease of entry to new rivals. D) existing industry members cannot expect to earn good profits and a nice return on investment. E) rivalry among present sellers is intense.

32) Which one of the following increases the competitive pressures associated with the threat of entry?

A) Incumbent firms are likely to launch competitive initiatives to strongly contest the entry of newcomers. B) Buyers have a high degree of loyalty to the brands and product offerings of existing industry members. C) Buyer demand for the product is growing fairly slowly. D) Few outsiders have the expertise and resources to hurdle whatever entry barriers exist. E) Newcomers can expect to earn attractive profits.

33)

The competitive threat that outsiders will enter a market is weaker when

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A) financially strong industry members send strong signals that they will launch strategic initiatives to combat the entry of newcomers. B) the pool of entry candidates is large, and some have resources that would make them formidable market contenders. C) the industry’s market growth is rapid. D) newcomers can be expected to earn attractive profits. E) buyers have little loyalty to the brands and product offerings of existing industry members.

34)

Which of the following is generally not considered as a barrier to entry?

A) rapid market growth B) sizable capital requirements and an array of regulatory requirements C) strong buyer loyalty to existing brands D) sizable economies of scale in production E) difficulties in gaining access to distribution and securing adequate space of retailers’ shelves

35)

The best test of whether potential entry is a strong or weak competitive force is

A) the strength of buyer loyalty to existing brands. B) whether the industry’s driving forces make it harder or easier for new entrants to be successful. C) whether the strategies of industry members are well matched to the industry’s key success factors. D) whether the industry offers an opportunity for a blue ocean strategy. E) to ask if the industry’s growth and profit prospects are strongly attractive to potential entry candidates.

36)

The most powerful of the five competitive forces is usually the

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A) competitive pressures that stem from the ready availability of attractively priced substitute products. B) competitive pressures associated with rivalry among competing sellers in the industry for buyer patronage. C) competitive pressures that emerge from close collaboration with suppliers. D) competitive pressures associated with the potential entry of new competitors. E) competitive pressures from bargaining power and leverage that large customers are able to exercise.

37)

Factors that cause the rivalry among competing sellers to be weak include

A) low buyer switching costs and rival sellers that are relatively equal in size and capability. B) rapid growth in buyer demand and high buyer switching costs. C) a recent acquisition of a weak rival by an industry outsider with the intent of turning the acquisition into a major contender. D) low barriers to entry and weakly differentiated products among rival sellers. E) slow growth in buyer demand and strongly differentiated products.

38) Which one of the following does not cause the rivalry among competing sellers to be weak?

A) high buyer switching costs B) rapid growth in buyer demand C) Industry members aren’t aggressive in drawing sales and market share away from rivals. D) one or more competitors become dissatisfied with their market position E) strongly differentiated products among rival sellers

39)

Rivalry among competing sellers tends to be less intense when

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A) industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit sales. B) buyer demand is weak, and many sellers have excess capacity and/or inventory. C) industry rivals are not particularly aggressive in drawing sales and market share away from rivals. D) rivals have diverse strategies and objectives, and are located in different countries. E) rival sellers have weakly differentiated products.

40)

Rivalry among competing sellers is generally more intense when

A) buyer demand is growing rapidly. B) the industry’s driving forces are strong, and rivals have strongly differentiated products. C) barriers to entry are moderately high, and the pool of likely entry candidates is small. D) industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit volume. E) barriers to entry are high, and buyer switching costs are high.

41)

Rivalry among competing firms tends to be more intense when

A) demand for the product is growing slowly, one or maybe several industry members become dissatisfied with their market position, buyers have low switching costs, and when strong companies outside the industry acquire weak firms in the industry and launch aggressive moves to build market share. B) the products/services of rival sellers are strongly differentiated, and buyer demand is strong. C) rivals are relatively content with their market position. D) there are so many industry rivals that the impact of any one company’s actions is spread thinly across all industry members. E) there are fewer firms in the industry that have unequal market shares.

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42) A competitive environment in which there is weak to moderate rivalry among sellers, high entry barriers, weak competition from substitute products, and little bargaining leverage on the part of both suppliers and customers

A) lacks powerful driving forces. B) gives each industry competitor the best potential for building sustainable competitive advantage. C) makes it hard for industry members to pursue a differentiation strategy. D) is conducive to industry members earning attractive profits. E) requires that industry members have low costs.

43) A competitive environment in which there is strong rivalry among sellers, low entry barriers, strong competition from substitute products, and considerable bargaining leverage on the part of both suppliers and customers

A) is competitively unattractive from the standpoint of earning good profits. B) offers little ability to build a sustainable competitive advantage. C) is highly conducive to achieving strong product differentiation and high brand loyalty. D) offers moderate to good prospects for achieving low costs and building a sustainable competitive advantage. E) requires that industry members have a strongly differentiated product offering in order to be profitable.

44)

The collective impact of the five competitive forces on competitive pressures tends to

A) strengthen the industry’s driving forces. B) lower the combined profitability of industry members. C) make it difficult to achieve a competitive advantage via anything other than being the industry’s low-cost leader. D) increase the opportunities for industry incumbents to attain a competitive advantage. E) raise the number of industry key success factors.

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45) Based on an analysis of the five forces that increase or decrease competitive pressures in an industry, in which of the following industries is profitability likely to be lowest?

A) pizza restaurants B) wireless lighting systems. C) delivery services using drones D) wearable fitness and health monitors E) pharmaceuticals

46) Based on an analysis of the five forces that increase or decrease competitive pressures in an industry, in which of the following industries is profitability likely to be highest?

A) video streaming services B) supermarkets C) commercial airlines. D) electric and gas utilities E) tire manufacturing.

47)

The “driving forces” in an industry

are usually triggered by changing technology or stronger learning/experience curve

effects. B) are usually spawned by growing demand for the product, an outbreak of pricecutting, and big reductions in entry barriers. C) are major underlying causes of change in industry and competitive conditions and have the biggest influences in reshaping the industry landscape and altering competitive conditions. D) appear when an industry begins to mature but are seldom present during early stages of the industry life cycle. E) are usually triggered by shifting buyer needs and expectations or by the appearance of new substitute products.

48)

Industry conditions change

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A) because of such powerful driving forces as swings in buyer demand, changing interest rates, ups and downs in the economy, and higher/lower entry barriers. B) because of newly emerging industry threats and industry opportunities that alter the composition of the industry’s strategic groups. C) because new industry key success factors emerge. D) because forces create pressures or incentives for industry participants (competitors, customers, suppliers) to alter their actions in important ways. E) chiefly because of changes in the barriers to entry and the degree of competition from substitute products.

49)

Steps involved in driving forces analysis include

A) developing a comprehensive list of all the potential causes of changing industry conditions. B) predicting which new driving forces will emerge next. C) determining which of the five competitive forces is the biggest driver of industry change. D) identifying the driving forces, assessing whether their impact will make the industry more or less attractive, and determining what strategy changes are needed to prepare for the impact of the driving forces. E) discerning which among the five competitive forces is most potent and which is least potent.

50)

Driving forces analysis

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A) involves identifying the driving forces, assessing whether their impact will make the industry more or less attractive, and determining what strategy changes a company may need to make to prepare for the impact of the driving forces. B) identifies which strategic group is the most powerful. C) helps managers identify which industry member is likely to become (or remain) the industry leader and why. D) helps managers identify which key success factors are most likely to help their company gain a competitive advantage. E) helps managers identify which of the five competitive forces will be the strongest driver of industry change.

51) Which of the following is not generally a “driving force” capable of producing fundamental changes in industry and competitive conditions?

A) changes in the long-term industry growth rate B) increasing globalization of the industry C) product innovation and technological change D) ups and downs in the economy and interest rates E) new government regulations or significant changes in government policy toward the industry

52)

Which of the following are most unlikely to qualify as driving forces?

A) changes in the long-term industry growth rate, the entry or exit of major firms, and changes in cost and efficiency B) increasing globalization of the industry and product innovation C) new Internet technology applications, new government regulations, and significant changes in government policy toward the industry D) mounting competition from substitutes and increasing efforts to collaborate with suppliers via strategic alliances E) changes in who buys the industry’s product and how they use it

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53) Which of the following do not qualify as potential driving forces capable of inducing fundamental changes in industry and competitive conditions?

A) changes in who buys the product and how they use it, changes in the long-term industry growth rate, and changes in cost and efficiency B) entry or exit of major firms, product innovation, and marketing innovation C) increases in the economic power and bargaining leverage of customers and suppliers, growing supplier-seller collaboration, and growing buyer-seller collaboration D) diffusion of technical know-how and changing societal concerns, attitudes, and lifestyles E) changes in manufacturing processes brought on by technological change, increasing globalization of the industry, and new Internet capabilities

54)

Which one of the following is not a common type of driving force?

A) B) C) D) suppliers E)

55)

entry or exit of major firms changing societal concerns, attitudes, and lifestyles diffusion of technical know-how across more companies and more countries increasing efforts on the part of industry members to collaborate closely with their technological change and manufacturing process innovation

An industry’s driving forces

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A) are generally determined by competitive pressures, the sizes of strategic groups, and the power of rival firms’ competitive strategies. B) generally act in ways that will strengthen or weaken market demand, make competition more or less intense, and lead to higher or lower industry profitability. C) frequently cause a leveling off of industry growth and a reduction in the bargaining power of buyers. D) are normally triggered by ups and downs in the economy, higher or lower inflation rates, higher or lower interest rates, or important new strategic alliances. E) can be triggered by such factors as growing competitive pressures from substitute products, greater seller-supplier collaboration, and the efforts of rival firms to employ new or different offensive strategies.

56)

Increasing globalization can be a driving force in an industry because

A) market growth rates go up, product innovation speeds up, and new firms are likely to enter the industry. B) companies need to spread their operating reach into more and more country markets to meet consumer demand and take advantage of available operating activities. C) foreign producers typically have lower costs, greater technological expertise, and more product innovation capabilities than domestic firms. D) the products and services of foreign competitors are nearly always cheaper or of better quality than those of domestic companies. E) it results in companies having fewer competitors and a strategic group map with fewer circles.

57)

A strategic group

A) consists of those industry members that are growing at about the same rate and have similar product line breadth. B) includes all rival firms having comparable profitability. C) is a cluster of industry rivals that have similar competitive approaches and market positions. D) consists of those firms whose market shares are about the same size. E) is made up of those firms having comparable profit margins.

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58) With the aid of a strategic group map for the pizza segment of the food service industry, one can

A) identify easily the entry and exit barriers for each strategic group and intersegment competition with other casual restaurants. B) pinpoint precisely which pizza restaurants are in profitable strategic groups and which are not. C) identify which competitive forces are strong and which are weak for pizza restaurants. D) measure accurately whether across-group rivalry among pizza establishments is stronger than within-group rivalry, and vice versa. E) reveal which pizza establishments are close competitors and which are distant rivals, and that not all positions on the map are equally attractive.

59) You are considering starting a business to provide high quality bookkeeping services targeted to restaurants and other food service providers in your region. Which factors would you evaluate to determine whether or not the food service industry offers good prospects for attractive profits?

A) the industry’s growth potential, whether competition appears destined to become stronger or weaker, how the industry’s driving forces might affect overall industry profitability, the company’s competitive position relative to rivals, and the company’s proficiency in performing industry key success factors B) an assessment of which firms in the industry have the best and worst competitive strategies, whether the number of strategic groups in the industry is increasing or decreasing, and whether economies of scale and experience curve effects are a key success factor C) whether there are more than five key success factors, more than five barriers to entry, and more than five industry drivers D) whether the market leaders enjoy competitive advantages and how difficult it is to promote innovation to develop a strongly differentiated product or service for which a price premium may be charged E) constructing a strategic group map and assessing the attractiveness of the competitive position of each strategic group

60)

Not all positions on a strategic group map are equally attractive because

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A) entry and exit barriers are different for each strategic group. B) key success factors are usually quite different for differently positioned industry participants. C) small strategic groups are always less profitable than large strategic groups. D) across-group rivalry is strongest at the outer edges of the strategic group map. E) industry driving forces and competitive pressures favor some companies or groups and hurt others, and the profit potential of different strategic groups varies because of strengths and weaknesses in each strategic group’s position.

61)

The payoff of good scouting reports on rivals is improved ability to

A) predict what strategic moves rivals are likely to make next, thereby allowing a company to prepare defensive countermoves and develop strategies to exploit rivals’ missteps. B) determine which rivals are in the best strategic group. C) figure out how many key success factors a rival has. D) determine whether a rival is gaining or losing market share, whether rivals are increasing or decreasing R&D spending, and what new marketing promotions are in the works. E) determine whether a rival has the best strategy and is the industry leader.

62) Having good competitive intelligence about rivals’ strategies, latest actions and announcements, resource strengths and weaknesses, and moves to improve their situation is important because it

A) identifies who the industry’s current market share leaders are. B) helps a company to anticipate what moves rivals are likely to make next and to craft its own strategic moves. C) helps identify which rival is in which strategic group. D) enables company managers to determine which rival has the worst strategy and how to avoid making the same strategy mistakes. E) enables more accurate predictions about how long it will take a particular rival to copy most of what the strategy leader is doing.

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63) Andrea, the COO of a wine country luxury tourist train business, has been asked to present her company with an evaluation of strong prospects for attractive profits. What would she normally not include in her analysis?

A) the industry’s growth potential B) whether industry profitability will be favorably or unfavorably affected by the prevailing driving forces C) the industry’s opportunities for international expansion D) how well the company’s strategy delivers on the industry’s key success factors E) whether the company occupies a stronger market position than rivals

64) Audrey and Javier are co-owners off five specialty cupcake and dessert bakeries in their region. Which of the following questions would not help them to predict the next strategic moves and countermoves of their rivals?

A) How frequently does their rival fulfill special orders for custom cupcakes and how large are those special orders? B) How does the rival manage door-to-door deliveries at no extra cost? C) What percentage of customers frequent the rival’s store? D) Why are the rival’s cupcakes so popular among customers? E) Which mode of transport does the rival’s supplier use?

65)

The key success factors in an industry

A) are the strategy elements, intangible assets, and competitive capabilities that most affect industry members’ abilities to prosper in the marketplace. B) are determined by the industry’s driving forces. C) hinge on how many different strategic groups the industry has. D) depend on how many rivals are trying to move from one strategic group to another. E) are a function of such considerations as how many firms are in the industry, how many have market shares above five percent, and whether the business models being used are similar or diverse.

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66)

An industry’s key success factors

A) are a function of market share, entry barriers, economies of scale, degree of vertical integration, and industry profitability. B) vary according to whether an industry has high or low long-term attractiveness. C) can be determined through identifying an industry’s dominant economic characteristics, assessing the five competitive forces, considering the impacts of the driving forces, comparing the market positions of industry members, and forecasting the likely next moves of industry rivals. D) can be determined from studying the “winning” strategies of the industry leaders and ruling out as potential key success factors the strategy elements of those firms considered to have “losing” strategies. E) depend on the relative competitive strengths of the industry leaders and how vulnerable they are to competitive attack.

67)

In identifying an industry’s key success factors, strategists should

A) try to single out all factors that play a major role in shaping whether buyer demand grows rapidly or slowly. B) consider on what basis customers choose between competing brands, what resources and competitive capabilities firms need to be competitively successful, and what shortcomings are almost certain to put a company at a significant competitive disadvantage. C) consider whether the number of strategic groups is increasing or decreasing and whether the five competitive forces are powerful or relatively weak. D) consider what it will take to overtake the company with the industry’s overall best strategy. E) focus their attention on what it will take to capitalize on impacts of the industry’s driving forces.

68)

Which of the following is not a good example of a marketing-related key success factor?

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A) high utilization of fixed assets B) a well-known and well-respected brand name C) breadth of product line and product selection D) clever advertising E) courteous, personalized customer service

69)

Which of the following is a good example of a manufacturing-related key success factor?

A) global distribution capabilities B) high labor productivity (especially if the production process has high labor content) C) low distribution costs D) accurate filling of buyer orders E) short delivery time capability

70) Which of the following factors should a company consider when determining if an industry offers good prospects for attractive profits?

A) the industry’s growth potential, whether competition appears destined to become stronger or weaker, how the industry’s driving forces might affect overall industry profitability, the company’s competitive position relative to rivals, and the company’s proficiency in performing industry key success factors B) an assessment of which firms in the industry have the best and worst competitive strategies, whether the number of strategic groups in the industry is increasing or decreasing, and whether economies of scale and experience curve effects are a key success factor C) whether there are more than five key success factors and more than five barriers to entry D) constructing a strategic group map and assessing the attractiveness of the competitive position of each strategic group E) whether the market leaders enjoy competitive advantages and how hard it is to develop a strongly differentiated product

71) Evaluating whether an industry presents a sufficiently attractive business opportunity usually does not involve a consideration of which of the following factors?

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A) the industry’s growth potential B) whether competitive pressures will likely grow stronger or weaker C) whether the industry’s future profitability will be favorably or unfavorably affected by the prevailing driving forces D) the company’s competitive position in the industry and its ability to perform industry key success factors E) whether the industry’s product is strongly or weakly differentiated

72) Which of the following factors usually is not a consideration involved with evaluating whether an industry presents a sufficiently attractive business opportunity?

A) constructing a strategic group map to assess the attractiveness of the competitive position of each strategic group to determine the overall attractiveness of all the strategic groups B) using value chain analysis to determine the relative cost positions of rival firms and who is the industry’s lowest-cost producer C) determining which firms in the industry have a competitive advantage and how they attained their advantage D) determining the industry outlook for future profitability E) determining the overall strength of the five competitive forces

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 73) What are the key questions that form the framework of thinking strategically about a company’s industry and competitive environment?

74)

Explain the meaning and significance of each of the following:

a. driving forces b. PESTEL analysis c. strategic group mapping d. key success factors Version 1

75) What are the relevant factors and forces comprising the environmental context in which a pizza restaurant company operates. Which of these factors and forces constitute the company’s macro-environment, and which constitute the industry and competitive environment? Explain.

76) Identify and describe the interactions among the competitive forces that comprise the five-forces model of competition. Which of these competitive forces is typically the strongest? Explain.

77) Identify and briefly explain any three factors that lead to strong bargaining power on the part of buyers.

78) Identify and briefly explain any three factors that lead to weak bargaining power on the part of buyers.

79) Identify and briefly discuss any three of the factors that influence the bargaining strength and leverage of buyers.

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80) Identify and briefly explain any two of the factors that influence the strength of competition from substitute products.

81) Identify and briefly explain any three factors that lead to strong bargaining power on the part of suppliers.

82) Identify and briefly explain any three factors that lead to weak bargaining power on the part of suppliers.

83) Identify and briefly explain any three factors that intensify competitive pressures stemming from the threat that new firms will enter the industry.

84) Identify and briefly explain any three factors that weaken the competitive pressures stemming from the threat that new firms will enter the industry.

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85)

Identify and briefly describe five common barriers to entering an industry.

86) Identify and briefly explain any four of the factors that influence the strength or intensity of competitive rivalry among an industry’s member firms.

87) Identify five factors that tend to weaken the intensity of competitive rivalry among an industry’s member firms.

88) Identify five factors that tend to intensify competitive rivalry among an industry’s member firms.

89) Identify at least five common driving forces, and briefly explain how each one can produce important changes in industry and competitive conditions.

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90) In doing driving forces analysis, is it sufficient to simply identify the driving forces that are operating to alter industry and competitive conditions? Why or why not? If not, then explain what else is required for a complete driving forces assessment.

91)

Identify at least three benefits of constructing a strategic group map.

92) What is the analytical value of studying competitors and trying to predict what moves rivals will make next?

93) What are industry key success factors? Why is it important for strategy makers to have a clear understanding of an industry’s key success factors?

94) Identify four key success factors that affect whether an industry does or does not present a company with a good business opportunity.

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95) Can an industry be attractive to one company and unattractive to another company? Why or why not?

96) Identify the five most impactful driving forces in the hospitality and lodging industry and briefly explain how each one can produce important changes in industry and competitive conditions.

97) Your study group has asked to conduct an analysis of competitive behavior in the sporting apparel industry. What are likely to be the key elements of your analysis?

98) What are an industry’s key success factors? How would you assess those factors for the craft beer industry?

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Answer Key Test name: Chap 03_7e 1) C 2) C 3) A 4) E 5) D 6) C 7) A 8) C 9) E 10) D 11) A 12) A 13) B 14) D 15) E 16) C 17) A 18) B 19) A 20) C 21) A 22) B 23) C 24) B 25) D 26) A Version 1

27) E 28) C 29) A 30) A 31) B 32) E 33) A 34) A 35) E 36) B 37) B 38) D 39) C 40) D 41) A 42) D 43) A 44) B 45) B 46) A 47) C 48) D 49) D 50) A 51) D 52) D 53) C 54) D 55) B 56) B Version 1

57) C 58) E 59) A 60) E 61) A 62) B 63) C 64) E 65) A 66) C 67) B 68) A 69) B 70) A 71) E 72) D 73) Questions include: (1) Do macro-environmental factors and industry characteristics offer sellers opportunities for growth and attractive profits? (2) What kinds of competitive forces are industry members facing, and how strong is each force? (3) What forces are driving industry change, and what impact will these changes have on competitive intensity and industry profitability? (4) What market positions do industry rivals occupy—who is strongly positioned and who is not? (5) What strategic moves are rivals likely to make next? (6) What are the key factors of competitive success? (7) Does the industry outlook offer good prospects for profitability?

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74) Driving forces analysis consists of three steps: (1) identifying what the driving forces are; (2) assessing whether the drivers of change are, individually or collectively, acting to make the industry more or less attractive; and (3) determining what strategy changes are needed to prepare for the impact of the driving forces. PESTEL analysis encompasses the six principal components of the broader macroenvironment (political factors, economic conditions in the firm’s general environment, sociocultural forces, technological factors, environmental forces, and legal/regulatory factors). A strategic group map involves identifying the key competitive characteristics that differentiate firms’ market positions, plotting firms on a two-variable map based on their competitive approaches, assigning firms occupying the same map location to a common strategic group, and drawing circles around each strategic group, making the circles proportional to the group’s share of total industry sales. Key success factors are the competitive characteristics that differentiate firms’ market positions. 75) As shown in Figure 3.1, a pizza restaurant’s broad macroenvironment encompasses all of the relevant factors—political factors, economic conditions in the firm’s general environment, sociocultural forces, technological factors, environmental forces, and legal/regulatory factors—whereas its industry and competitive environment represent the “inner ring” or narrower part of that operating environment. 76) See Figure 3.2. These interactions stem from competitive pressures with respect to supplier bargaining power, buyer bargaining power, the threat of new entrants, and the threat of substitutes. These, in turn, influence competitive pressures among rival sellers, which is typically the strongest of the five forces.

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77) See Figure 3.3. Among these factors are: (1) low cost of buyers’ switching to competing brands or substitutes; (2) large number of buyers, and a single customer or customer group is particularly important to a seller; (3) low level of buyer demand; (4) buyers are well informed about competing products and prices; and (5) buyers pose a credible threat to integrating backward into the business of sellers. 78) See Figure 3.3. Among these factors are: (1) high cost of buyers’ switching to competing brands or substitutes; (2) small number of buyers, and a customer is not particularly important to a seller; (3) high level of buyer demand; (4) low degree to which buyers are well informed about competing products and prices; and (5) buyers do not pose a credible threat to integrating backward into the business of sellers. 79) See Figure 3.3. Among these factors are: (1) cost of buyers’ switching to competing brands or substitutes, (2) number of buyers or if a customer is particularly important to a seller, (3) level of buyer demand, (4) degree to which buyers are well informed about competing products and prices, and (5) degree to which buyers pose a credible threat to integrating backward into the business of sellers. 80) See Figure 3.4. Among these factors are: (1) good substitutes are available and are attractively priced, (2) substitutes have comparable or superior performance features, (3) end-users have high or low switching costs, and (4) end users adapt to using substitutes. 81) See Figure 3.5. Among these factors are: (1) item being supplied is facing shortages, (2) high seller switching costs to other suppliers, (3) zero to low threat of backward integration by sellers, and (4) few substitute inputs exist or are expected to emerge, and those inputs are highly differentiated.

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82) See Figure 3.5. Among these factors are: (1) item being supplied is a commodity, (2) low seller switching costs to other suppliers, (3) moderate to high threat of backward integration by sellers, (4) good or new substitute inputs exist or are emerging, (5) surges in the availability of supply, and (6) industry incumbents represent a large fraction of supplier sales and continued high-volume purchases are critical to the survivability of suppliers. 83) See Figure 3.6. Among these factors are: (1) the number of firms poised to enter is large, (2) low entry and exit barriers, (3) existing rivals are enjoying good profits, (4) industry outlook is stable or growing, (5) steady or high growth in buyer demand, (6) unlikely (or incapability of) retaliation from industry incumbents to a new entrant, and (7) incumbents are expanding into geographic or market segments where they do not currently have a presence. 84) See Figure 3.6. Among these factors are: (1) the number of firms poised to enter is small, (2) high entry and exit barriers, (3) existing rivals are struggling to earn good profits, (4) industry outlook is risky or uncertain, (5) slow growth in buyer demand, and (6) likely retaliation of industry incumbents to a new entrant. 85) See Figure 3.6. The most significant barriers include knowledge, technological capability, access to markets, and the level of capital requirements for new entrants related to manufacturing facilities and equipment, the costs of introductory advertising and sales promotion campaigns, the need for working capital to finance inventories and customer credit, and sufficient cash to cover start-up costs.

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86) Rivalry determinants (shown in Figure 3.7) associated with competitive intensity include: (1) jockeying for position, (2) industries concentration or fragmentation, (3) size and scale of incumbents, (4) level of consumer demand, (5) industry growth rate, (6) buyer switching costs, and (7) degree of standardization or differentiation among rivals, products and services. 87) Rivalry determinants (shown in Figure 3.7) associated with weaker competitive pressures include: (1) industries comprised of vast numbers of small rivals, (2) industries composed of fewer than five rivals, (3) slow-growing markets, (4) when incumbents are not aggressive in drawing sales and market share away from other incumbents, (5) when products are significantly differentiated and customer loyalty is high, (6) when buyer switching costs are high, and (7) when buyer demand is high. 88) Rivalry determinants (shown in Figure 3.7) associated with intensified competitive pressures include: (1) competing sellers regularly launch fresh actions to boost their market standing and business performance, (2) competitors are equal in size and capability, (3) markets are slow-growing, (4) when buyer demand abates and sellers find themselves with excess capacity and/or inventory, (5) as it becomes less costly for buyers to switch brands, (6) when industry conditions tempt competitors to use price cuts or other competitive weapons to boost unit volume, (7) when one or more competitors become dissatisfied with their market position, and (8) when strong companies outside the industry acquire weak firms in the industry and launch aggressive, well-funded moves to build market share. 89) Most drivers of industry and competitive change fall into one of the categories in Table 3.2.

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90) Driving forces analysis consists of not one but three steps: (1) identifying what the driving forces are; (2) assessing whether the drivers of change are, individually or collectively, acting to make the industry more or less attractive; and (3) determining what strategy changes are needed to prepare for the impact of the driving forces. 91) A strategic group consists of those industry members with similar competitive approaches and positions in the market. Companies in the same strategic group can resemble one another in a variety of ways. For example, they may have comparable product-line breadth, emphasize the same distribution channels, depend on identical technological approaches, or offer buyers essentially the same product attributes or similar services and technical assistance. Among the benefits of constructing a strategic group map are: (1) examining what strategic groups exist; (2) identifying the companies within each group; (3) determining if a competitive “white space” exists, i.e. where industry competitors are able to create and capture altogether new demand; (4) tabulating the number of strategic groups in an industry; and (5) determining their respective market positions. 92) Michael E. Porter’s four indicators of a rival’s likely strategic moves include a rival’s current strategy, objectives, capabilities, and assumptions about itself and the industry. A strategic profile of a rival that provides good clues to its behavioral proclivities can be constructed by characterizing the rival along these four dimensions. Unless a company pays attention to the strategies and situations of competitors and has some inkling of what moves these rivals will be making, it ends up flying blind into competitive battle.

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93) Key success factors (KSFs) are the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace. KSFs by their very nature are so important to future competitive success that all firms in the industry must pay close attention to them or risk an eventual exit from the industry. 94) An industry’s key success factors (KSFs) are those competitive factors that most affect industry members’ ability to survive and prosper in the marketplace. These include: (1) the particular strategy elements, (2) product attributes, (3) operational approaches, and (4) resources and competitive capabilities that spell the difference between being a strong competitor and a weak competitor—and between profit and loss. 95) The degree to which an industry is attractive or unattractive is not the same for all industry participants and potential new entrants. The attractiveness of an industry depends on the degree of fit between a company’s competitive capabilities and industry key success factors.

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96) Salient drivers of industry change in hospitality and lodging:Emerging new Internet capabilities and applications—impact business travel as videoconferencing is a substitute for travel to attend meetings, and impact reservation and guest loyalty program tracking systemsShifts in buyer demographics—impact segmentation in the industry by moving from price tiers (e.g., budget, mid-priced, deluxe priced) to service tiers (e.g., limited service, full-service, extended stay, “green” hotels,” boutiques, luxury brands)Changes in cost and efficiency—impair or propel the industry to move from price tiers (e.g., budget, mid-priced, deluxe priced) to service tiers (e.g., limited service, full-service, extended stay, boutiques, luxury brands)Increasing globalization—proliferation of global brands (Accor International, Best Western, Choice, Hilton, Marriott, IC Group, etc.), assuring travelers of the same experiences at disparate destinations worldwideRegulatory influences and government policy changes—impact permits and tax incentives (or disincentives) for construction and/or retrofit of new properties; reimbursement rates for business, government and armed forces personnel, and so onCaveat: getting a handle on the collective impact of the driving forces in hospitality and lodging requires looking at the likely effects of each factor separately, since the driving forces may not all be pushing change in the same direction. For example, one driving force may be acting to spur demand for the industry’s product while another is working to curtail demand. Whether the net effect on industry demand is up or down hinges on which change driver is deemed by an analyst to be the most powerful.

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97) Gathering competitive intelligence about the strategic direction and likely moves of key competitors allows a company to prepare defensive countermoves, to craft its own strategic moves with some confidence about what market maneuvers to expect from rivals in response, and to exploit any openings that arise from competitors’ missteps. Based on a framework from Michael Porter, in order to succeed in predicting a competitor’s next moves, company strategists need to assess:Strategy: Analysts need to begin with a good understanding of each rival’s—in this instance, Nike, Under Armour, lululemon athletica, Adidas-Reebok, Fila, and so on—current strategy, as an indicator of its pattern of behavior and best strategic options.Objectives: An appraisal of a rival’s objectives should include not only its financial performance objectives but strategic ones as well (such as those concerning market share). What is even more important is to consider the extent to which the rival is meeting these objectives and whether it is under pressure to improve.Resources and Capabilities: A rival’s strategic moves and countermoves are both enabled and constrained by the set of resources and capabilities the rival has at hand. Thus, a rival’s resources and capabilities (and efforts to acquire new resources and capabilities) serve as a strong signal of future strategic actions (and reactions to your company’s moves).Assumptions: How a rival’s top managers think about their strategic situation can have a big impact on how the rival behaves. Banks that believe they are “too big to fail,” for example, may take on more risk than is financially prudent. Assessing a rival’s assumptions entails considering its assumptions about itself as well as about the industry it participates in.The question is where to look for such information since rivals rarely reveal their strategic intentions openly. Information regarding these four analytic components can often be gleaned from company press releases, information posted on the company’s website (especially the presentations management has Version 1

recently made to securities analysts), and such public documents as annual reports and 10-K filings for those sporting apparel companies that are publicly traded).

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98) KSFs by their very nature are so important to competitive success that all firms in the industry must pay close attention to them or risk becoming an industry laggard or failure. To indicate the significance of KSFs another way, how well the elements of a company’s strategy measure up against an industry’s KSFs determines whether the company can meet the basic criteria for surviving and thriving in the industry. Identifying KSFs, in light of the prevailing and anticipated industry and competitive conditions, is therefore always a top priority in analytic and strategy-making considerations. Company strategists need to understand the industry landscape well enough to separate the factors most important to competitive success from those that are less important. In the craft beer industry, for example, although there are many types of buyers (wholesale, retail, end consumer), it is most important to understand the preferences and buying behavior of the beer drinkers. Their purchase decisions are driven by price, taste, convenient access, and marketing. Thus, the KSFs include a strong network of wholesale distributors (to get the company’s brand stocked and favorably displayed in retail outlets, bars, restaurants, and stadiums, where beer is sold) and clever advertising (to induce beer drinkers to buy the company’s brand and thereby pull beer sales through the established wholesale and retail channels). Because there is a potential for strong buyer power on the part of large distributors and retail chains, competitive success depends on some mechanism to offset that power, of which advertising (to create demand pull) is one. Thus, the KSFs also include superior product differentiation (as in craft beers and microbrews) or superior firm size and branding capabilities (as in national brands). The KSFs also include full utilization of brewing capacity (to keep manufacturing costs low and offset the high costs of advertising, branding, and product differentiation).

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CHAPTER 4: Evaluating a Company’s Resources, Capabilities, and Competitiveness MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) If you were advising Boll & Branch’s on improving its strategy and competitive approach, which question would you not be likely to ask?

A) How well is the company’s strategy working? B) What are the company’s competitively important resources and capabilities? C) Are the company’s cost structure and customer value proposition competitive? D) What are the company’s most and least profitable geographic segments? E) What strategic issues and problems merit front-burner managerial attention?

2) When SunPower’s managers engage in the process of developing a list of questions to evaluate their company’s internal situation, which question would you recommend they not ask because it doesn’t serve the task of evaluating SunPower’s resources and competitive position?

A) How well is SunPower’s strategy working? B) What are the company’s competitively important resources and capabilities? C) How do SunPower’s value chain activities impact its cost structure and customer value proposition? D) What strategic issues and problems merit front-burner managerial attention at SunPower? E) Is SunPower’s environmental scanning system up to date?

One important indicator of how well a company’s present strategy is working is whether

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A) it is customarily a first-mover in introducing new or improved products (a good sign) or a late-mover (a bad sign). B) its strategy is built around at least two of the industry’s key success factors. C) the company is achieving its financial and strategic objectives and whether it is an above-average industry performer. D) it has been able to create new industry demand through the use of a blue ocean strategy. E) it is subject to weaker competitive forces and pressures than close rivals (a good sign) or stronger competitive forces and pressures (a bad sign).

4) Benchmarking how well a company’s current strategy is working (companies like BMW or Toyota) involves

A) determining whether the company is falling short of its stated financial objectives, i.e., its financial performance is well below the industry average, and its market share gains reflect short-term preferences for capacity maximization. B) ascertaining whether the company is achieving its stated financial and strategic objectives, its financial performance is above the industry average, and it is gaining customers and increasing its market share. C) assessing whether the company is remaining attentive to possible improvements in its functional areas, creating “stretch” business goals, and providing a product-focused value proposition to customers. D) verifying whether the company is undertaking new initiatives to promote corporate social responsibility. E) discovering whether the company has been foregoing initiatives designed to build market share and to promote corporate responsibility.

5) Choose the analytical tool that does not evaluate how well a company’s strategy and competitive approach are currently working.

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A) resource and capability analysis B) benchmarking C) value chain analysis D) Porter’s three tests for evaluating diversification outside the core business E) competitive strength assessment

A resource-based strategy

A) is often based on cross-department combinations of intellectual capital and expertise. B) uses a company’s valuable and rare resources and competitive capabilities to deliver value to customers that rivals have difficulty matching. C) is typically based on a stand-alone resource strength such as technological expertise. D) refers to a company’s most efficiently executed value-chain activity. E) uses industry key success factors to provide a company with a core competence that rivals cannot effectively imitate.

A resource-based strategy

A) focuses on exploiting a company’s best-executed operating strategy. B) is based upon efficient performance of the company’s primary value chain activities. C) concentrates on minimizing the costs associated with the design of a product or service. D) attempts to exploit resources in a manner that offers value to customers in ways rivals are unable to match. E) focuses on working with forward channel allies to develop capabilities to outmatch the capabilities of rivals.

A company’s resources and capabilities represent

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A) the firm’s net working capital and related determinants for measuring operating performance and capabilities. B) positive trends with relevant cultural factors related to buyers’ choices and product modifications. C) management’s source of funding for new strategic initiatives. D) whether or not the firm has the industry’s most efficient value chain. E) the firm’s competitive assets that determine its competitiveness and ability to succeed in the marketplace.

9) If you were asked to use a powerful analytical tool to size up Amazon’s competitive assets and determine whether the company can provide the foundation necessary for its competitive success in the marketplace, which would you choose?

A) VRIN tests B) SWOT analysis C) competitive strength matrix analysis D) financial and asset management analysis E) value chain analysis

10) Nestlé’s brand management capabilities for its 2.000+ food, beverage, and pet care brands

A) are known as productive inputs or competitive assets, except human assets and intellectual capital, which are considered capabilities or competencies. B) are representative of physical resources only. C) are part of an inventory or collection of the firm’s strengths, weaknesses, opportunities, and threats. D) are categorized as its tangible resources and/or intangible resources. E) are intangible resources only, because they consist of patents, copyrights, and technological processes.

11)

The competitive power of a company resource depends on

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A) whether it helps differentiate a company’s product offering from the product offerings of rival firms. B) whether the resource is really competitively valuable, if it is rare and something competitors lack, how hard it is to copy or imitate, and how easily it can be trumped by the substitute resource strengths and competitive capabilities of rivals. C) whether customers are aware of the resource and view it positively enough to boost the company’s brand name reputation. D) whether the resource is something rivals are unable to perform, if it is an important differentiating product or service feature, how strongly it contributes to the company’s brand image, and if it is the foundation of a cost-based advantage. E) whether the resource is technology-based or based on superior marketing know-how.

12) lululemon athletica has hired you to make systematic inventory of its competitive capabilities. To do so, you would conduct an assessment of lululemon’s

A) resources and functions. B) competitive set via a strategy matrix. C) sustainability initiatives and resource bundles. D) cross-functional systems and collaborative resource methodology. E) financial statements and managerial depth charts.

13)

The competitive power of a company resource or competitive capability hinges on

A) how easy it is for the firm to copy or imitate its rivals’ moves in the marketplace. B) whether it is robust and, therefore, something rivals cannot afford to develop. C) whether it leads to competitive volatility forcing rivals to jockey for an industry leadership position. D) how easily it can be substituted by merging with or acquiring another firm with complementary resources and capabilities. E) whether it is rare and, therefore, something rivals lack.

14) For a particular company resource to have meaningful competitive power and perhaps qualify as a basis for competitive advantage, it should

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A) be competitively important, hard for competitors to copy or imitate, rare and something rivals lack, and not be easily trumped by the substitute resources/capabilities of rivals. B) be something that a company does internally rather than in collaborative arrangements with outsiders. C) be patentable. D) be rooted in the company’s organizational capital, information capital, or human capital. E) have the potential for lowering the firm’s unit costs.

15) A company that lacks a stand-alone resource that is competitively powerful may attempt to develop a competitive advantage through

A) improved employee training programs, new marketing promotions, or technological enhancements to production processes. B) the development of a new business strategy that draws upon existing resource strengths. C) extensive strategic planning and resource identification sessions involving managers at all levels of the organization. D) bundled resources that enable superior performance of cross-functional capabilities that can be leveraged to support its business model and strategy. E) devising clever approaches to turning resource weaknesses into resource strengths.

16)

Organizational capabilities are virtually always

A) more complex than resources and are exercised only through key personnel. B) requiring constant evaluation to ensure cooperative support from management. C) easier and less challenging to categorize than resources because there are fewer to be concerned about. D) knowledge-based. E) reflective of the industry’s driving forces.

17) A company that is at a disadvantage in the marketplace because it lacks competitively valuable resources possessed by rivals

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A) should consider divesting assets and making future investments in promising new industries. B) may be able to develop substitute resources that accomplish the same objective as the competitively valuable resource possessed by rivals. C) can still marshal competitive power in the marketplace by incorporating product or service features desired by niche buyers. D) is virtually blockaded from using offensive strategies and must rely on defensive strategies. E) should abandon strategy elements that have caused its weakness in the marketplace.

18)

The four tests of a resource’s competitive power are often referred to as the

A) organizational capability metric analysis. B) SWOT analysis. C) competitive advantage sustainability test. D) SCIR test, which asks if a resource is sustainable, competitive, internalized, and reproducible. E) VRIN test, which asks if a resource is “valuable, rare, inimitable, and nonsubstitutable.”

19)

When a company is good at performing a particular internal activity, it is said to have a

A) competitive advantage over rivals. B) competitive capability. C) distinctive competence. D) resource-based strategy. E) competence.

20)

The difference between a resource and a capability is that

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A) a resource refers to a company’s best-executed functional strategy, and a capability refers to a company’s best-executed business strategy. B) a resource refers to a company’s most strategically important asset, whereas a capability refers to the basis of a company’s competitive advantage over rivals. C) a resource is a competitively relevant internal activity that a firm performs especially well relative to other internal activities, whereas a capability is a competitively important activity performed by key strategic allies. D) a resource represents a competitive asset that is owned or controlled by the company, whereas a capability is a competently performed internal activity that is developed through the deployment of the company’s resources. E) a resource usually resides in a company’s technology and physical assets (state-ofthe-art plants and equipment, attractive real estate locations, and so on), whereas a capability usually resides in a company’s human capital, information capital, or organizational capital.

21)

Which of the following is not a good example of a company’s resources?

A) having a lower-cost value chain than key rivals B) having a well-known brand name and enjoying the confidence of customers C) having more intellectual capital and better e-commerce capabilities than key rivals D) having higher earnings per share and a higher stock price than key rivals E) having fruitful partnerships or alliances with suppliers that reduce costs and/or enhance product quality and performance

22) Every organization has many resources, capabilities, and routines; however, those few things the company does really well and performs with a very high proficiency are termed

A) core competencies. B) distinct capabilities. C) sustainable activities. D) socially complex activities. E) distributive factors.

23)

Which of the following is not a tangible resource?

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A) technological assets B) physical assets C) financial assets D) organizational resources E) a company’s reputation for integrity and quality products.

24)

Imitation by rivals is most challenging when

A) resources are unique. B) resources must be built over time. C) capabilities reflect a high level of social complexity and causal ambiguity. D) resources and capabilities require a high level of capital investment. E) resources and capabilities are accessible and require low levels of investment.

25)

Which one of the following is a tangible resource?

A) know-how and experience-based learning B) brand, image, and reputation C) relationships D) company culture E) financial capital

26)

Which one of the following is not an intangible resource?

A) human assets and intellectual capital B) technological assets C) brand, image, and reputation D) relationships E) company culture

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27) When a company has become proficient in modifying, upgrading, or deepening the company’s resources and capabilities in response to its changing environment and market opportunities, it is called a

A) dynamic capability. B) core competence. C) distinct competence. D) strategic assessment. E) competitive strength matrix.

28)

Which of the following is not an example of a company’s dynamic capability?

A) Petsmart’s ability to remain a “big-box, bricks and mortar” retailer B) Facebook’s ability to upgrade its messaging services to feature real-time video chat C) Tesla’s ability to introduce less costly and yet more technologically advanced automobiles D) Amazon’s ability to expedite its delivery services using drone aircraft E) ESPN’s ability to deliver live games via video streaming services

29) is identifying and appraising a company’s resource strengths and weaknesses and its external opportunities and threats.

A) SWOT analysis B) Competitive asset/liability analysis C) Competitive positioning analysis D) Strategic resource assessment E) Company resource mapping

30)

A first-rate SWOT analysis

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A) is a way to measure whether a company’s value chain is longer or shorter than the chains of key rivals. B) is a tool for benchmarking whether a firm’s strategy is closely matched to industry key success factors. C) reveals whether a company is competitively stronger than its closest rivals. D) provides a good basis for crafting a strategy. E) identifies the reasons a company’s strategy is or is not working very well.

31)

Which one of the following is not part of conducting a SWOT analysis?

A) identifying a company’s resource strengths and competitive capabilities B) benchmarking the company’s resource strengths and competitive capabilities against industry key success factors C) identifying a company’s market opportunities D) drawing conclusions about the company’s overall business situation E) matching the company’s strategy to its resource strengths and market opportunities, correcting problematic weaknesses, and defending against worrisome threats

32)

The most important parts of conducting a SWOT analysis are

A) listing a company’s resource strengths and competitive capabilities. B) identifying the company’s resource strengths and competitive capabilities, external market opportunities, and threats to its well-being. C) creating a table with four lists for company managers to evaluate. D) drawing conclusions about the company’s overall business situation and translating these conclusions into strategic actions. E) tabulating a company’s resource strengths and market opportunities, problematic weaknesses, and worrisome threats.

33)

Which of the following most accurately reflect a company’s resource strengths?

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A) its core competencies, competitive capabilities, and valuable intangible assets B) sizes of its unit sales, revenues, and market share vis-à-vis those of key rivals C) sizes of its profit margins and return on investment vis-à-vis those of key rivals D) whether it has more primary activities in its value chain than close rivals and a better overall value chain than these rivals E) whether it has a more profitable business model than close rivals

34)

A company resource weakness or competitive deficiency

A) represents a problem that needs to be turned into a strength because weaknesses prevent a firm from being a winner in the marketplace. B) causes the company to fall into a lower strategic group than it otherwise could compete in. C) prevents a company from having a distinctive competence. D) usually stems from having a missing link or links in the industry value chain. E) is something a company lacks or does poorly (in comparison to rivals) or a condition that puts it at a disadvantage in the marketplace.

35)

A company’s resource weaknesses can relate to

A) inferior or unproven skills, lack of expertise, or intellectual capital shortfalls in competitively important parts of the business. B) something that it lacks or does poorly (in comparison to rivals). C) deficiencies in competitively important physical, organizational, or intangible assets. D) missing or competitively inferior capabilities in key areas. E) inability to achieve a leading market share.

36)

Sizing up a company’s overall resource strengths and weaknesses

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A) essentially involves constructing a “strategic balance sheet” on which the company’s resource strengths represent competitive assets and its resource weaknesses represent competitive liabilities. B) is the same process as benchmarking. C) is called competitive strength assessment. D) is focused on making lists of a company’s resource strengths and weaknesses. E) is called company resource mapping.

37)

The external market opportunities that are most relevant to a company are the ones that

A) increase market share. B) reinforce its overall business strategy. C) match up well with the firm’s financial resources and competitive capabilities, offer the best growth and profitability, and present the most potential for competitive advantage. D) correct its internal weaknesses and resource deficiencies. E) help defend against the external threats to its well-being.

38) Which of the following is not a market opportunity most relevant to a particular company?

A) likely entry of potent new competitors B) acquiring rival firms or companies with technological know-how to enter new lines of business C) expanding the company’s product line to meet new customer needs D) expanding into new geographic markets E) falling trade barriers in attractive foreign markets

39) Which of the following best describes the market opportunities that tend to be most relevant to a particular company?

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A) those that provide avenues for taking market share away from close rivals and enhance a company’s image as a leader in product innovation and product quality B) those that offer the company a chance to raise entry barriers C) those that help promote greater diversification of revenues and profits D) those that match up well with the firm’s financial resources and competitive capabilities, offer the best growth and profitability, and present the most potential for competitive advantage E) those that help correct a company’s biggest weaknesses and competitive deficiencies

40) Which of the following is not an example of an external threat to a company’s future profitability?

A) lack of a distinctive competence B) potential of a hostile takeover C) adverse changes in foreign exchange rates D) unfavorable demographic shifts E) introduction of restrictive trade policies in countries where the company does business

41) Which of the following is not an example of an external threat to a company’s future profitability?

A) likely entry of potent new competitors B) lack of a well-known brand name with which to attract new customers and help retain existing customers C) unfavorable shifts in buyer demographics and tastes D) costly new regulatory requirements E) increase(s) in interest rates

42)

The most important payoff of doing a thorough SWOT analysis is

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A) identifying whether the company’s value chain is cost effective vis-à-vis the value chains of rivals. B) helping strategy makers benchmark the company’s resource strengths against industry key success factors. C) enabling a company to assess its leverage in negotiations with buyers. D) revealing whether a company’s market share, measures of profitability, and sales compare favorably or unfavorably vis-à-vis key competitors. E) assisting strategy makers in drawing conclusions about the company’s overall situation and crafting a strategy that is well-matched to the company’s resources and capabilities, its market opportunities, and the external threats to its future well-being.

43)

The two most important parts of SWOT analysis are

A) pinpointing the company’s competitive assets and pinpointing its competitive liabilities. B) identifying the company’s resource strengths and identifying the company’s best market opportunities. C) identifying the external threats to a company’s future profitability and pinpointing how many market opportunities it has. D) drawing conclusions from the SWOT listings about the company’s overall situation and translating these conclusions into strategic actions to better match the company’s strategy to its resource strengths and market opportunities, correct the important weaknesses, and defend against external threats. E) making accurate lists of the company’s strengths, weaknesses, opportunities, and threats, and then using these lists as a basis for ascertaining how well the company’s strategy is working.

44) One of the most telling signs of whether a company’s market position is strong or precarious is

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A) whether its product is strongly or weakly differentiated from rivals. B) whether its prices and costs are competitive with those of key rivals. C) whether it has a lower stock price than key rivals. D) the opinions of buyers regarding which seller has the best product quality and customer service. E) whether it is in a bigger or smaller strategic group than its closest rivals.

45) Two analytical tools useful in determining whether a company’s prices and costs are competitive are

A) SWOT analysis and key success factor analysis. B) SWOT analysis and benchmarking. C) value chain analysis and benchmarking. D) competitive position assessment and competitive strength assessment. E) driving forces analysis and SWOT analysis.

46)

A company’s value chain identifies the

A) steps it goes through to convert its net income into value for shareholders. B) primary activities that create value for customers and related support activities. C) series of steps it takes to get a product from a raw materials stage to a finished product. D) activities it performs in transforming its competencies into distinctive competencies. E) competencies and competitive capabilities that underpin its efforts to create value for customers and shareholders.

47)

The primary activities included in the value chain include

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A) supply chain management, operations, distribution, sales and marketing, and customer service activities. B) product R&D, technology and systems development. C) human resource management. D) general administration. E) legal and regulatory oversight.

48)

A company’s value chain

A) consists of the primary activities that it performs in seeking to deliver value to shareholders in the form of higher dividends and a higher stock price. B) depicts the internally performed activities associated with creating and enhancing the company’s competitive assets. C) consists of two broad categories of activities: the primary activities that create customer value and the requisite support activities that facilitate and enhance the performance of the primary activities. D) concerns the basic process the company goes through in performing R&D and developing new products. E) consists of the series of steps a company goes through to develop a new product, get it produced and into the marketplace, and then start collecting revenues and earning a profit.

49)

Identifying the primary and secondary activities that comprise a company’s value chain

A) indicates whether a company’s resource strengths will ultimately translate into greater value for shareholders. B) reveals whether a company’s resource strengths are well-matched to the industry’s key success factors. C) is the first step in understanding a company’s cost structure (since each activity in the value chain gives rise to costs). D) is called benchmarking. E) is called resource value analysis.

50)

Benchmarking involves

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A) comparing how different companies perform various value chain activities and then making cross-company comparisons of the costs of these activities. B) checking whether a company has achieved more of its financial and strategic objectives over the past five years relative to the other firms it is in direct competition with. C) studying whether a company’s resource strengths are more or less powerful than the resource strengths of rival companies. D) tracking the profit margin along with the value-creating activities. E) comparing the best practices in one industry against the best practices in another industry.

51) is a much-used and potent managerial tool for determining whether a company performs particular functions or activities in a manner that represents “the best practice” when both cost and effectiveness are taken into account.

A) A competitive strength analysis B) Activity-based costing C) Resource cost mapping D) SWOT analysis E) Benchmarking

52)

The most difficult part of benchmarking is

A) whether to do it at all. B) figuring out how to gain access to information regarding rivals’ practices and costs. C) when to initiate the process. D) what information to utilize in the analysis process. E) when to stop the process and move forward with strategy.

53)

Determining whether a company’s prices and costs are competitive

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A) requires looking at the costs of a company’s internally performed activities and the costs of its suppliers and forward channel allies (distributors/dealers). B) requires performing pricing surveys on at least a quarterly basis. C) involves developing close relationships with buyers to determine if the market is showing signs of increasing price sensitivity. D) typically involves the use of activity-based cost accounting by the company’s key retail customers. E) is a technique to evaluate whether a capability or resource is valuable, rare, inimitable, or no substitutable.

54) Accurately assessing the competitiveness of a company’s cost structure and value proposition requires that

A) managers understand an industry’s entire value chain system. B) managers understand the detail of their own company’s value chain. C) managers are involved in functional strategy development. D) managers understand the firm’s profitability outlook. E) financial measures such as return on equity and return on assets are in excess of the company’s hurdle rates.

55) When looking at the entire industry, the main areas in a company’s overall value chain where important differences between firm’s cost and value do not occur are in

A) a company’s own internal activities. B) the supplier’s industry value chain. C) the forward channel portion of the industry chain. D) a company’s own internal activities, the supplier’s industry value chain, and the forward channel portion of the industry chain. E) a company’s external activities, the suppliers’ part of the industry value chain, and the buyer’s ability to integrate backward.

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56) Managers can pursue any of several strategic approaches to reduce the costs of internally performed value chain activities and improve a company’s cost competitiveness by

A) investing in productivity-enhancing, cost-saving technological improvements. B) outsourcing internally performed activities to those able to perform the activities at a lower cost. C) implementing the use of best practices, particularly for high-cost activities. D) eliminating some cost-producing activities from the value chain, especially low value-added activities. E) acquiring suppliers, rivals, or forward channel distributors.

57) Which of the following is not a good option for trying to remedy high internal costs visà-vis rival firms?

A) investing in productivity-enhancing, cost-saving technological improvements B) redesigning the product or some of its components to permit more economical manufacture or assembly C) implementing aggressive strategic resource mapping to permit across-the-board cost reduction D) outsourcing high-cost activities to vendors or contractors who can perform them more economically E) relocating high-cost activities (such as manufacturing) to geographic areas (such as China or Latin America or Eastern Europe) where they can be performed more cheaply

58) A company’s strategic options for internally performed value chain activities do not include

A) revamping its value chain to eliminate or bypass some cost-producing activities (particularly low value-added activities). B) implementing the use of best practices, particularly for high-cost activities. C) investing in productivity-enhancing, cost-saving technological improvements. D) switching to activity-based costing. E) outsourcing the performance of high-cost activities to vendors that can perform them more cheaply.

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59)

The options for remedying a supplier-related cost disadvantage include

A) trying to negotiate more favorable prices with suppliers and switching to lower priced substitute inputs. B) forward vertical integration. C) shifting into the production of substitute products. D) shifting from a low-cost leadership strategy to a differentiation or focus strategy. E) cutting selling prices and trying to win a bigger market share.

60) Which of the following is not an option for improving supplier-related value chain activities?

A) Integrate backward into the business of high-cost suppliers in an effort to reduce the costs of the items being purchased. B) Negotiate more favorable prices with suppliers. C) Collaborate closely with suppliers to identify mutual cost-saving opportunities. D) Switch to lower-priced substitute inputs. E) Persuade forward channel allies to implement best practices.

61) The options for remedying a cost disadvantage associated with activities performed by forward channel allies include

A) switching to lower-priced substitutes. B) pressuring forward channel allies to reduce their costs and markups. C) shifting into the production of substitute products. D) shifting from a differentiation strategy to a best-cost strategy or focus strategy. E) implementing a benchmarking program and adopting best practices.

62) Which of the following is not an option for remedying a forward channel-related cost disadvantage?

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A) Negotiate more favorable prices with suppliers. B) Integrate forward into company-owned retail outlets. C) Collaborate closely with forward channel allies to identify mutual cost-saving opportunities. D) Change to a more economical distribution strategy. E) Pressure dealer-distributors to reduce their costs and markups.

63)

The value of doing competitive strength assessment is to

A) determine how competitively powerful the company’s core competencies are. B) learn if the company’s market opportunities are better than those of its rivals. C) learn whether a company has a distinctive competence. D) learn how the company ranks relative to rivals on each of the important factors that determine market success and ascertain whether the company has a net competitive advantage or disadvantage vis-à-vis key rivals. E) determine whether a company’s resource strengths are sufficient to allow it to earn bigger profits than rivals.

64)

Doing a competitive strength assessment entails

A) determining whether a company has a cost-effective value chain. B) ranking the company against major rivals on each of the important factors that determine market success and ascertaining whether the company has a net competitive advantage or disadvantage versus major rivals. C) identifying a company’s core competencies and distinctive competencies (if any). D) analyzing whether a company is well positioned to gain market share and be the industry’s profit leader. E) developing quantitative measures of a company’s chances for future profitability.

65)

A company’s competitive strength scores

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A) pinpoint its strengths and weaknesses against rivals and point to offensive and defensive strategies capable of producing first-rate results. B) determine whether a company has a cost-effective value chain. C) learn if the company’s market opportunities are better than those of its rival. D) analyze whether a company is well positioned to gain market share and be the industry’s profit leader. E) determine whether a company’s resource strengths are sufficient to allow it to earn bigger profits than rivals.

66) Which one of the following is not something that can be learned from doing a competitive strength assessment?

factors on which a company is competitively strongest and weakest vis-à-vis key

rivals B) whether a company should correct its weaknesses by adopting best practices and/or revamping the makeup of its value chain C) which of the rated companies is competitively strongest and what size competitive advantage it enjoys D) whether a company has a net competitive advantage or a net competitive disadvantage relative to key rivals (with the size of the advantage/disadvantage being indicated by the differences among the companies’ competitive strength scores) E) which rival company is competitively weakest and the areas where it is most vulnerable to competitive attack

67) Identifying the strategic issues a company faces and compiling a “worry list” of problems and roadblocks is an important component of company situation analysis because

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A) without a precise fix on what problems/issues a company confronts, managers cannot know what the industry’s key success factors are. B) the “worry list” sets the management agenda for taking actions to improve the company’s performance and business outlook. C) without a precise fix on what problems/roadblocks a company confronts, managers are less clear about what value chain activities to benchmark. D) the “worry list” helps company managers clarify their thinking about how best to modify the company’s value chain. E) these issues and obstacles must be cleared before management can focus clearly on what is the best strategy for the company to pursue.

68) Which of the following is not accurate as concerns the task of identifying the strategic issues and problems that merit front-burner managerial attention?

A) Drawing upon the results and conclusions from analyzing the company’s external environment. B) Drawing on the results and conclusions from evaluating the company’s own resources and competitive position. C) Developing a “worry list” of problems and issues for managerial strategy making. D) Identifying the strategic issues and problems that the company faces is the first thing that company managers need to do before starting to analyze the company’s internal and external environment. E) Developing a list of what issues and problems that management needs to address (and to resolve) should always precede deciding upon a strategy and what actions to take to improve the company’s position and prospects.

69)

Activity-based costing

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A) is a tool for identifying the activities that cause a company’s product to be strongly differentiated from the products of rivals. B) is far superior to SWOT analysis for analyzing a firm’s internal situation. C) involves developing a “worry list” of problems and issues for managerial strategy making. D) is an accounting system that assigns a company’s expenses to whichever activity in a company’s value chain is responsible for creating the cost. E) involves determining which value chain activities represent variable costs and which represent fixed costs.

70) Costs and price differences among competing companies can have origins in activities performed by

A) whether the company has a longer or shorter value chain than its close rivals. B) value chains of the company’s suppliers. C) developing a “worry list” of problems and issues for managerial strategy making. D) the company’s internally performed activities (its own value chain), but also on costs in the value chain of its suppliers and distribution channel allies. E) value chains of a company’s distributors and retail dealers and forward channel allies.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 71) Identify the five questions that form the framework of evaluating a company’s resources and competitive position.

72)

Identify at least five indicators of whether a company’s present strategy is working well.

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73) Identify the six questions to consider in evaluating a company’s ability to compete successfully against market rivals.

74) A distinctive competence represents competitively superior resource strength. True or false? Explain your answer.

75)

Why do a company’s core competencies matter in crafting strategy?

76)

How can a resource-based strategy lead to a sustainable competitive advantage?

77) Briefly discuss the meaning and significance of each of the following terms:a. SWOT analysis b. company value chain c. industry value chain d. weighted competitive strength assessment e. benchmarking

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78) In conducting a SWOT analysis, is it enough to simply compile lists of the company’s strengths, weaknesses, opportunities, and threats? Why or why not?

79) A company lacking stand-alone resource strength should focus on bundling several resource strengths into a core competence. True or false? Explain and support your answer.

80) Draw a typical company value chain, and briefly explain the difference between primary activities and support activities.

81)

What is benchmarking and why is it a strategically important analytical tool?

82) What benefits might management expect to gain from benchmarking the “best practices” of those in other industries?

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83) Draw a typical value chain for an entire industry. Why are the activities performed by value chain allies strategically relevant?

84) What would a deep look at the cost structure of Boll & Branch, a manufacturer and online marketer of luxury linens, reveal?

85) Assume a firm is at a cost disadvantage with rivals because its internal costs are higher than those of rivals. Identify several strategic moves that it can make to restore cost parity.

86) Describe some ways that a company can improve (1) its supplier-related value chain activities and (2) activities of its forward channel allies.

87) Assume a firm is not cost competitive with rivals because of higher supplier-related costs. Identify three strategic moves that it can make to restore cost parity.

88) What must a company do to translate its performance of value chain activities into competitive advantage?

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89) What are the three main approaches to rectify a weakness in a company’s customer value proposition?

90) Assume a firm is at a cost disadvantage with rivals because of higher distributor-dealer costs than rivals. Identify at least two strategic moves that it can make to restore cost parity.

91)

Explain the benefits of preparing a competitive strength assessment.

92)

Explain why a weighted competitive strength assessment is important.

93) Identify and explain something that cannot be learned from doing a competitive strength assessment.

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94) Identify and explain something that can be learned from conducting a competitive strength assessment.

95) In determining the various strategic issues that a company needs to address, managers need to consider both the results of its analysis of the company’s external environment and the results of its evaluation of the company’s competitive position, customer value proposition, and cost structure. True or false? Explain and defend your answer.

96) Why is it important for company managers to develop a “worry list” of strategic issues and problems that they need to address and to resolve? What should they consider to develop this list?

97) Using value chain analysis, which primary and secondary activities would you consider to be most and least valuable for a company like Facebook?

98) You have been asked to defend why your strategic analysis of StitchFix consists solely of an assessment of the company’s external environment but not an evaluation of its internal resources and competitive position. How would you respond?

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99) If you were advising Hilton Hotels, what three main approaches would you suggest to rectify any weaknesses in this company’s customer value proposition?

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Answer Key Test name: Chap 04_7e 1) D 2) E 3) C 4) B 5) D 6) B 7) D 8) E 9) A 10) D 11) B 12) A 13) E 14) A 15) D 16) D 17) B 18) E 19) E 20) D 21) D 22) B 23) E 24) C 25) E 26) B Version 1

27) A 28) A 29) A 30) D 31) B 32) D 33) A 34) E 35) E 36) A 37) C 38) A 39) D 40) A 41) B 42) E 43) D 44) B 45) C 46) B 47) A 48) C 49) C 50) A 51) E 52) B 53) A 54) A 55) D 56) E Version 1

57) C 58) D 59) A 60) E 61) B 62) A 63) D 64) B 65) B 66) B 67) B 68) D 69) D 70) D 71) The five questions comprising the task of evaluating a company’s competitive strength and cost structure are: (1) How well is the company’s strategy working? (2) What are the company’s competitively important resources and capabilities? (3) What are the company’s cost structure and customer value proposition competitive? (4) What is the company’s competitive strength relative to key rivals? and (5) What strategic issues and problems must be addressed by management?

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72) The eight indicators of how well a company’s strategy is working include: (1) whether the company is recording gains in financial strength and profitability and (2) whether the company’s competitive strength and market standing are improving. Other indicators include (3) trends in the company’s sales and earnings growth, (4) trends in the company’s stock price, (5) trends in customer retention rates, (6) rate of new customer acquisition, (7) changes in company image and reputation, and (8) evidence of improvement in internal processes such as defect rate, order fulfillment, delivery times, days of inventory, and employee productivity. 73) The six questions are as follows:1. How well is the company’s present strategy working? 2. What are the company’s most important resources and capabilities, and will they give the company a lasting competitive advantage over rival companies? 3. What are the company’s strengths and weaknesses in relation to the market opportunities and external threats? 4. How do a company’s value chain activities impact its cost structure and customer value proposition? 5. Is the company competitively stronger or weaker than key rivals? 6. What strategic issues and problems merit front-burner managerial attention? 74) True. A distinctive competence is a competitively important activity that a company performs better than its rivals—it thus represents a competitively superior internal strength. It can enable a company to deliver standout value to customers (in the form of lower prices, better product performance, or superior service).

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75) A core competence is a proficiently performed internal activity that is central to a company’s strategy and competitiveness. A core competence is a more competitively valuable strength than a competence because of the activity’s key role in the company’s strategy and the contribution it makes to the company’s market success and profitability. Often, core competencies can be leveraged to create new markets or new product demand, as the engine behind a company’s growth. 76) The more difficult and more expensive it is to imitate a company’s resource or capability, the more likely that it can also provide a sustainable competitive advantage. 77) All of these analytical techniques are means of accurately assessing the competitiveness of a company’s value chain, cost structure, and customer value proposition against the competitive environment in general and rivals in particular. 78) A first-rate SWOT analysis sizes up a company’s internal strengths and competitive deficiencies, its market opportunities, and the external threats to its future well-being. Simply listing a company’s strengths, weaknesses, opportunities, and threats is not enough; the payoff from SWOT analysis comes from the conclusions about a company’s situation and the implications for strategy improvement that flow from the four lists.

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79) True. Cross-functional capabilities draw on several different kinds of resources and are multidimensional in nature—they spring from the effective collaboration among people with different types of expertise working in different organizational units. A resource bundle is a linked and closely integrated set of competitive assets centered around one or more cross-functional capabilities. Resource bundles can sometimes pass the VRIN tests of a resource’s competitive power even when the individual components of the resource bundle cannot. They fulfill an important strategic objective as it imparts a potential for attractive and long-lived profitability. 80) See Figure 4.1. A company’s value chain identifies the primary activities that can create customer value and related support activities. Primary activities include: supply chain management, operations, distribution, sales and marketing, and customer service activities. Support activities that facilitate and enhance the performance of the primary activities can include: Product R&D, Human Resource Management, and General Administration. 81) Benchmarking is a potent tool for learning which companies are best at performing particular activities and then using their techniques (or “best practices”) to improve the cost and effectiveness of a company’s own internal activities. 82) Benchmarking is a potent tool for learning which companies are best at performing particular activities and then using their techniques (or “best practices”) to improve the cost and effectiveness of a company’s own internal activities. 83) See Figure 4.2 for an example. A company can improve its cost structure via strategies to reduce costs of suppliers and/or forward channel allies.

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84) Boll & Branch’s core competence is probably in high value-added design. Boll & Branch’s cost structure reveals the emphasis that this company places on activities that enhance differentiation and support higher prices, such as service and marketing. It also includes a profit margin component, because profits are necessary to compensate the company’s owners and investors, who bear risks and provide capital.A core competence is a proficiently performed internal activity that is central to a company’s strategy and competitiveness. A core competence is a more competitively valuable strength than a competence because of the activity’s key role in the company’s strategy and the contribution it makes to the company’s market success and profitability. Often, core competencies like product design can be leveraged to create new markets or new product demand, an engine behind Boll & Branch’s future growth. 85) Ways to reduce costs of internally performed activities and improve cost competitiveness include: (1) implementing best practices, (2) revamping the value chain, (3) relocating high-cost activities, (4) outsourcing, (5) investing in productivity improvements, (6) finding ways to detour around the activities or items, (7) product redesign, and (8) reducing costs at the supplier or distributor level. 86) Supplier-related cost disadvantages can be attacked by pressuring suppliers for lower prices, switching to lower-priced substitute inputs, and collaborating closely with suppliers to identify mutual cost-saving opportunities. There are three main ways to combat a cost disadvantage in the forward portion of the industry value chain: (1) pressure dealerdistributors and other forward channel allies to reduce their costs and markups; (2) work closely with forward channel allies to identify winwin opportunities to reduce costs, and (3) change to a more economical distribution strategy, that is, integrate forward into company-owned retail outlets. Version 1

87) Supplier-related cost disadvantages can be attacked by pressuring suppliers for lower prices, switching to lower-priced substitute inputs, and collaborating closely with suppliers to identify mutual cost-saving opportunities. 88) Companies must undertake ongoing and persistent efforts to be costefficient and develop differentiation advantages. A company’s valuecreating activities can offer a competitive advantage in one of two ways: contribute to greater efficiency and lower costs and provide a basis for differentiation. 89) Rectifying a weakness in a company’s customer value proposition can include one or more of the following three approaches: (1) implement the use of best practices throughout the company, particularly for activities that are important for creating customer value—product design, product quality, or customer service; (2) adopt best practices for marketing, brand management, and customer relationship management to improve brand image and customer loyalty; and (3) reallocate resources to activities having a significant impact on value delivered to customers—larger R&D budgets, new state-of-the-art production facilities, new distribution centers, modernized service centers, or enhanced budgets for marketing campaigns. 90) There are three main ways to combat a cost disadvantage in the forward portion (distributor-dealer) segment of the industry value chain: (1) pressure dealer-distributors and other forward channel allies to reduce their costs and markups; (2) work closely with forward channel allies to identify win-win opportunities to reduce costs, and (3) change to a more economical distribution strategy, that is, integrate forward into company-owned retail outlets.

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91) A company’s competitive strength scores pinpoint its strengths and weaknesses against rivals and point to offensive and defensive strategies capable of producing first-rate results. Competitive strength assessments thus provide useful conclusions about a company’s competitive situation. Ranking a company against its major rivals shows how a company compares against rivals, factor by factor (or capability by capability), thus revealing where it is strongest and weakest. Moreover, the overall competitive strength scores indicate whether or not a company is at a net competitive advantage or disadvantage against each rival. 92) Industry and competitive analyses reveal the key success factors and competitive forces that separate industry winners from losers. Benchmarking data and scouting key competitors provide a basis for judging rivals’ competitive strength on several factors such as cost, key product attributes, customer service, image and reputation, financial strength, technological skills, distribution capability, and other factors. Resource and capability analysis reveals which of these are competitively important, given the external situation, and whether the company’s competitive advantages are sustainable. Weights are assigned to each of the measures of competitive strength based on their perceived importance. High-weighted competitive strength ratings signal a strong competitive position and possession of competitive advantage; low ratings signal a weak position and competitive disadvantage. In addition to showing how competitively strong or weak a company is relative to rivals, the strength ratings provide guidelines for designing wise offensive and defensive strategies. Based on these ratings, a clear picture emerges on exactly what strategic and competitive challenges confront the company, which of the company’s competitive shortcomings need fixing, and what specific problems merit company managers’ frontburner attention. Version 1

93) Competitive strength scores provide useful conclusions about a company’s competitive situation, including the cost-effectiveness of its value chain, as shown in Table 4.3. Moreover, the strength rating provides guidance in all areas above, except regarding whether or not a company should shore up its weaknesses by adopting best practices and/or revamping the makeup of its value chain. 94) Competitive strength scores provide useful conclusions about a company’s competitive situation, including the cost-effectiveness of its value chain, as shown in Table 4.3. Moreover, the overall competitive strength scores indicate whether or not a company’s value chain places it at a net competitive advantage or disadvantage against each rival. 95) True. The most important analytical step is to zero in on exactly what strategic issues company managers need to address. This step involves drawing on the results of both industry and competitive analysis and the evaluations of the company’s internal situation. The task here is to get a clear fix on exactly what industry and competitive challenges confront the company, which of the company’s internal weaknesses need fixing, and what specific problems merit front-burner attention by company managers. 96) Compiling a “worry list” of problems and issues creates an agenda for managerial strategy making. Pinpointing the precise things that management needs to worry about sets the agenda for deciding what actions to take next to improve the company’s performance and business outlook.

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97) A value chain analysis for Facebook should reveal resource strengths in the following primary activities:OperationsSales and MarketingA value chain analysis for Facebook would likely be inconclusive or possibly even reveal weaknesses regarding the following primary activities:Supply Chain ManagementDistributionServiceA value chain analysis for Facebook should reveal resource strengths in the following secondary activity:Product R&D, Technology, and Systems DevelopmentGeneral AdministrationA value chain analysis for Facebook would likely be inconclusive or possibly even reveal weaknesses regarding the following secondary activity:Human Resources Management 98) Your assessment was indeed incomplete, because managers need to draw on the results of both industry analysis and the evaluations of the company’s internal situation. The task here is to get a clear fix on exactly what strategic and competitive challenges confront the company, which of the company’s competitive shortcomings need fixing, and what specific problems merit company managers’ front-burner attention. Pinpointing the precise things that management needs to worry about sets the agenda for deciding what actions to take next to improve the company’s performance and business outlook.

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99) The three moves to achieve improved cost competitiveness in the forward portion of the hotel industry value chain are as follows:1. Pressure distributors, dealers, and other supply chain partners to reduce their costs and markups. 2. Collaborate with these partners to identify win-win opportunities that derive higher added value (such as entry into the boutique hotel segment) to reduce costs. 3. Change to a more economical reservations and customer loyalty system.Rectifying a weakness in a company’s customer value proposition can include one or more of the following three approaches: (1) implement the use of best practices throughout the company, particularly for activities that are important for creating customer value—product design, product quality, or customer service; (2) adopt best practices for marketing, brand management, and customer relationship management to improve brand image and customer loyalty; and (3) reallocate resources to activities having a significant impact on value delivered to customers—larger R&D budgets, new state-of-the-art boutique hotel facilities, new in-hotel dining experiences, modernized front desk and reservations systems, or enhanced budgets for marketing campaigns.

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CHAPTER 5: The Five Generic Competitive Strategies MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) The objective of competitive strategy is to

A) provide detail to the company’s business model. B) build competitive advantage in the marketplace by giving buyers superior value relative to the offerings of rival sellers. C) get the company into the best strategic group and then dominate it. D) establish a competitively powerful value chain. E) grow revenues at a faster annual rate than rivals are able to grow their revenues.

While there are many routes to competitive advantage, they all involve

A) building a brand name image that buyers trust. B) delivering superior value to a broad or narrow market of buyers in ways rivals cannot readily match. C) achieving lower costs than rivals and becoming the industry’s sales and market share leader. D) finding effective and efficient ways to strengthen the company’s competitive assets and to reduce its competitive liabilities. E) getting in the best strategic group and dominating it.

A company’s competitive strategy deals with

A) management’s game plan for securing a competitive advantage relative to rivals. B) what its strategy will be in such functional areas as R&D, production, sales and marketing, distribution, finance and accounting, and so on. C) its efforts to change its position on the industry’s strategic group map. D) its plans for entering into strategic alliances, utilizing mergers or acquisitions to strengthen its market position, outsourcing some in-house activities to outside specialists, and integrating forward or backward. E) tweaking the value chain drivers to make them more cost competitive with rivals.

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A company’s competitive strategy should

A) be well attuned to doing an outstanding job of satisfying the needs and expectations of niche buyers. B) support its objective to become at least an average performer within its industry. C) ensure it is designed to concentrate on a small range of products so it can react quickly to competitive moves. D) be well matched to its resources and capabilities in order to incorporate standard attributes into its product offering. E) be well matched to its internal situation and predicated on leveraging its collection of competitively valuable resources and competencies.

5) Although there are many routes to competitive advantage, the two biggest factors that distinguish one competitive strategy from another are

A) whether a company’s overall costs are lower than a competitors’ and whether the company can achieve strong product differentiation. B) whether a company can offer the lowest possible prices and whether the company can get the best suppliers in the market. C) whether a company’s target market is broad or narrow and whether the company is pursuing a low cost or differentiation strategy. D) whether a company can achieve lower costs than rivals and whether the company is pursuing the industry’s sales and market share leader’s role. E) whether a company can build a brand name and an image that buyers trust.

6) The five generic types of competitive strategy are not characterized by a provider strategy.

A) best-cost B) broad low-cost C) focused differentiation D) focused low-cost E) focused high-cost

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The generic types of competitive strategies include

A) build market share, maintain market share, and slowly surrender market share. B) offensive strategies and defensive strategies. C) low-cost provider, broad differentiation, focused low-cost, focused differentiation, and best-cost provider strategies. D) low-cost/low-price strategies, high-quality/high-price strategies, mediumquality/medium-price strategies, low-cost/high-price strategies. E) price leader strategies, price follower strategies, technology leader strategies, firstmover strategies, offensive strategies, and defensive strategies.

8) A boutique hotel chain provides upscale rooms and superior customer service at value prices. What strategy is the hotelier using to gain competitive advantage?

A) focused low-cost strategy B) low-cost provider strategy C) best-cost provider strategy D) broad differentiation strategy E) focused differentiation strategy

9) The greatest and most important differences among the competitive strategies of different companies are essentially

A) whether a company’s market target is broad or narrow and whether the company is pursuing a competitive advantage linked to low cost or differentiation. B) the kinds of actions companies take to improve their competitive assets and reduce their competitive liabilities. C) the relative emphasis they place on offensive versus defensive strategies. D) the different ways the companies try to cope with the five competitive forces. E) how they go about building a brand name image that buyers trust and whether they are a risk-taker or risk-avoider.

10)

A low-cost leader’s basis for competitive advantage is

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A) lower prices than rival firms. B) using a low-cost/low-price approach to gain the biggest market share. C) high buyer switching costs. D) lower overall costs than competitors. E) higher unit sales than rivals.

11) A low-cost leader can translate its low-cost advantage over rivals into superior profit performance by

A) cutting its price to levels significantly below the prices of rivals. B) using its low-cost edge to underprice competitors and attract price-sensitive buyers in large enough numbers to increase total profits or refraining from price cutting and using the low-cost advantage to earn a higher profit margin on each unit sold. C) going all out to use its cost advantage to capture a dominant share of the market. D) spending heavily on advertising to promote the fact that it charges the lowest prices in the industry. E) outproducing rivals and thus having more units available to sell.

12)

The major avenues for achieving a cost advantage over rivals include

A) eliminating or curbing nonessential cost-producing activities and performing essential value chain activities more cost-effectively that rivals. B) having a management team that accepts below-market salaries. C) being a first mover in adopting the latest state-of-the-art technologies, especially those relating to low-cost manufacturing. D) outsourcing high-cost activities to offshore vendors. E) paying lower wages to hourly workers than what rivals are paying workers.

13)

Low-cost leaders who have the lowest industry costs are likely to

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A) pursue backward or forward integration to detour suppliers or buyers with considerable bargaining power and leverage. B) move the performance of most all value chain activities to low-wage countries. C) sell direct to users of their product or service and eliminate use of wholesale and retail intermediaries. D) have out-managed rivals in finding ways to perform value chain activities more cost-effectively. E) be considering exiting the current product market and using their competitive lowcost strength to gain a competitive advantage in other product arenas.

14)

Achieving a cost advantage over rivals entails

A) concentrating on the primary activities portion of the value chain and outsourcing all support activities. B) being a first mover in pursuing backward and forward integration, and controlling as much of the industry value chain as possible. C) performing value chain activities more cost-effectively than rivals and finding ways to eliminate or bypass some cost-producing activities. D) minimizing R&D expenses and paying below-average wages and salaries to conserve on labor costs. E) producing a standard product, redesigning the product infrequently, and having minimal advertising.

15) If you were advising which actions a company should take to perform value chain activities more cost effectively, you would not recommend that the company

A) redesign its products to eliminate those features that might have market appeal, but would excessively increase production costs. B) improve its supply chain efficiency. C) take full advantage of both experience and learning curve effects. D) attempt to operate its facilities at full capacity. E) strive to capture all available economies of scale.

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16) Which of the following is not one of the ways that a company can achieve a cost advantage by revamping its value chain?

A) Eliminating distributors and dealers by selling direct to customers. B) Replacing certain value chain activities with faster and cheaper online technology. C) Increasing production capacity and then striving hard to operate at full capacity. D) Relocating facilities so as to curb the need for shipping and handling activities. E) Streamlining operations by eliminating low value-added or unnecessary work steps and activities.

17) A competitive strategy of striving to be the low-cost provider is particularly attractive when

A) buyers are not price sensitive. B) the industry is made up of a large number of or equal-sized rivals. C) there are many ways to achieve product differentiation that have value to buyers. D) price competition is especially vigorous, buyers have low switching costs, and the majority of industry sales are made to a few large-volume buyers. E) switching costs are high, price competition is strong, and buyers tend to use the industry’s products in many different ways.

18) A competitive strategy to be the low-cost provider in an industry typically does not work well when

A) price competition among rival sellers is especially vigorous. B) commodity-based product prevails and minimal differentiation exists. C) buyers incur low costs in switching their purchases from one seller or brand to another. D) industry newcomers use low introductory prices to attract buyers and build a customer base. E) emergent strategies are required to respond to changes in competitor power.

19) In which of the following circumstances is a strategy to be the industry’s overall low-cost provider not particularly well matched to the market situation? Version 1

A) when the offerings of rival firms are essentially identical, standardized, commoditylike products B) when there are few ways to achieve differentiation that have value to buyers C) when price competition is especially vigorous D) when buyers have widely varying needs and special requirements, and when the costs of switching purchases from one seller to another are relatively high E) when industry newcomers use introductory prices to build a customer base

20)

The value to a company of pursuing a low-cost provider strategy is contingent upon

A) the leader’s ability to combine the cost advantage with a reputation for good quality. B) the leader’s ability to excel in manufacturing innovation so as to continuously reduce its manufacturing costs. C) the leader’s ability to attain the biggest market share in the industry. D) whether or not it is easy or inexpensive for rivals to copy the low-cost leader’s methods or otherwise match its low costs. E) the aggressiveness with which the low-cost leader pursues converting the cost advantage into the absolute lowest possible costs.

21) A strategy to be the industry’s overall low-cost provider tends to be more appealing than a differentiation or focus strategy when

A) there are many ways to achieve product differentiation that buyers find appealing. B) buyers use the product in a variety of different ways. C) the offerings of rival firms are essentially identical, standardized, commodity-like products. D) buyers have high switching costs in changing from one seller’s product to another. E) the market is composed of many buyer types, all with varying needs and expectations.

22)

Which of the following is not one of the pitfalls of a low-cost provider strategy?

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A) overly aggressive price cutting B) using a cost-based advantage to improve the company’s bargaining position with high-volume buyers C) using approaches to reducing costs that can be easily copied by rivals D) cutting prices more than the size of a company’s cost advantage E) becoming so fixated on cost reductions that products become too features-poor

23)

Examples of important cost drivers in a company’s value chain do not include

A) input costs. B) capacity utilization. C) learning and experience. D) production technology and design. E) customer service.

24) A fast-food restaurant stocks bread, meat, sauces, and other main ingredients, but does not assemble and cook its burgers and sandwiches until a customer places an order. Which cost driver is the restaurant efficiently using to cut costs?

A) economies of scale B) capacity utilization C) supply chain efficiencies D) bargaining power E) incentive systems and culture

25)

Successful differentiation allows a firm to

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A) command the largest market share in the industry. B) set the industry ceiling on price. C) avoid being overly concerned about whether entry barriers into the industry are high or low. D) command a premium price for its product and/or increase unit sales and/or gain buyer loyalty to its brand. E) take sales and market share away from rivals by undercutting them on price.

26) Domino’s Pizza has a well-known slogan: “We’ll deliver in 30 minutes or less, or it’s free!” By using this slogan, what has the pizza maker achieved?

A) given a sense of exclusivity to its customers B) increased its ability to charge a price premium for its product (because buyers see its differentiating features as worth something extra) C) coordinated with suppliers to better address customer needs D) created a new delivery system E) built a unique customer value proposition

27)

Companies can pursue differentiation from many angles, except

A) providing a unique competitive product taste. B) executing superior customer service. C) ensuring engineering design and performance benefits. D) providing products that ensue luxury and prestige. E) investing in managerial productivity and enjoying experience curve effects.

28)

Easy-to-copy differentiating features

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A) do not offer the promise of sustainable competitive advantage. B) are less expensive to integrate into a product or service offering. C) tend to create as much value for consumers as difficult-to-copy differentiating features. D) should be patented before other companies follow suit. E) lead to vigorous price competition.

29)

The most appealing approaches to differentiation are those that

A) are the most costly to incorporate. B) match the differentiating features offered by rivals in the industry. C) can be made even more attractive to buyers via clever advertising. D) appeal to the most affluent consumers. E) are hard or expensive for rivals to duplicate and have considerable buyer appeal.

30) Hilton Hotels has diversified its lodging brands by adding Curio Collection, Tapestry Collection, and Canopy by Hilton, properties that offer stylish, distinctive decors and personalized services that appeal to young professionals seeking distinctive lodging alternatives. Managers can enhance the differentiation of these new brands based on all of these value drivers except

A) striving to create superior product features, design, and performance. B) striving for innovation and technological advances. C) pursuing continuous quality improvement. D) increasing the intensity of marketing, brand building, and sales activities. E) seeking out low-quality inputs.

31)

A differentiation strategy works best when

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A) buyers’ needs are homogeneous. B) many rival firms are also pursuing a differentiation approach. C) firms have ample excess cash to invest in R&D activities. D) there are few other ways to make a product unique to buyers. E) technological change is fast-paced and competition revolves around rapidly evolving product features.

32)

A differentiation-based competitive advantage

A) nearly always is attached to the quality and service aspects of a company’s product offering. B) most often is the result of highly effective marketing and advertising campaigns designed to build awareness and recognition of the product or service offering. C) requires developing at least one distinctive competence that buyers consider valuable. D) hinges on a company’s success in developing top-of-the-line product features that will command the biggest price premium in the industry. E) often hinges on incorporating features that: (1) raise the performance of the product, (2) lower the buyer’s overall costs of using the company’s product, (3) enhance buyer satisfaction in intangible or noneconomic ways, or (4) deliver value to customers by exploiting competitive capabilities that rivals can’t match.

33)

Opportunities to differentiate a company’s product offering

A) are always dependent on the capabilities of the company’s R&D staff. B) are more likely to be captured by highly skilled marketers. C) can exist in supply chain activities, R&D, manufacturing activities, distribution and shipping, or marketing, sales, and customer service. D) usually are tied to product quality, durability, reliability, and proliferation. E) are most frequently attached to a product’s brand image, performance, and reliability.

34)

A route to take in developing a differentiation advantage includes

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A) signaling value by targeting sophisticated buyers. B) incorporating intangible features that enhance buyer satisfaction in economic ways. C) emphasizing high quality and performance of products through a standard and simple, no-fuss packaging. D) incorporating product attributes and user features that raise the buyer’s overall costs, but keep the price low. E) incorporating tangible features that add functionality, increase customer satisfaction with the product specifications, functions, and styling.

35)

Broad differentiation strategies are well suited for market conditions where

A) there are many ways to differentiate the product or service and many buyers perceive these differences as having value. B) most buyers have the same needs and use the product in the same ways. C) buyers are susceptible to clever advertising. D) barriers to entry are high and suppliers have a low degree of bargaining power. E) price competition is especially vigorous.

36)

Broad differentiation strategies generally work best in market circumstances where

A) buyer needs and preferences are too diverse to be fully satisfied by a standardized product. B) most buyers have similar needs and use the product in similar ways. C) the products of rivals are weakly differentiated and most competitors are resorting to clever advertising to try to set their product offerings apart. D) buyers are price sensitive and buying switching costs are quite low. E) the five competitive forces are strong.

37)

A broad differentiation strategy works best in situations characterized by

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A) slow-paced technological change and infrequent new or improved product introductions. B) similar buyer needs and uses of the product. C) low switching costs to rival brands incurred by buyers. D) low bargaining power and frequent purchases by buyers. E) fast-paced technological change and rapidly evolving product features that drive competition.

38)

A broad differentiation strategy generally produces the best results in situations where

A) buyer brand loyalty is low. B) few rivals are following a similar differentiation approach. C) new and improved products are introduced only infrequently. D) most rivals are seeking to differentiate their products on most of the same features and attributes. E) price competition is vigorous.

39) In which one of the following market circumstances is a broad differentiation strategy generally not well suited?

A) when buyer needs and preferences are diverse B) when few rivals are pursuing a similar differentiation approach C) when buyers are homogeneous in their needs and preferences, and are generally satisfied with standardized product D) when there are many ways to differentiate the product or service and many buyers perceive these differences as having value E) when technological change is fast-paced and competition revolves around rapidly evolving product features

40)

A low-cost provider strategy can defeat a differentiation strategy

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A) when a company can offset thinner profit margins per unit by selling sufficient additional units to increase total profits. B) when there are few ways to differentiate a product or a service and many buyers perceive these differences valuable. C) when customers are basically satisfied and don’t think extra attributes are worth a higher price feature. D) when there are many ways to differentiate the product or service and many buyers perceive these differences as having value. E) when technological change is fast-paced and competition revolves around rapidly evolving product features.

41)

A pitfall to avoid in pursuing a differentiation strategy is

A) charging a premium price for the differentiating features. B) spending on activities to differentiate the company’s product to enhance profitability. C) meeting and exceeding the meaningful gaps in quality, performance, service, and other attractive differentiating attributes offered by rivals. D) choosing a product offering that supports buyers’ indifference to rival brands’ offerings. E) trying to differentiate on the basis of attributes or features that are easily copied.

42)

Which of the following is not one of the pitfalls of pursuing a differentiation strategy?

A) trying to strongly differentiate the company’s product from those of rivals rather than be content with weak product differentiation B) over-differentiating so that the features and attributes incorporated exceed buyer needs and requirements C) trying to charge too high a price premium for the differentiating features D) differentiating on features or attributes that rivals can easily copy E) overspending on efforts to differentiate the company’s product offering

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43) What sets focused (or market niche) strategies apart from low-cost leadership and broad differentiation strategies is

A) the extra attention paid to top-notch product performance and product quality. B) their concentrated attention on a narrow piece of the overall market. C) greater opportunity for competitive advantage. D) their suitability for market situations where most industry rivals have weakly differentiated products. E) their objective of delivering more value for the money.

44) The advantages of focusing a company’s entire competitive effort on a single market niche allows for

A) models. B) C) D) E) threats.

45)

going after a national customer base with a “something for everyone” lineup of scaling operations to serve the customer market segment. utilizing the full depth of the company’s resources across a broad base of customers. executing competencies and capabilities better than competitors. developing offensive strategies that address company weaknesses and environmental

A focused low-cost strategy seeks to achieve competitive advantage by

A) outmatching competitors in offering niche members an absolute rock-bottom price. B) delivering more value for the money than other competitors. C) performing the primary value chain activities at a lower cost per unit than can the industry’s low-cost leaders. D) dominating more market niches in the industry via a lower cost and a lower price than any other rival. E) serving buyers in the target market niche at a lower cost and lower price than rivals.

46)

The chief difference between a low-cost leader strategy and a focused low-cost strategy is

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A) whether the product is strongly differentiated or weakly differentiated from rivals. B) the degree of bargaining power that buyers have. C) the size of the buyer group that a company is trying to appeal to. D) the production methods being used to achieve a low-cost competitive advantage. E) the number of upscale attributes incorporated into the product offering.

47)

A focused differentiation strategy aims at securing competitive advantage

A) by providing niche members with a top-of-the-line product at a premium price. B) by catering to buyers looking for an upscale product at an attractively low price. C) with a product or service offering carefully designed to appeal to the unique preferences and needs of a narrow, well-defined group of buyers. D) by developing product attributes that no other company in the industry has. E) by convincing affluent buyers that the company has a true world-class product.

48)

The risks of a focused strategy for a company like Canada Goose include the

A) chance that niche customers will bargain more aggressively for good deals than customers in the overall marketplace. B) potential for the preferences and needs of niche members to shift over time toward product attributes desired by buyers in the mainstream portion of the market. C) potential for the segment to be highly vulnerable to economic cycles. D) potential for segment growth to race beyond the production or service capabilities of incumbent firms. E) potential for the segment to become too specialized for other multisegmented rivals to enter.

49)

A focused differentiation strategy can lead to an attractive competitive advantage when

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A) industry leaders have chosen not to compete in the niche. B) buyers are not strongly loyal to a brand and a large number of other rivals are attempting to specialize in the same target segment. C) the industry has many different segments and market niches, thereby allowing a focuser to pick an attractive niche suited to its resource strengths and capabilities. D) the target market niche is big enough to be profitable and offers good growth potential. E) it is costly or difficult for multi-segment competitors to meet the specialized needs of the target market niche and at the same time satisfy the expectations of their mainstream customers.

50) Focusing provides the ability to secure a competitive edge, but it also carries some risks that will be detrimental to the focused firm, such as

A) the chance that competitors will not find effective ways to match the focused company’s capabilities in serving the market niche. B) the potential for the preferences and needs of niche members to shift over time toward mainstream provider product attributes. C) the potential for the niche to become so attractive that it will not attract new competitors, thereby providing excessive market segment profits. D) the likelihood that a focused company will become so cost efficient that it will achieve excessive profits. E) the possibility that a broad low-cost strategy will always trump a firm’s best-cost provider strategy.

51) For all types of generic strategies, a company’s success in sustaining its competitive edge depends on

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A) its market and competitive environment, a defensible niche, and homogeneous strategic group. B) establishing a central theme for how the company will endeavor to outcompete its rivals and engage complementors with cooperative strategies. C) having resources and capabilities that rivals have trouble duplicating and for which there are no good substitutes. D) defining its differences in terms of product line, production emphasis, location, joint ventures, and strategic alliances. E) defining its differences in terms of marketing emphasis, strategic group intracompetition, and the means of maintaining strategy.

52)

A firm pursuing a best-cost provider strategy

A) seeks to offer more value-adding features than the industry’s low-cost providers and lower prices than those pursuing differentiation. B) achieves competitive advantage because its operating activities are “best-in-class” or “best-in-world.” C) tries to have the best cost (as compared to rivals) for each activity in the industry’s value chain. D) opts for a “middle of the road” strategic approach that attempts to satisfy the product or service needs of consumers with average household incomes. E) follows a hybrid strategy based upon superior resources and a narrow market niche.

53)

The aim of the best-cost provider strategy is to create a competitive advantage by

A) incorporating attractive or upscale product attributes at a lower cost than rivals. B) offering buyers the industry’s best-performing product at the best cost and best (lowest) price in the industry. C) attracting buyers on the basis of having the industry’s overall best-performing product at a price that is slightly below the industry-average price. D) outcompeting rivals using low-cost provider strategies. E) translating its best-cost status into achieving the highest profit margins of any firm in the industry.

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54)

For a best-cost provider strategy to be successful, a company must have

A) excellent marketing and sales skills in convincing buyers to pay a premium price for the attributes/features incorporated in its product. B) the capability to incorporate upscale attributes at lower costs than rivals whose products have similar upscale attributes. C) access to greater learning and experience curve effects and scale economies than rivals. D) one of the best-known and most respected brand names in the industry. E) a short, low-cost value chain.

55)

The target market of a best-cost provider is

A) value-conscious buyers. B) brand-conscious buyers. C) price-sensitive buyers. D) middle-income buyers. E) young adults (in the 18-to-35 age group).

56)

American Giant’s biggest vulnerability in employing a best-cost provider strategy is

A) relying too heavily on outsourcing. B) getting squeezed between the strategies of firms employing low-cost provider strategies and high-end differentiation strategies. C) getting trapped in a price war with low-cost leaders. D) being timid in cutting its prices far enough below high-end differentiators to win away many of their customers. E) not having a sustainable distinctive competence in cost reduction.

57)

A company’s biggest vulnerability in employing a best-cost provider strategy is

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A) relying too heavily on outsourcing. B) getting squeezed between firms employing low-cost provider strategies and those using high-end differentiation strategies. C) getting trapped in a price war with low-cost leaders. D) being timid in cutting its prices far enough below high-end differentiators to win away many of their customers. E) not having a sustainable distinctive competence in cost reduction.

58)

Best-cost provider strategies are appealing in those market situations where

A) buyers are more quality-conscious than price-conscious. B) diverse buyer preferences make product differentiation the norm and where a large number of value-conscious buyers can be induced to purchase mid-range products. C) there are numerous buyer segments, buyer needs are diverse across these segments, only a few of the segments are growing rapidly, and sellers’ products are strongly differentiated. D) buyers are more performance-conscious than value-conscious. E) a company is positioned between rivals who have ultra-low prices and rivals who have top-notch products in terms of both quality and performance.

59) Success with a best-cost provider strategy designed to outcompete high-end differentiators requires

A) achieving significantly lower costs in providing the upscale features. B) motivating buyers to purchase upscale features that match rivals. C) achieving the lowest costs in the industry. D) matching the company’s resources and capabilities to a low-cost provider status. E) providing significantly better product attributes in order to justify a price above what low-cost leaders are charging.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 60) What are the five generic competitive strategies? Briefly describe each one and identify the type of competitive advantage that each strategy is aimed at achieving.

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61) Identify cost drivers in a company’s value chain. Explain how these drivers impact a firm’s generic strategy.

62) Compare and contrast cost drivers and uniqueness drivers in a company’s value chain. Explain how these drivers might support a firm’s generic strategy.

63) What are the distinctive features of a focused low-cost strategy? How does a focused low-cost strategy differ from a low-cost leadership strategy?

64) What are the distinctive features of a broad differentiation strategy? Under what circumstances is a broad differentiation strategy appealing?

65) What are the distinctive features of a focused differentiation strategy? How is it different from a broad differentiation strategy?

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66) In what market and competitive circumstances are focused low-cost and focused differentiation strategies attractive?

67) Which one of the five generic competitive strategies is most likely to be best suited for an industry whose product is a commodity? Explain.

68) One of the big pitfalls in crafting a competitive strategy is that managers, who are torn about the pros and cons of the various generic strategies, will opt for “stuck in the middle” strategies that represent compromises between lower costs and greater differentiation, and between broad and narrow market appeal. True or false? Explain your answer.

69) Match each of the organizations/companies below to its competitive strategy. Explain your choices. Organization/Company

Competitive Strategy

Clinícas del Azúcar

Low cost

Canada Goose

Focused low cost

Prada

Differentiation

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American Giant

Focused differentiation

Vanguard

Best-Cost

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Answer Key Test name: Chap 05_7e 1) B 2) B 3) A 4) E 5) C 6) E 7) C 8) C 9) A 10) D 11) B 12) A 13) D 14) C 15) A 16) C 17) D 18) E 19) D 20) D 21) C 22) B 23) E 24) C 25) D 26) E Version 1

27) E 28) A 29) E 30) E 31) E 32) E 33) C 34) E 35) A 36) A 37) E 38) B 39) C 40) C 41) E 42) A 43) B 44) B 45) E 46) C 47) C 48) B 49) B 50) B 51) C 52) A 53) A 54) B 55) A 56) B Version 1

57) B 58) B 59) A 60) See Figure 5.1. Low-cost (broad or focused), differentiation, (broad or focused), and a hybrid or best-cost provider are the five generic types of competitive strategies. 61) A cost driver is a factor having a strong effect on the cost of a company’s value chain activities and cost structure. See Figure 5.2 for a list of cost drivers. Aspects of a low-cost leadership strategy can include: (1) striving to capture all available economies of scale, (2) taking full advantage of experience and learning curve effects, (3) trying to operate facilities at full capacity, (4) substituting lower-cost inputs whenever there’s little or no sacrifice in product quality or product performance, (5) employing advanced production technology and process design to improve overall efficiency, (6) using communication systems and information technology to achieve operating efficiencies, (7) using the company’s bargaining power vis-à-vis suppliers to gain concessions, (8) being alert to the cost advantages of outsourcing and vertical integration, and (9) pursuing ways to boost labor productivity and lower overall compensation costs.

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62) See Figures 5.2 and 5.3. A cost driver is a factor that has a strong effect on the cost of a company’s value chain activities and ability to become a low-cost provider, whereas uniqueness driver is a value chain activity or factor that can have a strong impact on customer value and creating differentiation. Cost drivers include (1) striving to capture all available economies of scale, (2) taking full advantage of experience and learning curve effects, (3) trying to operate facilities at full capacity, (4) substituting lower-cost inputs whenever there’s little or no sacrifice in product quality or product performance, (5) employing advanced production technology and process design to improve overall efficiency, (6) using communication systems and information technology to achieve operating efficiencies; (7) using the company’s bargaining power vis-àvis suppliers to gain concessions, (8) being alert to the cost advantages of outsourcing and vertical integration, and (9) pursuing ways to boost labor productivity and lower overall compensation costs. Uniqueness drivers, on the other hand, include such factors as (1) high quality inputs; (2) innovation and technological advances; (3) superior product features; (4) production-related R&D investments; (5) continuous quality improvement; (6) improving skills of personnel, marketing and brand-building; and (7) enhanced customer service.

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63) Achieving a low-cost edge over rivals comes from eliminating and/or curbing “nonessential” activities and out-managing rivals in performing essential activities. A cost driver is a factor having a strong effect on the cost of a company’s value chain activities and cost structure. See Figure 5.2 for a list of cost drivers. Aspects of a low-cost leadership strategy can include: (1) striving to capture all available economies of scale, (2) taking full advantage of experience and learning curve effects, (3) trying to operate facilities at full capacity, (4) substituting lower-cost inputs whenever there’s little or no sacrifice in product quality or product performance, (5) employing advanced production technology and process design to improve overall efficiency, (6) using communication systems and information technology to achieve operating efficiencies, (7) using the company’s bargaining power vis-àvis suppliers to gain concessions, (8) being alert to the cost advantages of outsourcing and vertical integration, and (9) pursuing ways to boost labor productivity and lower overall compensation costs. A focused strategy based on low cost, on the other hand, aims at securing a competitive advantage by serving buyers in a target market niche at a lower cost and a lower price than rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. The avenues to achieving a cost advantage over rivals also serving the target market niche are the same as for low-cost leadership: out-managing rivals in keeping the costs to a bare minimum and searching for innovative ways to bypass or reduce nonessential activities. The only real difference between a low-cost provider strategy and a focused low-cost strategy is the size of the buyer group to which a company is appealing.

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64) See Figure 5.3. Aspects of a broad differentiation strategy can include: (1) seeking out high-quality input; (2) striving for innovation and technological advances; (3) creating superior product features, design, and performance; (4) investing in production-related R&D activities; (5) pursuing continuous quality improvement; (6) emphasizing human resource management activities that improve the skills, expertise, and knowledge of company personnel; (7) increasing emphasis on marketing and brand-building activities; and (8) improving customer service or adding additional services. A broad differentiation strategy tends to work best when: (1) buyer needs and uses of the product are diverse; (2) there are many ways to differentiate the product or service that have value to buyers; (3) few rival firms are following a similar differentiation approach; and (4) technological change is fastpaced and competition revolves around rapidly evolving product features. 65) A focused differentiation strategy is keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers, or market niche, whereas a broad differentiation strategy is aimed at a mass market composed of many buyer groups and market segments. 66) As opposed to broader market strategies, a focused strategy based on low cost aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and a lower price than rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. Focused differentiation strategies, on the other hand, are keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers, or market niche, instead of a broad differentiation strategy that is aimed at many buyer groups and market segments. Version 1

67) A low-cost provider strategy tends to work best when the products of rival sellers are essentially identical and are readily available from several sellers. Commodity-like products and/or ample supplies set the stage for lively price competition; in such markets, it is the less-efficient, higher-cost companies that are most vulnerable. 68) True. A company’s biggest vulnerability in employing a best-cost provider strategy is not having the requisite core competencies and efficiencies in managing value chain activities to support the addition of differentiating features without significantly increasing costs. A company with a modest degree of differentiation and no real cost advantage will most likely find itself squeezed (or “trapped in the middle”) between the firms using low-cost strategies and those using differentiation strategies. Thus, a successful best-cost provider must offer buyers significantly better product attributes to justify a price above what low-cost leaders are charging. Likewise, it has to achieve significantly lower costs in providing upscale features so that it can outcompete high-end differentiators on the basis of a significantly lower price.

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69) Canada Goose: A focused differentiation strategy—see Concepts & Connections 5.3—the strategic target is a narrow market niche where buyer needs and preferences are distinctively different. Through small scale production or custom-made products, it focuses on product features and attributes that appeal specifically to niche members. Its marketing emphasis is on communicating how product offering does the best job of meeting niche buyers’ expectations. So it calls for staying committed to serving the niche better than rivals without blurring the firm’s image by entering other market segments or adding other products to widen market appeal.Clinícas del Azúcar: A focused lowcost strategy—aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and lower price than those of rival competitors. This strategy has considerable attraction when a firm can lower costs significantly by limiting its customer base to a well-defined buyer segment. See Concepts & Connections 5.2.American Giant: A best-cost strategy—creates competitive advantage by giving buyers more value for the money—delivering superior quality, features, performance, and/or service attributes while also beating customer expectations on price, possesses the capability to incorporate attractive or upscale attributes at a lower cost than rivals. See Concepts & Connections 5.4. Prada: A broad differentiation strategy—(1) creates product features that appeal to a wide range of buyers, (2) improves customer service or adds extra services, (3) invests in production-related R&D activities, (4) striving for innovation or technological advances, (5) pursues continuous quality improvement, (6) increases marketing and brand-building activities, (7) seeks out highquality inputs, and (8) emphasizes human resource management activities that improve the skills, expertise, and knowledge of company personnel. Vanguard: A broad low-cost provider strategy—tends to work best when the products of rival sellers are essentially identical and Version 1

are readily available from several sellers. Commodity-like products and/or ample supplies set the stage for lively price competition; in such markets, it is the less efficient, higher-cost companies that are most vulnerable. See Concepts & Connections 5.1.

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CHAPTER 6: Strengthening a Company’s Competitive Position: Strategic Management MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Bonobos’s Guideshop store concept allows men to have a personalized shopping experience, where they can try on clothing in any size or color, and then have it delivered the next day to their home or office. This fashion retail concept is a good example of

A) a defensive strategy to capture occupied territory by maneuvering around rivals. B) a defensive strategy to minimize the competitive advantages of rivals. C) an offensive strategy to offer an equally good or better product at a lower price. D) an offensive strategy to leapfrog competitors by being the first adopter of nextgeneration technologies or being first to market with next-generation products. E) an offensive strategy to seek uncharted waters and compete in blue oceans.

2) A company’s menu of strategic choices to supplement its decision to employ one of the five basic competitive strategies does not include

A) whether and when to employ defensive strategies to protect the company’s market position. B) whether to integrate backward or forward into more stages of the industry value chain. C) whether to employ a preemptive strike type of green ocean strategy. D) whether and when to go on the offensive and initiate aggressive strategic moves to improve the company’s market position. E) whether to bolster the company’s market position via acquisition or merger and/or whether to enter into strategic alliances or partnership arrangements with other enterprises.

3) Companies like Amazon, Apple, Facebook, and Google employ all but one of the following offensive actions to complement and supplement the choice of one of the five generic competitive strategies. Which is not an example of an offensive move?

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A) focusing on building competitive advantages B) employing the element of surprise as opposed to doing what rivals expect and are prepared for C) pursuing a market share leadership strategy D) displaying a strong bias for swift, decisive, and overwhelming actions to overpower E) creating and deploying company resources to cause rivals to defend themselves

Which one of the following is an example of an offensive strategy?

A) blocking the avenues open to challengers B) signaling challengers that retaliation is likely C) pursuing continuous product innovation to draw sales and market share away from less innovative rivals D) introducing new features or models to fill vacant niches in its overall product offering and better match the product offerings of key rivals E) maintaining a war chest of cash and marketable securities

A hit-and-run or guerrilla warfare type offensive strategy

A) involves random offensive attacks used by a market leader to steal customers away from unsuspecting smaller rivals. B) involves undertaking surprise moves to secure an advantageous position in a fastgrowing and profitable market segment; usually the guerrilla signals rivals that it will use deep price cuts to defend its newly won position. C) works best if the guerrilla is the industry’s low-cost leader. D) involves pitting a small company’s own competitive strengths head-on against the strengths of much larger rivals. E) involves unexpected attacks (usually by a small to medium-sized competitor) to grab sales and market share from complacent or distracted rivals.

Launching a preemptive strike type of offensive strategy entails

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A) cutting prices below a weak rival’s costs. B) moving first to secure an advantageous competitive assets that rivals can’t readily match or duplicate. C) using hit-and-run tactics to grab sales and market share away from complacent or distracted rivals. D) attacking the competitive weaknesses of rivals. E) leapfrogging into next-generation products and technologies, thus forcing rivals to play catch-up.

7) Bumble, a digital dating site where women make the first move, specifically uses which strategic weapon in its offensive arsenal?

A) pursuing disruptive product innovations to create new markets B) adopting and improving on the good ideas of other companies or rival firms C) using hit-and-run guerrilla warfare tactics to grab market share from distracted or complacent rivals D) launching a preemptive strike to capture an industry’s limited resources or capture a rare opportunity E) offering an equally good or better product at a lower price than rivals

A good example of blue-ocean type of offensive strategy is

A) a company like EERO that leapfrogged rivals in innovation in the home WiFi market. B) a company like EasyJet that developed a cost advantage to undercut its rivals in passenger airlines. C) a company like Home Depot that adopted and improved on the good ideas of other companies. D) a company like Etsy that connected thoughtful consumers with artisans selling unique hand-crafted items. E) a company like Google that plays hardball, aggressively pursuing competitive advantage and trying to reap the benefits a competitive edge offers—a leading market share, excellent profit margins, and rapid growth.

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A blue ocean type of offensive strategy

A) refers to initiatives by a market leader to steal customers away from unsuspecting smaller rivals. B) involves a preemptive strike to secure an advantageous position in a fast-growing market segment. C) entails attacking rivals head-on with deep price discounts and continuous product innovation. D) involves abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry or new market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand. E) involves the use of surprise hit-and-run guerrilla tactics to harass money-losing rivals and drive them into bankruptcy.

10)

A blue ocean strategy

A) is an offensive attack used by a market leader to steal customers away from unsuspecting smaller rivals. B) involves a preemptive strike to secure an advantageous position in a fast-growing market segment. C) works best when a company is the industry’s low-cost leader. D) offers growth in revenues and profits by discovering or inventing a new industry or distinct market segment that renders rivals largely irrelevant and allows a company to create and capture altogether new demand. E) involves the use of highly creative, never-used-before strategic moves to attack the competitive weaknesses of rivals.

11) Which of the following is not an example of a company that uses blue ocean market strategy?

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A) FedEx in overnight package delivery B) Walmart’s logistics and distribution in the retail industry C) Cirque de Soleil in the live entertainment industry D) Gilt Groupe in the luxury flash sale industry E) Starbucks in the coffee shop industry

12)

The purposes of defensive strategies include

A) discouraging deep price discounting on the part of ambitious rivals seeking to capture additional sales and market share. B) lowering the risk of being attacked by rivals, weakening the impact of any attack that occurs, and influencing challengers to aim their offensive efforts at other rivals. C) insulating a company from the impact of competitive pressures and industry driving forces. D) weakening competitors in ways that make them largely irrelevant. E) widening a company’s competitive advantage over rivals.

13) Which one of the following is not a good example of a defensive strategy to protect a company’s market share and competitive position?

A) adding new features or models and otherwise broadening the product line to close off vacant niches and gaps to opportunity-seeking challengers B) thwarting the efforts of rivals to attack with lower prices by maintaining economypriced options of its own C) engaging in a preemptive strike strategy in an effort to discourage rivals from being aggressive D) signaling challengers that retaliation is likely in the event that they launch an attack E) making early announcements about impending new products or price changes to induce potential buyers to postpone switching

14) Which of the following is not an example of a defensive move to protect a company’s market position and restrict a challenger’s options for initiating competitive attack?

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A) granting volume discounts or better financing terms to dealers/distributors and providing discount coupons to buyers to help discourage them from experimenting with other suppliers or brands B) signaling challengers that retaliation is likely in the event they launch an attack C) publicly committing the company to a policy of matching a competitors’ terms or prices D) maintaining a war chest of cash and marketable securities E) challenging struggling runner-up firms that are on the verge of going under

15) Which of the following ways are employed by defending companies to fend off a competitive attack?

A) excluding volume discounts or avoiding better financing terms in order to maintain current profitability levels B) avoiding a competitor’s clients because their loyalty will not allow them to switch C) adhering to current product features and models to ensure that resources are not diverted toward unproductive efforts D) trimming the length of warranties to save money E) gaining product line exclusivity to force competitors to use other distributors

16) Which of the following signals would not warn challengers that strong retaliation is likely?

A) publicly committing to a company policy of matching competitors’ terms or pricing B) making a strong counterresponse to the moves of weak competitors C) publicly announcing management’s commitment to maintain market share D) maintaining a war chest of cash and marketable securities E) announcing strong quarterly earnings potential to financial analysts.

17) Being first to initiate a strategic move can have a high payoff in all but which one of the following instances?

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A) when pioneering helps build a firm’s image and reputation with buyers B) when first-time customers remain strongly loyal to pioneering firms in making repeat purchases C) when early commitments to new technologies, new-style components, new or emerging distribution channels, and so on can produce an absolute cost advantage over rivals D) when moving first can constitute a preemptive strike, making imitation extra hard or unlikely E) when pioneering leadership is costlier than followership

18) First-mover advantages are unlikely to be present in which one of the following instances?

A) when pioneering helps build a firm’s image and reputation with buyers B) when first-time customers remain strongly loyal to pioneering firms in making repeat purchases C) when early commitments to new technologies, new-style components, new or emerging distribution channels, and so on can produce an absolute cost advantage over rivals D) when moving first can constitute a preemptive strike, making imitation extra hard or unlikely E) when rapid market evolution (due to fast-paced changes in technology or buyer preferences) presents opportunities to leapfrog a first-mover’s products with more attractive nextversion products

19)

First-mover disadvantages (or late-mover advantages) rarely arise when

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A) rapid market evolution gives fast followers an opening to leapfrog the pioneer with next-generation products of their own. B) the market response is strong and the pioneer gains a monopoly position that enables it to recover its investment. C) the marketplace remains skeptical about the benefits of a new technology or product being pioneered by a first-mover. D) the costs of pioneering are much higher than being a follower and only negligible learning/experience curve benefits accrue to the pioneer. E) the pioneer’s products are somewhat primitive and do not live up to buyer expectations, allowing clever followers to win disenchanted buyers with better-performing products.

20) The race among rivals for industry leadership is more likely to be a marathon rather than a sprint when

A) the market depends on the development of complementary products or services that are currently not available, buyers have high switching costs, and influential rivals are in position to derail the efforts of a first-mover. B) fast followers find it easy to leapfrog the pioneer with even better next-generation products of their own. C) entry barriers are high, substitute products or services are readily available, and buyers are prone to negotiate aggressively for better terms and lower prices. D) there are nearly always big advantages to being a slow mover rather than an early mover, especially in regard to avoiding the “mistakes” of first or early movers. E) new industry or market segments are yet to be developed and create altogether new consumer demand.

21)

Market conditions and factors that tend not to favor first movers include

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A) growth in demand that depends on the development of complementary products or services that are not currently available and new industry infrastructure that is needed before buyer demand can surge. B) quick market penetration and strong loyalty among first-time customers. C) buyer behavior that is readily attracted to new technology or product features. D) conditions that make imitation difficult and absolute cost advantages that accrue to those who make early commitments to new technologies, components, or distribution channels. E) when technology is not rapidly evolving and buyers’ expectations are not likely to be subject to change.

22)

What does the scope of the firm refer to?

A) the firm’s capability to employ vertical integration strategies B) the combining of two or more companies into a single corporate entity (with the newly created company often taking on a new name) C) the range of activities the firm performs internally and the breadth of its product offerings, the extent of its geographic market, and its mix of businesses D) the ability of the firm to gain competitive advantage based on where it locates its various value chain activities E) the ability of the firm to prevent foreign competition from affecting the market

23) Expedia’s merger and acquisition of Home Away, Inc. did not have the following intended outcome?

A) expanding Expedia’s geographic coverage B) providing Expedia with quick access to new technologies or complementary resources and capabilities C) enabling Expedia to lead the convergence of the travel and vacation rental industries, whose boundaries are being blurred by changing technologies and new market opportunities D) extending Expedia’s business into new product categories E) suppressing rival company Orbitz’s breakthroughs in management or technology

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24)

The hallmarks of Tesla’s vertical integration strategy do not include

A) investments in a “gigafactory” that manufactures the batteries that are essential for a long-lasting Tesla electric vehicle. B) research and development and rapid deployments of Tesla’s control integration systems (creating control factors across its entire value chain). C) in-house manufacturing of key components and new parts that require frequent updates resulting in a shorter learning curve and more rapid new Tesla vehicle development. D) fostering closer relationships between Tesla engineering and manufacturing departments to provide greater control over product design. E) a network of dealerships that allows Tesla to sell directly to consumers and handle maintenance needs without relying on third parties that sometimes have competing priorities.

25)

The difference between a merger and an acquisition is

A) a merger involves one company purchasing the assets of another company with cash, whereas an acquisition involves one company becoming the owner of another company by buying all of the shares of its common stock. B) a merger is the combining of two or more companies into a single corporate entity (with the newly created company often taking on a new name), whereas an acquisition is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired. C) nonexistent; in both instances, two companies become one. D) the brands of both companies are retained in a merger, whereas with an acquisition, there is only one surviving brand name. E) a merger involves two or more companies deciding to adopt the same strategy, whereas an acquisition involves one company becoming the owner of another company but with each company still pursuing its own separate strategy.

26) Imagine that you are advising a local commercial construction business that is considering diversifying via acquisition into residential construction. What would you not say is a typical strategic objective or benefit that could be derived from a mergers or acquisition with an existing residential construction company?

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A) to gain quick access to new technologies or other resources and capabilities B) to create a more cost-efficient operation out of the combined companies C) to fundamentally alter a company’s trajectory and improve its business outlook D) to expedite shifting from one strategy to another and gain better access to additional financial capital E) to extend a company’s business into new product or service categories and/or expand a company’s geographic coverage

27)

Mergers and acquisitions are often driven by such strategic objectives as to

A) expand a company’s geographic coverage, extend its business into new product categories, or gain quick access to new technologies or other resources and capabilities. B) weaken the bargaining power of either key suppliers or key customers. C) reduce the company’s vulnerability to industry driving forces. D) facilitate a company’s shift from one type of competitive strategy to another. E) secure a higher credit rating and better access to additional financial capital.

28)

Merger and acquisition strategies

A) are never prone to mistakes, such as deciding which activities to leave alone and which activities to meld into their own operations and systems. B) may offer considerable cost-saving opportunities and can be beneficial in helping a company try to invent a new industry and lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities. C) are a particularly effective way of pursuing blue ocean and outsourcing strategies. D) seldom are a superior strategic alternative to forming alliances or partnerships with these same companies because of the financial drain of using the company’s cash resources to accomplish the merger or acquisition. E) are one of the best ways to help a company strongly differentiate its product offering and use a differentiation strategy to strengthen its market position.

29)

Why do mergers and acquisitions sometimes fail to produce anticipated results?

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A) Cost savings exceed management’s wildest expectations. B) The morale of key employees involved in the corporate combination reaches new highs because they embrace the changes. C) Gains in competitive capabilities materialize rapidly, resulting in instant synergies. D) Efforts to mesh corporate cultures meet with unconditional acceptance from organization members. E) Differences in management styles and operating procedures can prove hard to resolve.

30)

Mergers and acquisitions

A) are nearly always successful in achieving their desired purpose (unlike strategic alliances and collaborative partnerships). B) all too frequently do not produce the hoped-for outcomes. C) are generally more effective in securing a new competitive advantage than in protecting an existing competitive advantage. D) are highly risky because of the financial drain that comes from using the company’s cash resources to pay for the costs of the merger or acquisition. E) are usually more successful in helping a company’s shift from one competitive strategy to another than in improving a company’s competitive strength and resource capabilities.

31) Which of the following is not among the intended outcomes of horizontal merger and acquisition strategies?

A) extending the company’s business into new product categories B) leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities C) obtaining quick access to new technologies or complementary resources and capabilities D) expanding a company’s geographic coverage E) suppressing a rival’s breakthroughs in management or technology

32)

Merger and acquisition strategies sometimes fail because of the

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A) development of effective integration plans that would be conducive to employee satisfaction. B) advertising messages that detail the merger announcement. C) creation of management-employee programs that would foster better communication. D) misinterpretation of the cultural differences, like employee disenchantment and low morale, differences in management styles and operating procedures, and operations integration decision mistakes. E) execution of functional and integration activity, while sustaining and capitalizing on the combined sources of revenue.

33)

Vertical integration strategies

A) extend a company’s competitive and operating scope because its operations extend across more parts of the total industry value chain. B) are one of the best strategic options for helping companies win the race for global market leadership. C) are a cost-effective means of expanding a company’s lineup of products and services. D) are particularly effective in boosting a company’s ability to expand into additional geographic markets, particularly the markets of foreign countries. E) are a good strategy option for improving a company’s supply chain management capabilities, pursuing efforts to remodel a company’s value chain, achieving direct control over the costs of performing value chain activities, and gaining access to buyers.

34) The two most compelling reasons for a company to pursue vertical integration (either forward or backward) are to

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A) expand into foreign markets and/or control more of the industry value chain. B) broaden the firm’s product line and/or avoid the need for outsourcing. C) enable use of offensive strategies and/or gain a first-mover advantage over rivals in revamping the industry value chain. D) strengthen the company’s competitive position and/or boost its profitability. E) achieve product differentiation and/or lengthen the company’s value chain to include more activities performed in-house and thereby gain greater ability to reduce internal operating costs.

35)

Which of the following is not a potential advantage of backward vertical integration?

A) the increase in a company’s differentiation capabilities and the possibility of a differentiation-based competitive advantage B) reduced vulnerability to powerful suppliers (who may be inclined to raise prices at every opportunity) C) reduced costs D) reduced risks of disruptions in obtaining crucial components or support services E) reduced business risk because of controlling a bigger portion of the overall industry value chain

36)

A good example of backward vertical integration is a

A) maker of prescription pharmaceuticals acquiring a chain of drugstores. B) consumer products manufacturer acquiring a supermarket chain. C) crude oil refiner purchasing gas stations. D) footwear manufacturer developing own-branded retail stores. E) producer of organic vegetables deciding to acquire a compost company.

37)

A good example of forward vertical integration is a

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A) producer of organic vegetables deciding to acquire a compost company. B) footwear manufacturer developing own-branded retail stores. C) crude oil refiner purchasing an oil well drilling and exploration company. D) hospital opening a nursing home for the aged. E) maker of prescription drugs acquiring a chemical manufacturer.

38) The two best reasons for investing company resources in vertical integration (either forward or backward) are to

speed entry into foreign markets and/or exercise stronger control over operating

costs. B) broaden the firm’s product line and/or enable the company to charge a premium price for its product/service. C) gain a first-mover advantage in adopting new production technologies and/or employ potent defensive strategies. D) strengthen the company’s competitive position and/or boost its profitability. E) achieve greater product differentiation and/or gain better access to prospective buyers.

39) For backward vertical integration into the business of suppliers to be a viable and profitable strategy, a company must

A) have considerable expertise in supply chain management, transportation logistics, and inventory control techniques. B) be able to achieve the same scale economies as outside suppliers and match or beat suppliers’ production efficiency with no drop in quality. C) have large state-of-the-art production facilities so that it can fully capture all economies of scale in producing parts and components. D) have core competences in R&D, product design and engineering, and distribution logistics so that it will have adequate capabilities to produce and distribute parts and components in a timely and cost-effective manner. E) have a distinctive competence in production process technology and at least a core competence in manufacturing R&D.

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40)

Which one of the following statements about backward vertical integration is false?

A) What makes backward vertical integration such an attractive strategic option is the opportunity to capture the profit margins of suppliers and thereby increase the company’s own profitability. B) Backward vertical integration can produce a differentiation-based competitive advantage when a company, by performing activities internally rather than utilizing outside suppliers, ends up with a better-quality product/service offering, improves the caliber of its customer service, or in other ways enhances the performance of its final product. C) For backward integration to be a viable and profitable strategy, a company must be able to (1) achieve the same scale economies as outside suppliers and (2) match or beat suppliers’ production efficiency with no drop in quality. D) The best potential for being able to reduce costs via a backward integration strategy exists in situations where suppliers have outsized profit margins, where the item being supplied is a major cost component, and where the requisite technological skills are easily mastered or can be gained by acquiring a supplier with the desired technological know-how. E) Potential advantages of backward integration include sparing a company the uncertainty of being dependent on suppliers for crucial components or support services and lessening a company’s vulnerability to powerful suppliers inclined to raise prices at every opportunity.

41)

The strategic impetus for forward vertical integration is to

A) gain better access to end users, improve market awareness, and/or include the end user’s purchasing experience as a differentiating feature. B) the opportunity to capture the profits being earned by forward distribution allies (and thereby increase the company’s own profits). C) reduce or eliminate disruptions in the delivery of the company’s products to end users. D) avoid channel conflict. E) expand a company’s geographic coverage.

42)

Which of the following is typically the strategic impetus for forward vertical integration?

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A) being able to control the wholesale/retail portion of the industry value chain B) having fewer disruptions in the delivery of the company’s products to end users C) gaining better access to end users and better market visibility D) broadening the company’s product line E) allowing the firm access to greater economies of scale

43)

Bypassing regular sales channels in favor of Internet retailing can have strong appeal if it

A) raises distribution costs and ignores channel conflicts. B) provides a relative cost disadvantage over rivals. C) offers lower margins resulting in higher selling prices to end users. D) includes partnering rather than competing with existing distributors. E) consists a significant social media component that creates channel conflict with dealers.

44)

Which of the following is not a strategic disadvantage of vertical integration?

A) Vertical integration boosts a firm’s capital investment in the industry, thus increasing business risk if the industry becomes unattractive later. B) Integrating backward into parts and components manufacture can impair a company’s operating flexibility when it comes to changing out the use of certain parts and components. C) Vertical integration limits a company’s ability to achieve greater product differentiation and to exercise direct control over the costs of performing value chain activities. D) Forward or backward integration often calls for radically different skills and business capabilities than the firm possesses. E) Vertical integration poses all kinds of capacity-matching problems.

45) For a backward vertical integration strategy into the business of suppliers to be a viable and profitable, a company must possess

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A) a distinctive competence in production process technology and at least a core competence in manufacturing R&D. B) large state-of-the-art production facilities so that it can fully capture all economies of scale in producing parts and components. C) considerable expertise in supply chain management, transportation logistics, and inventory control techniques. D) the capability to achieve the same scale economies as outside suppliers and also match or beat suppliers’ production efficiency with no drop in quality. E) all kinds of capacity-matching skills and capabilities.

46)

Backward integration involves

A) performing industry value chain activities previously performed by suppliers or other companies engaged in earlier stages of the value chain. B) linking with businesses within the array of value chain activities to eliminate competition and broaden the product offering. C) capitalizing on company’s underutilized managerial capabilities for achieving greater synergistic cost advantages. D) reducing the opportunity for achieving greater product differentiation. E) developing new skills and business capabilities.

47)

Outsourcing strategies

A) are nearly always a more attractive strategic option than merger and acquisition strategies. B) carry the substantial risk of raising a company’s costs. C) carry the substantial risk of making a company overly dependent on its suppliers. D) increase a company’s risk exposure to changing technology and/or changing buyer preferences. E) involve farming out value chain activities presently performed in-house to outside specialists and strategic allies.

48)

The two big drivers of outsourcing are

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A) a desire to reduce the company’s investment in fixed assets and the need to narrow the scope of the company’s in-house competencies and competitive capabilities. B) an increased ability to cut R&D expenses and an increased ability to avoid the problems of strategic alliances. C) that a smaller in-house workforce and a low investment in intellectual capital will produce cost savings. D) the ability to avoid capital investments that accompany vertical integration and a desire to reduce the company’s risk exposure to changing technology and/or changing buyer preferences. E) that outsiders can often perform certain activities better or more cheaply, and outsourcing allows a firm to focus its entire energies on those activities that are at the center of its expertise (its core competencies).

49)

The big risk of employing an outsourcing strategy is

the increased time it takes to respond effectively to the fresh strategic moves of rival

firms. B) hollowing out the competitive capabilities a company needs to be a master of its own destiny. C) impairing a company’s capability to be a leader in product innovation. D) increased vulnerability to shifts in buyer demand. E) increased costs of differentiating the company’s product/service from those of competitors.

50) Which of the following is not one of the key benefits of employing an outsourcing strategy?

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A) It allows a company to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best. B) It can hollow out a firm’s own capabilities and lose touch with activities and expertise that contribute fundamentally to the firm’s competitiveness and market success. C) It reduces the company’s risk exposure to changing technology and/or buyer preferences. D) It improves organizational flexibility and speeds time to market. E) It involves an activity that can be performed better or more cheaply by outside specialists.

51)

A strategic alliance

A) is a collaborative arrangement in which companies join forces to defeat mutual competitive rivals. B) involves two or more companies joining forces to pursue vertical integration. C) is a formal agreement between two or more companies in which there is strategically relevant collaboration of some sort, joint contribution of resources, shared risk, shared control, and mutual dependence. D) is a partnership between two companies that is typically intended to eliminate the need to engage in outsourcing. E) is usually a cheaper and more effective way for companies to join forces than is a merger.

52) The competitive attraction of entering into strategic alliances and collaborative partnerships is

A) in allowing companies to bundle resources and competencies that are more valuable in a joint effort than when kept separate. B) reducing costs, transferring skills, and expanding the product line. C) enabling greater vertical integration. D) in allowing the partners to transfer intellectual property rights and proprietary information. E) in helping the partners to increase their respective market shares.

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53) When Daimler’s 2017 entered into an agreement with automotive supplier Robert Bosch GmbH to develop self-driving taxis that customers can hail with a smartphone app a was formed.

A) joint venture B) joint liability company C) partnership D) dual proprietorship E) double-S corporation

54) Entering into strategic alliances and collaborative partnerships can be competitively valuable because

A) these represent two highly effective ways for firms to achieve low-cost leadership and capture first-mover advantages. B) these two strategies are a powerful means for companies to build loyalty and goodwill among customers that possess diverse needs and expectations. C) they are quite effective in helping a company transfer the risks of threatening external developments to other companies. D) working closely with outsiders is essential in developing new technologies and new products in virtually every industry. E) cooperative arrangements with other companies are very helpful in racing against rivals to build a strong global presence and/or racing to seize opportunities on the frontiers of advancing technology.

55)

Strategic alliances are more likely to be long lasting when

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A) they involve collaboration with suppliers or distribution allies or when both parties conclude that continued collaboration is in their mutual interests. B) the alliance involves partners based in countries with distinctly different cultures and consumer buying habits and preferences. C) both partners are experienced with strategic alliances and routinely enter into collaborative agreements with firms in peripheral industries. D) the alliance involves joining forces in R&D to develop new technologies cheaper than a company could develop the technology on its own. E) each partner has considerable resource weaknesses in the marketplace.

56) Microsoft’s alliance with immuno-sequencing company Adaptive Biotechnologies can be called “strategic” because it serves all of the following purposes except

A) building sustaining, or enhancing Microsoft’s core competence in artificial intelligence. B) blocking a competitive threat from Amazon to become a health care industry player. C) accelerating drug development and bringing new therapies to patients sooner than if each party had “gone it alone.” D) opening up important new healthcare market opportunities for both alliance members. E) contracting out certain value chain activities by both parties to outside vendors.

57)

Experience indicates that strategic alliances

A) are generally successful. B) work well in cooperatively developing new technologies and new products but seldom work well in promoting greater supply chain efficiency. C) work best when they are aimed at achieving a mutually beneficial competitive advantage for the allies. D) stand a reasonable chance of helping a company reduce competitive disadvantage but very rarely form the basis of a durable competitive advantage over rivals. E) are usually a company’s best approach to building a distinctive competence.

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58) If you were advising Hoffmann-LaRoche, which set up Roche Partnering to manage more than 190 alliances in the health care industry, which of these would you see as not being a reason why some of those alliances could prove to be unstable or break apart?

A) Anticipated gains may fail to materialize for Roche Partnering due to an overly optimistic view of the synergies. B) Anticipated gains for Roche Partnering may fail to materialize due to a poor fit in terms of the combination of resources and capabilities. C) One or more of the 190 partners in Roche Partnering could gain access to another company’s proprietary knowledge base, technologies, or trade secrets. D) The partners may disagree amongst themselves over how to divide the profits gained from joint collaboration. E) There is a risk for any or all of the 190 partners in Roche Partnering to become overly dependent on other companies within the partnership.

59) Among the principal advantages of strategic alliances over vertical integration or horizontal mergers/acquisitions are

A) resource pooling and risk sharing, more adaptive response capabilities, and greater speed of deployment. B) material additions to a company’s technological capabilities, strengthening of the firm’s competitive position, and boosting of its profitability. C) the transactional and relational concepts of operating practices and competencies. D) potential profitability of the alliance and related experience-curve economics. E) the facilitation of best practices, more production capacity, and relevant synergistic savings.

60) The Achilles’ heel (or biggest danger/pitfall) of relying heavily on alliances and cooperative strategies is

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A) that partners will not divide profits from the alliance in an equitable manner. B) becoming dependent on other companies for essential expertise and capabilities. C) incurring excessive administrative expenses associated with engaging in collaborative efforts. D) having to compromise the company’s own priorities and strategies in reaching agreements with partners. E) that strategic allies frequently become rivals in the marketplace.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 61) Strategic offensives should, as a general rule, be grounded in a company’s strategic assets and employ a company’s strengths to attack rivals. Define and discuss the term strategic assets and its significance in gaining a competitive advantage.

62)

What is a blue ocean strategy? What is its appeal, and what is its drawback?

63) What is the purpose of defensive strategy? Give at least two examples of defensive moves.

64) What are the strategic advantages of being a first mover? What are the strategic advantages of being a follower or late mover?

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65) In what sorts of circumstances is it strategically advantageous to be a fast follower or late mover as opposed to a first mover?

66)

Identify five objectives of a merger and acquisition strategy.

67) You are the owner of a French-Japanese fusion food truck and mobile catering company. Instead of entering into an alliance or partnership with a local restaurateur to establish a bricksand-mortar location downtown, you decide to merge with C’est La Sushi, a regional chain of French-Japanese fusion restaurants. What are the reasons for preferring a merger to an alliance or partnership? Explain the other organizational mechanisms that are also preferable to alliances.

68) Your best friend is considering opening Emerald City, a canine day- and long-term care business that also performs grooming and minor veterinary services. She wants to know what is meant by hit-and-run (or guerrilla warfare) and preemptive strike offensive strategies. Under which circumstances are either of these strategies likely to be most effective for your friend and Emerald City?

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69)

What are the strategic advantages of a backward vertical integration strategy?

70)

What are the strategic advantages of a forward vertical integration strategy?

71)

What are the strategic disadvantages of a vertical integration strategy?

72) What are the merits of outsourcing the performance of certain value chain activities as opposed to performing them in-house? Under what circumstances does outsourcing make good strategic sense?

73) What are the most common reasons companies enter into strategic alliances and collaborative partnerships?

74) List four reasons that strategic alliances and collaborative partnerships might fail to live up to each partner’s expectations.

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75) Why does a company racing to stake out a strong position in an industry of the future need strategic alliances?

76) Identify at least three factors that can aid companies in forming a successful strategic alliance.

77) Instead of entering into an alliance or partnership, Apple Inc. opts to merge with Tesla Motors to develop a new generation of autonomous electric vehicles. What are the reasons for preferring a merger to an alliance or partnership? Explain the other organizational mechanisms that are also preferable to alliances.

78) Explain the pros and cons of bypassing regular sales channels in favor of direct sales and Internet retailing.

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Answer Key Test name: Chap 06_7e 1) E 2) C 3) C 4) C 5) E 6) B 7) A 8) D 9) D 10) D 11) B 12) B 13) C 14) E 15) E 16) E 17) E 18) E 19) B 20) A 21) A 22) C 23) E 24) B 25) B 26) D Version 1

27) A 28) B 29) E 30) B 31) E 32) D 33) A 34) D 35) E 36) E 37) B 38) D 39) B 40) A 41) A 42) C 43) D 44) C 45) C 46) A 47) E 48) E 49) B 50) B 51) C 52) A 53) A 54) E 55) A 56) E Version 1

57) D 58) D 59) A 60) B 61) Strategic assets are a company’s most valuable resources and capabilities such as a better-known brand name, a more efficient production or distribution system, greater technological capability, or a superior reputation for quality. Ignoring the need to tie a strategic offensive to a company’s competitive strengths and what it does best is like going to war with a popgun—the prospects for success are dim. For instance, it is foolish for a company with relatively high costs to employ a price-cutting offensive. Likewise, it is ill advised to pursue a product innovation offensive without having proven expertise in R&D and new product development. 62) A blue ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry or distinctive market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand. Blue ocean strategies provide a company with a great opportunity in the short run. But they don’t guarantee a company’s long-term success, which depends more on whether a company can protect the market position it opened up.

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63) The purposes of defensive strategies are to lower the risk of being attacked, weaken the impact of any attack that occurs, and influence challengers to aim their efforts at other rivals. Examples of defensive strategies are: (1) adding new features or models and otherwise broadening the product line to close off vacant niches and gaps to opportunity-seeking challengers, (2) thwarting the efforts of rivals to attack with lower prices by maintaining economy-priced options of its own, (3) signaling challengers that retaliation is likely in the event that they launch an attack, and (4) making early announcements about impending new products or price changes to induce potential buyers to postpone switching. 64) Being first to initiate a strategic move can have a high payoff when (1) pioneering helps build a firm’s image and reputation with buyers; (2) early commitments to new technologies, new-style components, new or emerging distribution channels, and so on can produce an absolute cost advantage over rivals; (3) first-time customers remain strongly loyal to pioneering firms in making repeat purchases; and (4) moving first constitutes a preemptive strike, making imitation extra hard or unlikely. In situations in which rapid market evolution including growth in demand occurs (due to fast-paced changes in either technology or buyer needs and expectations), fast followers and maybe even cautious late movers have an opening to leapfrog a first mover’s products with more attractive next-version or even complementary products. 65) Sometimes, furious technological change or product innovation makes a first mover vulnerable to next-generation technology or products. Markets can be slow to adopt the innovative product offering of a first mover, in which case a fast- (or late-) follower with substantial resources and marketing muscle can overtake a first mover.

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66) Merger and acquisition strategies typically set sights on achieving any of the following five objectives: (1) extending the company’s business into new product categories, (2) creating a more cost-efficient operation out of the combined companies, (3) expanding a company’s geographic coverage, (4) gaining quick access to new technologies or complementary resources and capabilities, and (5) leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities. 67) There are circumstances in which horizontal integration via merger and acquisition are preferable to alliances and partnering. Mergers and acquisitions are especially suited for situations in which strategic alliances or partnerships do not go far enough in providing a company with access to needed resources and capabilities. Ownership ties are more permanent than partnership ties, allowing the operations of the merger or acquisition participants to be tightly integrated and creating more in-house control and autonomy. Other organizational mechanisms are also preferable to alliances; when there is limited property rights protection for valuable know-how companies may fear being taken advantage of by opportunistic partners.

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68) Hit-and-run (also known as guerrilla) offensives are considered to be strategic moves incorporating the element of surprise. These surprise offensives are particularly well suited to small or medium sized challengers like Emerald City that have neither the resources nor the market visibility to mount a full-fledged attack on industry leaders. A preemptive strike by a challenger like Emerald City means moving first (and quickly) to secure advantageous competitive assets that rivals cannot readily match or duplicate. Examples of preemptive moves include: (1) securing the best distributors in a particular geographic region or country; (2) moving to obtain the most favorable site at a new interchange or intersection, near to airports and rail transportation hubs, and so on; and (3) tying up the most reliable, high-quality pet grooming and veterinary practitioners via exclusive partnerships, long-term contracts, or even acquisition. The best targets for offensive attacks like hit-and-run or preemptive strike include: (1) market leaders that are vulnerable; (2) runner-up firms that possess weaknesses in areas where the challenger is strong; (3) struggling enterprises that are on the verge of going under; and (4) small local and regional firms that possess limited capabilities and resources— the latter of which is probably typical in the canine care industry. To be successful, neither offensive move has to totally block rivals from following or copying; it merely needs to provide the challenger— Emerald City—with a prime position that is not easily circumvented.

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69) Backward vertical integration can produce a differentiation-based competitive advantage when performing activities internally contributes to a better-quality product/service offering, improves the caliber of customer service, or in other ways enhances the performance of a final product. Other potential advantages of backward integration include sparing a company the uncertainty of being dependent on suppliers for crucial components or support services and lessening a company’s vulnerability to powerful suppliers inclined to raise prices at every opportunity. For backward integration to be a viable and profitable strategy, a company must be able to (1) achieve the same scale economies as outside suppliers and (2) match or beat suppliers’ production efficiency with no decline in quality. Furthermore, the best potential for being able to reduce costs via a backward integration strategy exists in situations where suppliers have very large profit margins, where the item being supplied is a major cost component, and where the requisite technological skills are easily mastered or acquired. 70) Forward vertical integration allows manufacturers to gain better access to end users, improve market visibility, and include the end user’s purchasing experience as a differentiating feature. 71) Among the most serious drawbacks to vertical integration are: (1) vertical integration increases a firm’s capital investment in its industry, (2) integrating into more industry value chain segments increases business risk if industry growth and profitability sour, (3) vertically integrated companies are often slow to embrace technological advances or more-efficient production methods, (4) integrating backward potentially results in less flexibility in accommodating shifting buyer preferences, (5) vertical integration poses all kinds of capacity matching problems, and (6) integration forward or backward often requires the development of new skills and business capabilities.

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72) The advantages of outsourcing include: (1) an activity can be performed better or more cheaply by outside specialists; (2) said activity is not crucial to the firm’s ability to achieve sustainable competitive advantage and won’t hollow out its capabilities, core competencies, or technical know-how; (3) it improves organizational flexibility and speeds time to market; (4) it reduces the company’s risk exposure to changing technology and/or buyer preferences; and (5) it allows a company to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best. 73) The most common reasons companies enter into strategic alliances are to expedite the development of promising new technologies or products, to overcome deficits in their own technical and manufacturing expertise, to bring together the personnel and expertise needed to create desirable new skill sets and capabilities, to improve supply chain efficiency, to gain economies of scale in production and/or marketing, and to acquire or improve market access through joint marketing agreements. 74) Typical reasons why strategic alliances prove to be difficult include: (1) diverging objectives and priorities, (2) inability of partners to work well together, (3) changing conditions that make the purpose of the alliance obsolete, (4) emergence of more attractive technological paths, and (5) marketplace rivalry between one or more allies.

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75) Strategic cooperation is a much-favored approach in industries where new technological developments are occurring at a furious pace along many different paths and where advances in one technology spill over to affect others (often blurring industry boundaries). Whenever industries are experiencing high-velocity technological advances in many areas simultaneously, firms find it virtually essential to have cooperative relationships with other enterprises to stay on the leading edge of technology, even in their own area of specialization. In industries like these, alliances are all about fast cycles of learning, gaining quick access to the latest round of technological know-how, and developing dynamic capabilities. In bringing together firms with different skills and knowledge bases, alliances open up learning opportunities that help partner firms better leverage their own resources and capabilities.

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76) Three factors that can aid companies in forming a successful strategic alliance are:1. Recognizing that the alliance must benefit both sides. Information must be shared as well as gained, and the relationship must remain forthright and trustful. If either partner plays games with information or tries to take advantage of the other, the resulting friction can quickly erode the value of further collaboration. Open, trustworthy behavior on both sides is essential for fruitful collaboration.2. Ensuring that both parties live up to their commitments. Both parties have to deliver on their commitments for the alliance to produce the intended benefits. The division of work has to be perceived as fairly apportioned, and the caliber of the benefits received on both sides has to be perceived as adequate.3. Structuring the decision-making process so that actions can be taken swiftly when needed. In many instances, the fast pace of technological and competitive changes dictates an equally fast decisionmaking process. If the parties get bogged down in discussions or in gaining internal approval from higher-ups, the alliance can turn into an anchor of delay and inaction. 77) There are circumstances when other organizational mechanisms are preferable to alliances and partnering. Mergers and acquisitions are especially suited for situations in which strategic alliances or partnerships do not go far enough in providing a company with access to needed resources and capabilities. Ownership ties are more permanent than partnership ties, allowing the operations of the merger or acquisition participants to be tightly integrated and creating more inhouse control and autonomy. Other organizational mechanisms are also preferable to alliances when there is limited property rights protection for valuable know-how and when companies fear being taken advantage of by opportunistic partners.

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78) Bypassing regular wholesale/retail channels in favor of direct sales and Internet retailing can have appeal if it lowers distribution costs, produces a relative cost advantage over certain rivals, offers higher margins, or results in lower selling prices to end users. In addition, sellers are compelled to include the Internet as a retail channel when a sufficiently large number of buyers in an industry prefer to make purchases online. However, in industries where the strong support and goodwill of dealer networks is essential, companies may conclude that it is important to avoid channel conflict and that their website should be designed to partner with dealers rather than compete with them via direct sales or Internet retailing.

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CHAPTER 7: Strategies for Competing in International Markets MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Social media giant Facebook Inc. decided to expand outside its home market in order to

A) identify new and stronger resources and capabilities in its home market. B) match its core competencies and capabilities with rival social media companies such as Snapchat and Instagram. C) achieve differentiation through economies of scale, experience, and increased purchasing power. D) increase its business risk by competing with local social media providers such as WeChat. E) gain access to new customers for the company’s products/services.

Companies opt to expand into foreign markets in order to

A) grow sales faster than the industry average, reduce the competitive threats from rivals, and open up more opportunities to enter into strategic alliances. B) boost returns on investment, broaden their product lines, avoid tariffs and trade restrictions, and escape dealing with strong labor unions. C) avoid having to employ an export strategy, avoid the threat of cross-market subsidization from rivals, and enable the use of a global strategy instead of a multidomestic strategy. D) raise the entry barriers for industry newcomers, neutralize the bargaining power of important suppliers, grow sales faster, and increase the number of loyal customers. E) gain access to new customers, achieve lower costs, enhance the company’s competitiveness, capitalize on core competencies, and spread business risk across a wider market base.

Tiffany & Co. opted to enter into the mining industry in Canada in order to

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A) exploit its core competencies and capabilities. B) access diamonds that could be certified as “conflict-free” and not associated with unethical mining practices or the finding of military activities in Africa. C) to achieve lower costs, thereby enhancing the firm’s competitiveness. D) gain access to new customers in new markets. E) achieve lower costs and enhance the firm’s competitiveness.

4) Whirlpool’s efforts to link its product R&D and manufacturing operations in North America, Latin America, Europe, and Asia did not enable the company to

A) accelerate the discovery of innovative appliance features. B) coordinate the introduction of these features in the appliance products marketed in different countries. C) create a cost-efficient worldwide supply chain. D) speed product innovations to market and achieve operational excellence. E) impart technical knowledge to high-cost human resources in developing nations.

Which one of the following is not a reason a company decides to enter foreign markets?

A) spreading business risk across a wider geographic market base B) capitalizing on company competencies and capabilities C) achieving lower costs and enhance the firm’s competitiveness D) building the profit sanctuary necessary to wage guerrilla offensives against global challengers endeavoring to invade its home market E) gaining access to new customers

6) Which of the following is not a possible reason why Walgreens opted to expand into foreign markets via a partnership with and followed by the acquisition of Boots Alliance?

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A) because the two companies had conflicting objectives and strategies, deep differences of opinion about how to proceed, and important differences in corporate values and ethical standards B) because Walgreens desired to accelerate its entry into foreign markets as well as complementary assets and expertise C) because Walgreens wanted to capitalize on Boots Alliance’s company competencies and capabilities in distribution, thus enabling Walgreens to leverage that network and expertise to build a similar model in the United States D) because Walgreens was pursuing an international strategy that would enable it to gain access to new customers in new markets E) because Walgreens intended to spread its business risk across a wider geographic market base as well as increase its bargaining power with drug companies

7) Exxon Mobil has entered into a pact with Gazprom, the world’s largest natural gas extractor, to set up a processing unit in Baku, Azerbaijan. Which of the following is most likely the reason for Exxon Mobil to opt for this strategic alliance?

A) to better compete with Gazprom B) to scale back its core competencies C) to gain access to low-cost inputs of production D) to gain access to new customers in new markets E) to restrict its factors of production

One of the biggest strategic challenges to competing in the international arena include

A) how to avoid the risks of shifting exchange rates. B) whether to charge the same price in all country markets. C) how many foreign firms to license to produce and distribute the company’s products. D) whether to offer a mostly standardized product worldwide or whether to customize the company’s offerings in each different country market to match the tastes and preferences of local buyers. E) whether to pursue a global strategy or an international strategy.

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Why do companies decide to enter a foreign market?

A) to exploit the natural resources found within its home market B) to decrease the rate at which they accumulate experience and move up the learning curve C) to raise input costs through greater pooled purchasing power D) to capture economies of scale in product development, manufacturing, or marketing E) to concentrate risk within a broader base of countries, especially when sales are down in one area and the company can undermine sales elsewhere

10)

Which of the following is not a reason why a company decides to enter foreign markets?

A) to impart technical knowledge to high-cost human resources in developing nations B) to capitalize on company competencies and capabilities C) to spread business risk across a wider geographic market base D) to capture economies of scale in product development, manufacturing, or marketing E) to achieve lower costs through economies of scale, experience, and increased purchasing power

11) Which of the following is not an accurate statement concerning competing in the markets of foreign countries?

A) Localizing Apple’s product offerings country-by-country leads to low-cost advantage. B) Starbucks must contend with fluctuating exchange rates and country-to-country variations in host government restrictions and requirements. C) There are country-to-country differences in Round Table Pizza’s customers’ buying habits and buyer tastes and preferences. D) Market growth rates vary from country to country, impacting John Deere’s international sales. E) Avon’s cosmetic products suitable for China are often inappropriate in Singapore and Malaysia.

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12) You have been asked to consult with Sonic.net, a regional Internet service provider, about the advisability of competing abroad. Your assessment of the opportunities for Sonic.net to craft a strategy to compete in one or more countries in the world would not necessarily

A) evaluate country-to-country differences in consumer buying habits and buyer tastes and preferences. B) evaluate country-to-country variations in host government restrictions and requirements and fluctuating exchange rates, company’s offerings in each different country’s market, or whether to offer a mostly standardized product worldwide. C) evaluate in which countries to locate company operations for maximum locational advantage, given country-to-country variations in wage rates, worker productivity, energy costs, tax rates, and the like. D) evaluate a multidomestic strategy that considers the world market as a mostly homogeneous market.

13) Gallo Wines is seeking international market entry. One if its top criteria for choosing a country to enter is a pro-business government policy. You would advise Gallo Wines to enter

A) Argentina, which has increased its interest rate on loans to foreign entrants from 15 percent to 19 percent. B) Germany, since the European Union has imposed a 16 percent tariff on the import of agricultural produce. C) Australia, which recently introduced a permanent employer-sponsored visa program for skilled manpower. D) South Africa, which now levies a per metric ton carbon tax on electricity and a per liter surcharge on water. E) China, whose government favors partial local ownership of foreign-owned companies.

14) The 2015 merger of Walgreen Boots Alliance, one of the world’s largest pharmaceutical purchasers, is not likely to

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A) reduce the significant risks of fluctuating exchange rates to its competitiveness in foreign markets. B) avoid the effects of fluctuations in exchange rates on the costs of manufacturing goods in a particular country. C) succeed when the currency of the country from which the goods are being exported grows weaker relative to the currencies of the countries that the goods are being exported to. D) see the advantages of manufacturing goods in a particular country erode when that country’s currency grows stronger relative to the currencies of the countries where the output is being sold. E) come under pressure from lower-cost imports if local currency grows weaker in relation to the currencies of the countries where the imported goods are being made.

15) Teresa, CEO of a multinational tourism and leisure company, is researching crosscountry differences in demographic, cultural, and market conditions. She would not likely discover that

A) Nike produces its own line of skate shoes. B) Keurig has acquired a large coffee farm in Costa Rica. C) Scotland provides low-costs loans to U.S. craft whisky distillers seeking entry to its markets in order to stimulate competitive rivalry. D) Intel’s silicon chips are identical across the world. E) McDonald’s offers 100 percent beef-free products in its outlets in India.

16) Market size and growth rates in different countries can be influenced positively or negatively by

A) population sizes, income levels and cultural influences, the current state of the infrastructure, and distribution and retail networks available. B) the ability of management to tailor a strategy to take into consideration country differences. C) the large size of emerging markets such as China and India. D) competitive rivalry that is only moderate in some countries. E) the absence or presence of low trade barriers.

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17) Which of the following is not a factor surrounding the decision to enter into the markets of foreign countries?

A) market growth rates that vary from country to country B) country-by-country differences in consumer tastes and buying habits C) fluctuating exchange rates and country-by-country variations in host-government restrictions and requirements D) product designs that may be suitable for one country but inappropriate for another E) repatriation of foreign company assets by governments in countries outside of home market(s)

18)

Competing in the markets of foreign countries entails dealing with such factors except

A) fluctuating exchange rates, country-to-country variations in host-government restrictions and requirements, and variations in cultural, demographic, and market conditions. B) important country-to-country differences in consumer buying habits and buyer tastes and preferences. C) whether to customize the company’s offerings in each different country market or whether to offer a mostly standardized product worldwide. D) the fact that product designs suitable for one country are sometimes inappropriate in another. E) the prevalence of global brands.

19) Competing in the markets of foreign countries generally does not involve which of the following?

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A) country-by-country differences in consumer buying habits, tastes, and preferences B) country-by-country variations in host-government regulations, fluctuating exchange rates, and economic policies C) choices to customize the company’s offerings to each country market or to offer a primarily standardized product to all markets around the globe D) choices to locate company operations on the basis of variations in wages rates, worker productivity, energy costs, tax rates, and distribution channels E) crafting a multicountry strategy that can transform the world market into one big profit sanctuary

20) What is not likely to guide Four Seasons Hotels’ strategic approach to develop new properties in the Middle East and Southeast Asia?

A) combining local architectural and cultural experiences with globally consistent luxury service B) identifying and contracting with a local capital partner who has an understanding of local custom and business relationships C) hiring a local architect and design consultant for each new property D) assessing the future growth potential ofthese emerging markets E) striving to create one uniform customer experience globally

21) Competitive advantages of manufacturing goods in a particular country and exporting them to foreign markets

A) are largely unaffected by fluctuating exchange rates. B) are greatest when local distributors and dealers in that country can be convinced not to carry products that are made outside the country’s borders. C) can be wiped out when that country’s currency grows weaker relative to the currencies of the countries where the output is being sold. D) are eroded when the manufacturing country’s home currency strengthens relative to the currencies of the foreign countries where the output is being sold. E) are seriously compromised by the potential for local government officials to raise tariffs on the imports of foreign-made goods into their country.

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22) Which of the following statements concerning the effects of fluctuating exchange rates on companies competing in foreign markets is true?

A) Fluctuating exchange rates pose no significant risks to a company’s competitiveness in foreign markets. B) Competitive advantages of manufacturing goods in a particular country are largely unaffected by fluctuating exchange rates. C) Exporters are advantaged when the currency of the country where goods are being manufactured grows stronger. D) Exporters always gain in cost/price competitiveness when the currency of the country in which the goods are manufactured is weak. E) Exporters always lose in cost/price competitiveness when the currency of the country in which the goods are manufactured is weak.

23) Government host policies are not likely to increase a country’s political and economic risks when

A) the national government is unstable or weak. B) incentives such as reduced taxes, low-cost loans, and site-development assistance are provided to companies agreeing to construct or expand production and distribution facilities. C) there is distress in the country’s monetary system. D) there are threats from piracy and lack of protection for the company’s intellectual property. E) there is new onerous legislation or regulations on foreign-owned businesses.

24) The strategic options for expansion into foreign markets include all of the following except

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A) employing a franchising strategy. B) maintaining a national (one-country) production base and exporting goods to foreign markets. C) licensing foreign firms to produce and distribute one’s products. D) establishing a subsidiary in a foreign market. E) creating products and services that are not subject to tariffs and local regulations.

25) Imagine that you are the manager of an aspiring multinational social media company. What would not be a strategic reason for your company to expand outside your domestic market to improve its overall competitiveness?

A) to seek a profit sanctuary B) to develop export markets C) to create new licensing opportunities D) to establish a subsidiary in a foreign market E) to franchise operations under local ownership

26)

Which of the following is an example of an export strategy?

A) Facebook generates 51 percent of its advertising revenue outside the United States. B) American Airlines’ common stock, owned by AMR Corp., is not available for public purchase. C) The popular Harry Potter character Voldemort can only be leased or rented for use by amusement park operators. D) ZipCar allows taxi fleet operators to use its trademarks, services, and products for a fee. E) The United States is home to the world’s three largest producers and suppliers of artificial heart valves.

27) Using domestic plants as a production base for exporting goods to selected foreign country markets

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A) can be an excellent initial strategy to pursue international sales. B) can be a competitively successful strategy when a company is focusing on vacant market niches in each foreign country. C) works well when a firm does not have the financial resources to employ crossmarket subsidization. D) is usually a weak strategy when competitors are pursuing multicountry strategies. E) can be a powerful strategy because the company is not vulnerable to fluctuating exchange rates.

28) The advantages of using an export strategy to build a customer base in foreign markets include

A) being able to minimize shipping costs, avoid tariffs, and curb the effects of fluctuating exchange rates. B) minimizing capital requirements and involvement in foreign markets. C) being cheaper and more cost effective than licensing and franchising. D) being cheaper and more cost effective than a multicountry strategy. E) facilitating the establishment of profit sanctuaries in foreign countries and being more suited to accommodating local buyer tastes than a global strategy.

29)

The advantages of using a licensing strategy to participate in foreign markets include

A) being especially well suited to the use of cross-market subsidization. B) being able to charge lower prices than rivals. C) enabling a company to achieve competitive advantage quickly and easily. D) being able to leverage the company’s technical know-how or patents without committing significant additional resources to markets that are unfamiliar, politically volatile, economically uncertain, or otherwise risky. E) being able to achieve higher product quality and better product performance than with an export strategy.

30) The advantages of using a franchising strategy to pursue opportunities in foreign markets include

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A) franchisees bear most of the costs and risks of establishing foreign locations, and the franchisor is required to expend only the resources to recruit, train, and support foreign franchisees. B) its being particularly well suited to the global expansion efforts of companies with multicountry strategies. C) the ability to build multiple profit sanctuaries. D) its being particularly well suited to companies that employ cross-market subsidization. E) its being particularly well suited to the global expansion efforts of manufacturers.

31) The disadvantages of using a franchising strategy to pursue opportunities in foreign markets do not include

A) maintaining quality control. B) having to decide whether to allow foreign franchisees to modify the franchisor’s product offering to better satisfy the tastes and expectations of local buyers. C) foreign franchisees that do not always exhibit strong commitment to consistency and standardization. D) franchisees bearing most of the costs and risks of establishing foreign locations, so a franchisor has to expend only the resources to recruit, train, support, and monitor franchisees. E) the ability to build multiple profit sanctuaries.

32) Establishing a wholly owned subsidiary in a foreign market to take advantage of all essential value chain activities requires a strategy that

A) establishes a wholly owned subsidiary. B) acquires a foreign company. C) supports direct control over all aspects of operating in a foreign market. D) establishes a start-up operation. E) creates multiple country value chains to attain and sustain a competitive advantage in all markets served.

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33) Acquisition of an existing firm rather than via internal development may be the least risky and cost-efficient means of overcoming entry barriers such as

A) rapidly building a strong market presence. B) moving directly to the task of transferring resources and personnel, and integrating and redirecting activities into the acquiring firm’s operation. C) gaining access to local distribution networks, building supplier networks, and establishing working relationships with key government officials. D) fast-tracking exports into a foreign market by marketing indirectly thru local rivals. E) putting the acquiring firm’s strategy into place.

34)

Which of the following is an example of a cross-border alliance?

A) Republic. B) Poland. C) D) E)

35)

Hyundai Motor Company plans to open a new manufacturing plant in the Czech Carrefour, a French grocery chain, established a new wholly-owned venture in Facebook took over WhatsApp for $19 billion in February 2014. The insurance company Geico is a wholly owned subsidiary of Berkshire Hathaway. Renault-Nissan sells more than one in ten cars worldwide.

Which of the following is not an example of a cross-border alliance?

A) Pharmaceutical giants Eli Lilly and Kyowa Hakko Kogyo develop and perform clinical tests of a new cancer treatment therapy. B) Western Union purchases the global payments division of British-owned Travelex Ltd. C) Deutsch, a New York-based wine importer, and Casella, an Australian wine producer, create and market the Yellowtail wine brand. D) Lidl, a German deep-discount supermarket chain, establishes a new wholly owned venture with a supermarket chain in Poland. E) American Airlines’ close ties and shared reservations systems with Japan Airlines and Cathay Pacific.

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36) Which of the following is not a potential benefit of strategic alliances or other cooperative arrangements between foreign and domestic companies?

A) obtaining wider access to attractive country markets B) gaining better access to scale economies in production and/or marketing C) filling competitively important gaps in technical expertise and/or knowledge of local markets D) safeguarding the company’s dependence, allowing for positive engagement once the purpose has been served and ensuring products of important technical standardization requirements are not developed E) sharing distribution facilities and dealer networks, thus mutually strengthening access to buyers

37) Which of the following is not one of the problems and risks of cross-border strategic alliances, that is, between domestic and foreign firms?

A) overcoming language and cultural barriers, and the sometimes-extensive managerial time required for trust-building, communication, and coordination B) the trouble allies can have reaching mutually agreeable ways to deal with key issues C) becoming overly dependent on another company for essential expertise and competitive capabilities D) making it harder to pursue a multidomestic strategy as compared to a global strategy E) suspicions about whether allies are being forthright in exchanging information and expertise

38) When a company operates in the markets of two or more different countries, its foremost strategic decision is

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A) whether to use strategic alliances to help defeat its rivals. B) whether to vary the company’s competitive approach to fit specific market conditions and buyer preferences in each host country or whether to employ essentially the same strategy in all countries. C) whether to maintain a national (one-country) manufacturing base and export goods to the other countries. D) which foreign companies to team up with via strategic alliances or joint ventures. E) whether to test the waters with an export strategy before committing to some other competitive approach.

39)

A think local, act local multidomestic type of strategy

A) is very risky, given fluctuating exchange rates and the propensity of foreign governments to impose tariffs on imported goods. B) is usually defeated by a think global, act global type of strategy. C) is more appealing the bigger the country-to-country differences in buyer tastes, cultural traditions, and marketing methods. D) is generally an inferior strategy when one or more foreign competitors is pursuing a global low-cost strategy. E) can defeat a global strategy if the think local, act local multidomestic strategist concentrates its efforts exclusively in those foreign markets where it has profit sanctuaries.

40)

The strength of a think local, act local multidomestic strategy is that

A) it matches a company’s competitive approach to prevailing market and competitive conditions in each country market. B) each of a company’s country strategies is almost totally different from and unrelated to its strategies in other countries. C) the plants located in different countries can be operated independently of one another, thus promoting greater achievement of scale economies. D) it avoids host-country ownership requirements, and import quotas. E) it eliminates the costs and burdens of trying to coordinate the strategic moves undertaken in one country with the moves undertaken in the other countries.

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41)

A think local, act local multidomestic strategy works particularly well when

A) host governments relax regulations requiring that products sold locally meet strictly defined manufacturing specifications or performance standards. B) there are few country-to-country differences in customer preferences and buying habits. C) diverse and complicated trade restrictions of host governments preclude the use of a uniform strategy from country to country. D) there are few country-to-country differences in distribution channels and marketing methods. E) companies centralize strategy making in global headquarters.

42)

The drawbacks of a localized multidomestic strategy include

A) hindering the use of cross-market subsidization techniques and increasing company vulnerability to adverse shifts in currency exchange rates. B) the difficulty in taking into account significant country-to-country differences in distribution channels and marketing methods. C) the difficulty in and costs of being responsive to country-to-country differences in customer needs, buying habits, cultural traditions, and market conditions. D) hindering transfer of a company’s competencies and resources across country boundaries, and hindering the pursuit of a single, uniform competitive advantage in all country markets where a company operates. E) being unsuitable for competing in the markets of emerging countries and posing added difficulty in building multiple profit sanctuaries.

43)

Two major drawbacks of a think local, act local multidomestic strategy are

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A) that it is especially vulnerable to fluctuating exchange rates and can usually be defeated by companies employing cross-market subsidization tactics. B) excessive vulnerability to fluctuating exchange rates and having to craft a separate strategy for each country market in which the company competes. C) hindering a company’s transfer of competencies and resources across country boundaries (since somewhat different competencies and capabilities are likely to be employed in different host countries) and not promoting the building of a single, unified competitive advantage in all country markets where a company competes. D) greater exposure to both increases in tariffs and restrictive trade barriers, and added difficulty in accommodating the diverse trade restrictions and regulatory requirements of host governments. E) not being able to export products manufactured in one country to markets in other countries and being largely unsuitable for competing in the markets of emerging countries.

44)

A localized or multidomestic strategy

A) is generally preferable to a global strategy in situations where buyers are price sensitive because a “think local, act local” type of multidomestic strategy is better suited to achieving low unit costs than a global strategy. B) involves much less adherence to using the same basic competitive strategy theme (low-cost, differentiation, best-cost, or focused) in all country markets. C) is generally best suited for globally standardized industries, in which small countryby-country differences can be accommodated. D) is generally inferior to a global strategy when it comes to pursuing product differentiation. E) has two big drawbacks: (1) it hinders transfer of a company’s competencies and resources across country boundaries because the strategies in different host countries can be grounded in varying competencies and capabilities; and (2) it does not promote building a single, unified competitive advantage, especially one based on low cost.

45) A think global, act global approach to strategy making is preferable to a think local, act local approach when

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A) a big majority of the company’s rivals are pursuing localized multidomestic strategies. B) country-by-country differences are small enough to be accommodated within the framework of a mostly uniform global strategy. C) plants need to be scattered across many countries to avoid high shipping costs. D) market growth rates vary considerably from country to country. E) host governments enact regulations requiring that products sold locally meet strict manufacturing specifications or performance standards.

46) The transnational approach of a firm using a think global, act local version of a global strategy entails

A) producing and marketing a variety of product versions under the same brand name, with each different version being designed specifically to accommodate the needs and preferences of buyers in a particular country. B) little or no strategy coordination across countries. C) pursuing the same basic competitive strategy theme (low-cost, differentiation, bestcost, focused) in all countries where the firm does business but giving local managers some latitude to adjust product attributes to better satisfy local buyers and to adjust production, distribution, and marketing to be responsive to local market conditions. D) selling the company’s products under a wide variety of brand names (often one brand for each country or group of neighboring countries) so that buyers in each country market will think they are buying a locally made brand. E) selling numerous product versions (each customized to buyer tastes in one or more countries and sometimes branded for each country) but opting to only sell direct to buyers at the company’s website so as to bypass the costs of establishing networks of wholesale/retail dealers in each country market.

47) The competitive strategy of a firm pursuing a think global, act local approach to strategy making

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A) entails little or no strategy coordination across countries. B) usually involves cross-subsidizing the prices in those markets where there are significant country-to-country differences in the product attributes that customers are most interested in. C) involves selling a mostly standardized product worldwide but varying a company’s use of distribution channels and marketing approaches to accommodate local market conditions. D) is essentially the same in all country markets where it competes, but it may nonetheless give local managers room to make minor variations where necessary to better satisfy local buyers and to better match local market conditions. E) involves having strongly differentiated product versions for different countries and selling them under distinctly different brand names (one for each country or group of neighboring countries) so that there will be no doubt in customers’ minds that the product is more local than global.

48) by

When expanding outside its domestic market, a company can gain competitive advantage

A) not pursuing costly efforts to build multiple profit sanctuaries. B) deliberately choosing not to compete in countries with high tariffs and high taxes (which then have to be passed along to buyers in the form of higher prices), thus keeping costs and prices lower than rivals’. C) using an export strategy to circumvent the risks of adverse exchange rate fluctuations. D) using location to lower costs or help achieve greater product differentiation or using cross-border coordination in ways a domestic-only competitor cannot. E) employing a multidomestic strategy instead of a global strategy.

49) To use location to build competitive advantage, a company that operates multinationally or globally must

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A) employ either an export strategy or a franchising strategy. B) scatter its production plants across many countries in different parts of the world so as to minimize transportation costs. C) consider (1) whether to concentrate each activity it performs in a few select countries or disperse performance of the activity to many nations and (2) in which countries to locate particular activities. D) locate production plants in those countries having suppliers that can supply all the necessary raw materials and components so as to avoid inbound shipping costs. E) concentrate all of its value chain activities in a single country—the one that has the best combination of low wage rates, low shipping costs, and low tax rates on profits.

50) To use location to build competitive advantage when competing in both domestic and foreign markets, a company must

A) scatter its production plants across many different country markets so as to minimize the costs of shipping to its own distribution centers and/or wholesalers/retail dealers. B) consider (1) whether to concentrate each activity it performs in a few select countries or to disperse performance of the activity to many nations and (2) in which countries to locate particular activities. C) concentrate buyer-related activities in a few well-chosen locations so as to maximize the capture of distribution-related scale economies. D) disperse both production and distribution activities across many nations in order to hedge against fluctuating exchange rates and lessen the risks of adverse political developments. E) avoid selling in countries where there are high trade barriers or where buyers purchase in small quantities.

51) In competing in foreign markets, companies find it advantageous to concentrate their activities in a limited number of locations in all of these situations, except when

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A) there is a steep learning or experience curve associated with performing an activity in a single location (thus making it economical to serve the whole world market from just one or maybe a few locations). B) the costs of manufacturing or other activities are significantly lower in some geographic locations than in others. C) certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages. D) there are significant scale economies in performing an activity. E) the addition of new production capacity will not adversely impact the supplydemand balance in the local market.

52) In which of the following circumstances is it not advantageous for a multinational competitor to concentrate its activities in a limited number of locations in order to build competitive advantage?

A) when the costs of performing certain value chain activities are significantly lower in certain geographic locations than in others B) when a company has competitively superior patented technology that it can license to foreign partners C) when there is a steep learning or experience curve associated with performing an activity in a single location D) when certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages E) when there are significant scale economies in performing the activity

53) Dispersing the performance of value chain activities to many different countries rather than concentrating them in a few country locations tends to be advantageous in all of the following situations, except

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A) when high transportation costs make it expensive to operate from central locations. B) if resources retain their foreign contexts so there is competitive advantage over a broader domain. C) when it is desirable to hedge against (1) the risks of fluctuating exchange rates, (2) supply interruptions or (3) adverse political developments. D) if diseconomies of large size exist, thereby making it more economical to perform an activity on a smaller scale in several different locations. E) whenever buyer-related activities are best performed in locations close to buyers.

54) Which of the following is an example of a modification in a particular company’s business model to accommodate the unique local circumstances of developing countries?

A) Japan is known for its competitive strength in consumer electronics. B) Home Depot could rely on its value propositions only in some developing countries. C) Mahindra and Mahindra ranked number one in J. D. Power Asia Pacific’s newvehicle overall quality category. D) Unilever developed a low-cost detergent, named Wheel, for the Indian market. E) In China, Dell moved from its traditional Internet-based orders to orders over phone and fax.

55) Whirlpool’s efforts to link its product R&D and manufacturing operations in North America, Latin America, Europe, and Asia allowed it to

A) use acquisition and rapid-growth strategies to better defend against expansionminded international media companies. B) take advantage of aspects of the local workforce with which large international media companies may be unfamiliar. C) utilize keen understanding of local customer needs and preferences to create customized products or services. D) develop business models that exploit shortcomings in local R7D networks and manufacturing infrastructure. E) achieve operational excellence via discovery of innovative appliance features, coordinated integration of these features in the appliance products marketed in different countries and creation of a cost-efficient worldwide supply chain.

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56) The ability of a multinational or global competitor to shift production from country to country to take advantage of exchange rate fluctuations, energy costs, wage rates, or changes in tariffs is an example of

A) a profit sanctuary. B) cross-border coordination. C) an international strategic alliance. D) cross-market subsidization. E) cross-market differences in cultural, demographic, and market conditions.

57)

Companies racing for global market leadership

A) generally have to consider establishing competitive positions in the markets of emerging countries. B) are well advised to avoid all the risks and problems of competing in emerging country markets. C) seldom have the resource capabilities it takes to be effective in competing in emerging country markets and usually are at a strong competitive disadvantage compared to the domestic market leaders. D) can usually be expected to earn sizable profits quickly in emerging country markets. E) usually encounter very low barriers in entering the markets of emerging countries.

58) Which of the following is not a typical option that companies have to consider in order to tailor their strategy to fit the circumstances of emerging country markets?

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A) Prepare to compete on the basis of low price. B) Be prepared to modify aspects of the company’s business model to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding). C) Try to change the local market to better match the way the company does business elsewhere. D) Develop a strategy for the short-term and forget about a long-term strategy because conditions in emerging country markets change so rapidly. E) Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances.

59) Which of the following is not a typical option that companies have to consider in order to tailor their strategy to fit the circumstances of emerging country markets?

A) Try to change the local market to better match the way the company does business elsewhere. B) Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances. C) Change the local market to better match the way the company does business elsewhere. D) Modify aspects of the company’s business model to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding). E) Develop a strategy for the short-term and forget about a long-term strategy because conditions in emerging country markets change so rapidly.

60) Which of the following is not a strategic option companies should consider in tailoring their strategy to fit circumstances of emerging country markets?

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A) Try to change the local market to better match the way the company does business elsewhere. B) Modify aspects of the company’s business model to accommodate local circumstances. C) Prepare to compete on the basis of low price. D) Enter only those emerging markets that provide profit sanctuaries by offering opportunities for offensive strategies, such as preemptive strikes. E) Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 61) Briefly identify the major reasons a company may choose to expand outside its domestic market.

62) Explain and provide examples as to why the strategies of firms that expand internationally are usually grounded in home-country advantages or core competencies.

63) What are the primary country differences that shape strategy choices in international markets?

64) Identify and briefly describe any three of the five strategic options for entering foreign markets.

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65) Briefly discuss why a domestic company desirous of entering foreign markets might see attractive advantages in forming strategic alliances with foreign companies.

66) What are the possible benefits and risks of using strategic alliances to try to enhance a company’s ability to compete in foreign markets?

67) Discuss in some detail the difference between a localized multidomestic strategy and a global strategy, and give the pros and cons of each.

68) What circumstances call for use of a multidomestic strategy for competing in international markets?

69)

When is a global strategy “superior” to a multidomestic strategy?

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70) A global strategy embraces the theme “think global, act global,” whereas a multidomestic strategy relies more on a “think global, act local” mentality. True or false? Explain.

71) Discuss in some detail the difference between a multidomestic strategy and a global strategy. Give the pros and cons of each.

72) Identify and briefly explain two ways that multinational companies are able to use international operations to improve overall competitiveness.

73) Explain under what circumstances it becomes necessary for a multinational company to concentrate internal processes in a few locations.

74) Under what circumstances is it advantageous for a company competing in foreign markets to disperse certain internal processes across many countries?

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75)

Explain the importance of competing in emerging markets.

76)

List and discuss three strategy options for competing in emerging markets.

77) You have been assigned a project to identify approaches to defend against the entry of multinational companies into an emerging market. Use two examples to illustrate your strategic options.

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Answer Key Test name: Chap 07_7e 1) E 2) E 3) B 4) E 5) D 6) A 7) C 8) D 9) D 10) A 11) A 12) D 13) C 14) B 15) C 16) A 17) E 18) E 19) E 20) E 21) D 22) D 23) B 24) E 25) A 26) E Version 1

27) A 28) B 29) D 30) A 31) D 32) C 33) C 34) E 35) B 36) D 37) D 38) B 39) C 40) A 41) C 42) D 43) C 44) E 45) B 46) C 47) D 48) D 49) C 50) B 51) E 52) B 53) B 54) E 55) E 56) B Version 1

57) A 58) D 59) E 60) D 61) A company may opt to expand outside its home country for a variety of reasons, including: (1) the ability to gain access to new customers; (2) to achieve lower costs and enhance competitiveness; (3) to leverage core competencies in new markets; (4) to gain access to resources and capabilities (labor, resources, technology, distribution networks) in foreign markets; and (5) to spread business risk across a wider market base. 62) A company may be able to extend a market-leading position in its domestic market into a position of regional or global market leadership by leveraging its core competencies further. Walmart is capitalizing on its considerable expertise in discount retailing to expand into the United Kingdom, Japan, China, and Latin America. Walmart executives believe the company has tremendous growth opportunities in China. Companies can often leverage their resources internationally by replicating a successful business model, using it as a basic blueprint for international operations, as Starbucks and McDonald’s have done. 63) Heterogeneous market conditions across countries influence a company’s strategy choices in international markets. These conditions include: (1) buyer tastes, differing population sizes, income levels, market growth rates, and other demographic factors that influence product customization decisions; (2) wage rates, worker productivity, energy costs, environmental regulations, tax rates, and inflation rates that influence location choices; and (3) government policies, economic risk, and political risk that make a country’s business climate attractive or unattractive.

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64) The five general modes for entering foreign markets are: (1) exporting from a national base; (2) licensing foreign firms to produce and distribute goods and services abroad; (3) franchising involving local ownership; (4) establishing a subsidiary via acquisition or internal development; and (5) relying on strategic alliances, joint ventures, and other cooperative agreements with foreign companies. 65) Strategic alliances, joint ventures, and other cooperative agreements with foreign companies are a favorite and potentially fruitful means for entering a foreign market or strengthening a firm’s competitiveness in world markets because these approaches can: (1) strengthen a company’s ability to gain a foothold in a desirable market; (2) help capture economies of scale in production and/or marketing; (3) fill gaps in technical expertise and/or knowledge of local markets (buying habits and product preferences of consumers, local customs, and so on); (4) enable sharing of distribution facilities and dealer networks to mutually strengthen access to buyers; and (5) refocus energies away from competition between allies and instead toward teaming up to close the gap on leading companies; and (6) permit each partner to preserve its independence and avoid using perhaps scarce financial resources to fund acquisitions.

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66) Among the benefits of using strategic alliances to compete in foreign markets are: (1) strengthening a company’s ability to gain a foothold in a desirable market; (2) capturing economies of scale in production and/or marketing; (3) filling gaps in technical expertise and/or knowledge of local markets (buying habits and product preferences of consumers, local customs, and so on); (4) sharing distribution facilities and dealer networks to mutually strengthen access to buyers; and (5) refocusing energies away from competition between allies and instead toward teaming up to close the gap on leading companies; and (6) allowing each partner to preserve its independence and avoid using perhaps scarce financial resources to fund acquisitions. The risks of using strategic alliances include: (1) cross-border allies typically have to overcome language and cultural barriers, and figure out how to deal with diverse (or perhaps conflicting) operating practices; (2) communication, trustbuilding, and coordination costs are high in terms of management time; and (3) partners may discover they have conflicting objectives and strategies, deep differences of opinion about how to proceed, or important differences in corporate values and ethical standards.

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67) A multidomestic strategy calls for varying a company’s product offering and competitive approach from country to country in an effort to be responsive to significant cross-country differences in customer preferences, buyer purchasing habits, distribution channels, or marketing methods. Think local, act local strategy-making approaches are also essential when host-government regulations or trade policies preclude a uniform, coordinated worldwide market approach. Think local, act local strategy-making approaches come with two major drawbacks: (1) they hinder transfer of a company’s competencies and resources across country boundaries because the strategies in different host countries can be grounded in varying competencies and capabilities; and (2) they do not promote building a single, unified competitive advantage, especially one based on low cost. Companies employing highly localized or multidomestic strategies also face big hurdles in achieving low-cost leadership unless they find ways to customize their products and still be in a position to capture scale economies and learning curve effects. A global strategy is one in which the company’s approach is predominantly the same in all countries: it sells the same products under the same brand names everywhere, utilizes much the same distribution channels in all countries, and competes on the basis of the same capabilities and marketing approaches worldwide. Although the company’s strategy or product offering may be adapted in very minor ways to accommodate specific situations in a few host countries, the company’s fundamental competitive approach (low-cost, differentiation, or focused) remains very much intact worldwide, and local managers stick close to the global strategy. The main drawback to a global strategy is that it puts considerable strategic emphasis on building a global brand name and aggressively pursuing opportunities to transfer ideas, new products, and capabilities from one country to another but ignores country differences. Version 1

68) Multidomestic strategies are best suited for industries where a fairly high degree of local responsiveness is important, when varying a company’s product offering and competitive approach from country to country aids an effort to be responsive to significant cross-country differences in customer preferences, buyer purchasing habits, distribution channels, or marketing methods. 69) Global strategy is superior to multidomestic strategy in certain situations. Multidomestic strategies are best suited for industries where a fairly high degree of local responsiveness is important; global strategies, utilizing a standard approach to all country markets, are best suited for globally standardized industries. A multidomestic strategy calls for varying a company’s product offering and competitive approach from country to country in an effort to be responsive to significant crosscountry differences in customer preferences, buyer purchasing habits, distribution channels, or marketing methods, whereas a global strategy calls for selling the same products under the same brand names everywhere, utilizing much the same distribution channels in all countries, and competing on the basis of the same capabilities and marketing approaches worldwide. 70) Multidomestic strategies (think local, act local) are best suited for industries where a fairly high degree of local responsiveness is important; global strategies are best suited for globally standardized industries. Global strategies (think global, act global) employ the same basic competitive approach in all countries where a company operates and are best suited to industries that are globally standardized in terms of customer preferences, buyer purchasing habits, distribution channels, or marketing methods. The think global, act local strategy is known as a transnational strategy that is, accommodating cross-country variations in buyer tastes, local customs, and market conditions while also striving for the benefits of standardization. Version 1

71) A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level. A global strategy contrasts sharply with a multidomestic strategy in that it takes a standardized, globally integrated approach to producing, packaging, selling, and delivering the company’s products and services worldwide. A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach. 72) A multinational firm can gain competitive advantage by expanding outside its domestic market in two important ways: it can use location to lower costs or help achieve greater product differentiation. That is, multinational companies can achieve a competitive advantage in world markets by locating their value chain activities in whichever nations prove most advantageous, by either concentrating activities in certain locations or dispersing internal processes across multiple locations.

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73) Companies that compete multinationally can pursue competitive advantage in world markets by locating their value chain activities in whichever nations prove most advantageous. Multinational companies should concentrate internal processes in a few locations in the following situations: (1) when the costs of manufacturing or other activities are significantly lower in some geographic locations than in others; (2) when there are significant scale economies; (3) when there is a steep learning curve associated with performing an activity; and/or (4) when certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages, such as a sophisticated production facility or highly trained local personnel. 74) Dispersing an internal process across many countries is more advantageous than concentrating it in a single location in some situations. Buyer-related activities, such as distribution to dealers, sales and advertising, and after-sale service, usually must take place close to buyers, making it necessary to physically locate the capability to perform such activities in every country market where a global firm has major customers. Dispersing activities to many locations is also competitively important when high transportation costs, diseconomies of large size, and trade barriers make it too expensive to operate from a central location or to hedge against the risks of fluctuating exchange rates and adverse political developments.

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75) Developing-economy markets such as China, India, Brazil, Indonesia, Thailand, Poland, Russia, and Mexico all present considerable business risks but have huge market size and opportunities for growth, especially as the economies of these countries develop and living standards climb toward levels in the industrialized world; no company pursuing global market leadership can afford to ignore the strategic importance of establishing competitive market positions in China, India, other parts of the Asian-Pacific region, Latin America, and Eastern Europe.

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76) Among the strategy options for tailoring a company’s strategy to fit the sometimes unusual or challenging circumstances presented in developing-country markets are the following: (1) prepare to compete on the basis of low price, (2) modify aspects of the company’s business model or strategy to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding), (3) try to change the local market to better match the way the company does business elsewhere, and (4) stay away from those emerging markets where it is impractical or uneconomical to modify the company’s business model to accommodate local circumstances. Company experiences in entering developing markets such as China, India, Russia, and Brazil indicate that profitability seldom comes quickly or easily, so an entrant needs to be patient, work within the system to improve the infrastructure, and lay the foundation for generating sizable revenues and profits once conditions are ripe for market takeoff. Building a market for the company’s products can often turn into a longterm process that involves reeducation of consumers, sizable investments in advertising and promotion to alter tastes and buying habits, and upgrades of the local infrastructure (the supplier base, transportation systems, distribution channels, labor markets, and capital markets). Profitability in emerging markets rarely comes quickly or easily; new entrants have to adapt their business models and strategies to local conditions and be patient in earning a profit.

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77) As stated in Chapter 7, the competitive prospects for local companies facing global giants are by no means grim. Studies of local companies in developing markets have disclosed five strategies that have proved themselves in defending against globally competitive companies. 1. Develop business models that exploit shortcomings in local distribution networks or infrastructure. 2. Utilize keen understanding of local customer needs and preferences to create customized products or services. 3. Take advantage of aspects of the local workforce with which large international companies may be unfamiliar. 4. Use acquisition and rapid-growth strategies to better defend against expansion-minded internationals. 5. Transfer company expertise to cross-border markets and initiate actions to contend on an international level. In China, WeChat has been able to surpass international rivals because by better understanding Chinese customer needs, it can anticipate their desires. WeChat added features that allow users to check traffic cameras during rush hour, purchase tickets to movies, and book doctors’ appointments all on the app. Booking doctors’ appointments is a feature that is wildly popular with the Chinese customer base due to common scheduling difficulties. Essentially, WeChat created its own distribution network for sought-after information and goods in busy Chinese cities. WeChat also has an understanding of local customs that international rivals can’t match. In India, where information technology firms such as Infosys Technologies and Satyam Computer Services have been able to keep their personnel costs lower than those of international competitors EDS and Accenture because of their familiarity with local labor markets. While the large internationals have focused recruiting efforts in urban centers like Bangalore and Delhi, driving up engineering and computer Version 1

science salaries in such cities, local companies have shifted recruiting efforts to second-tier cities that are unfamiliar to foreign firms.

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CHAPTER 8: Corporate Strategy: Diversification and the Multibusines MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Diversification into new industries deserves strong consideration when

A) a multibusiness company encounters enhanced market opportunities and increasing sales in its principal business. B) a single-business company needs to develop a multi-line strategy. C) a single-business company needs to develop a corporate-wide strategy. D) a single-business company can achieve profitable growth opportunities in its present industry. E) a single-business company encounters diminishing market opportunities and stagnating sales in its principal business.

Diversification into a new industry can not be considered a success unless it results in

A) enhanced industry attractiveness. B) enhanced shareholder value. C) boosting performance of the existing business. D) lowered cost of entry. E) diminishing market opportunities and stagnating sales in a firm’s principal business.

3) Imagine you are the CEO of a regional ridesharing company that is considering diversification into grocery and meal delivery services. How would you determine whether or not your diversification strategy would be successful?

A) Diversification would result in increased ease of entry into new market locations. B) Diversification would result in enhanced shareholder value. C) Diversification would result in enhanced industry attractiveness. D) Diversification would result in increased performance of the existing business. E) Diversification would result in increased switching costs for customers.

Diversification merits strong consideration whenever a single-business company

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A) has integrated backward and forward as far as it can. B) faces diminishing market opportunities and stagnating sales in its principal business. C) has achieved industry leadership in its main line of business. D) encounters declining profits in its mainstay business. E) faces strong competition and is struggling to earn a good profit.

Diversification ought to be considered when a

A) company’s profits are being squeezed, and it needs to increase its net profit margins and return on investment. B) company lacks sustainable competitive advantage in its present business. C) company begins to encounter diminishing growth prospects in its mainstay business. D) company has run out of ways to achieve a distinctive competence in its present business. E) company is under the gun to create a more attractive and cost-efficient value chain.

Diversifying into new businesses can be considered a success only if it

A) results in increased profit margins and bigger total profits. B) builds shareholder value. C) helps a company escape the rigors of competition in its present business. D) leads to the development of a greater variety of distinctive competencies and competitive capabilities. E) helps the company overcome the barriers to entering additional foreign markets.

To create value for shareholders via diversification, a company must

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A) get into new businesses that are profitable. B) diversify into industries that are growing rapidly. C) spread its business risk across various industries by only acquiring firms that are strong competitors in their respective industries. D) diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses. E) diversify into businesses that have either key success factors or value chains that are similar to its present businesses.

8) The task of crafting a company’s overall corporate strategy for a diversified company encompasses all of the following except

A) establishing investment priorities and steering corporate resources into the most attractive business units. B) pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage. C) initiating actions to boost the combined performance of the corporation’s collection of businesses. D) divesting well-performing businesses. E) picking the new industries to enter and deciding on the means of entry.

9) When pharmacy chain, CVS Health, announced a $69 billion merger with health insurance giant Aetna late in 2017, top management of CVS needed to weigh a number of strategic considerations except

A) CVS’s opportunities to pursue debt reduction to lower its debt/equity ratio while maintaining asset levels. B) CVS’s opportunities to initiate profit improvements or turnaround strategies for weak-performing businesses showing potential. C) CVS’s opportunities to divest other unattractive businesses. D) CVS’s opportunities to pursue rapid growth strategies in its most promising businesses. E) CVS’s opportunities to pursue divestiture of businesses that did not fit into the company’s longer-term plans.

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10) To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use the

A) profit test, the competitive strength test, and the industry attractiveness test. B) better-off test, the competitive advantage test, and the profit expectations test. C) barrier to entry test, the competitive advantage test, and the stock price effect test. D) strategic fit test, the industry attractiveness test, and the dividend effect test. E) the industry attractiveness test, the cost-of-entry test, and the better-off test.

11) The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

A) conditions in the target industry allow for profits and return on investment that is equal to or better than that of the company’s present business(es). B) the potential diversification move will boost the company’s competitive advantage in its existing business. C) shareholders will view the contemplated diversification move as attractive. D) key success factors in the target industry are attractive. E) there are attractive strategic fits between the value chains of the company’s present businesses and the value chain of the new business it is considering entering.

12) The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

A) a newly entered business presents opportunities to cost-efficiently transfer competitively valuable skills or technology from one business to another. B) the cost to enter the target industry will strain the company’s credit rating. C) a company’s costs to enter the target industry are so high that the potentials for good profitability and return on investment are eroded. D) the cost to enter the target industry will raise or lower the company’s total profits. E) the cost a company incurs to enter the target industry will raise or lower production costs.

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13) The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves assessing whether the diversification move

A) will make the company better off because it will produce a greater number of core competencies. B) will make the company better off by improving its balance sheet strength and credit rating. C) will make the company better off by spreading shareholder risks across a greater number of businesses and industries. D) offers potential for the company’s existing businesses and new businesses to perform better together under a single corporate umbrella. E) will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

14) Anna and Martha are owners and managers of A&M, a limited liability corporation (LLC) that provides a wide array of services: mailing, notary services, packaging and pickup for UPS and FedEx, as well as faxing and document scanning. Anna and Martha have asked you, as their consultant, to consider whether or not they might want to diversify into financial planning due to the increasing number of retirees moving into their community. How would you advise Anna and Martha to proceed?

A) A&M needs to develop a corporate-wide strategy. B) A&M needs to develop a multi-line strategy. C) A&M needs to consider diversification opportunities into financial planning if the company has encountered diminishing market opportunities and stagnating sales in its principal business. D) A&M needs to remain on course, but only if this single-business company can achieve profitable growth opportunities in its present industry. E) A&M needs to remain on course, but only if it can generate enhanced market opportunities and increasing sales in its principal business.

15) Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it

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A) is an effective way to hurdle entry barriers, is usually quicker than trying to launch a new start-up operation, and allows the acquirer to move directly to the task of building a strong position in the target industry. B) is less expensive than launching a new start-up operation, thus passing the cost-ofentry test. C) is a less risky way of passing the attractiveness test. D) is more likely to result in passing the shareholder value test, the profitability test, and the better-off test. E) offers the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

16) Imagine that you are the general manager of a regional HR staffing company. What strategic consideration would be least likely to influence your decision to diversify your firm into new, related or unrelated business services?

A) selecting among new industries to enter and deciding on the means of entry B) assessing and settling on the appropriate value chain for each business the company has entered C) leveraging cross-business value chain relationships and strategic fit to achieve a competitive advantage D) establishing investment priorities and steering corporate resources into the most attractive business units E) taking actions to boost the combined performance of any new lines of business the firm has entered

17) Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when

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A) all of the potential acquisition candidates are losing money. B) it is impractical to outsource most of the value chain activities that have to be performed in the target business/industry. C) there is ample time to launch the new business from the ground up. D) the company has built up a hoard of cash with which to finance a diversification effort. E) none of the companies already in the industry is an attractive strategic alliance partner.

18)

A joint venture is an attractive way for a company to enter a new industry when

A) the firm is missing some essential skills or capabilities or resources and needs a partner to supply the missing expertise and competencies or fill the resource gaps. B) the firm needs access to economies of scope and good financial fits in order to be cost-competitive. C) it is uneconomical for the firm to achieve economies of scope on its own initiative. D) the firm has no prior experience with diversification. E) the firm has not built up a hoard of cash with which to finance a diversification effort.

19)

The $62.6 billion merger between Kraft and Heinz that was finalized in 2015

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A) was a merger predicated on the idea that the strategic fit between these two companies was such that they could create more value as a combined enterprise than they could as two separate companies. B) guaranteed that Kraft Heinz would be able to exploit its cross-business value chain activities and resource similarities immediately to more efficiently introduce innovative products, produce, distribute, and sell profitable processed food products. C) was less expensive for Kraft than launching a new startup operation, thus passing the cost-of-entry test. D) was more likely to result in Kraft’s passing the shareholder value test, the profitability test, and the better-off test. E) offered Kraft the prospect of gaining an immediate competitive advantage in the new industry and thus helped ensure that the diversification move could pass the competitive advantage test for building shareholder value.

20)

A joint venture is an attractive way for a company to enter a new industry when the

A) pool of attractive acquisition candidates in the target industry is relatively small. B) firm needs better access to economies of scope in order to be cost-competitive. C) industry is growing slowly and adding too much capacity too soon could create oversupply conditions. D) firm has no prior experience with diversification and the industry is on the verge of explosive growth. E) opportunity is too risky or complex for the company to pursue alone or when the company lacks some important resources or competencies and needs a partner to supply them.

21)

The greatest dilemma that an acquisition-minded firm faces is whether to

A) focus on acquiring technical know-how or outsourcing production. B) strive for scale economies or to acquire technical know-how to customize production. C) focus on building brand awareness or striving for scale economies. D) focus on building brand awareness or establishing supplier relationships. E) pay a premium price for a successful company or buy a struggling company at a bargain price.

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22)

The essential requirement for different businesses to be “related” is that

A) their value chains possess competitively valuable cross-business relationships. B) the products of the different businesses are bought by much the same types of buyers. C) the products of the different businesses are sold in the same types of retail stores. D) the businesses have several key suppliers in common. E) the production methods that they employ both entail economies of scale.

23)

One strategic fit-based approach to related diversification would be to

A) acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. B) acquire companies in forward distribution channels (wholesalers and/or retailers). C) expand into foreign markets where the firm currently does no business. D) diversify into new industries that present opportunities to transfer specialized expertise, technological know-how, or other valuable resources and capabilities from one business’s value chain to another’s. E) diversify into foreign markets where the firm has unrelated businesses.

24)

Which of the following is an important appeal of a related diversification strategy?

A) It represents an effective way of capturing valuable financial fit benefits. B) It offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another. C) It offers significant opportunities to strongly differentiate a company’s product offerings from those of rivals. D) It is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification. E) It is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test.

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25) Tanisha is CEO of a multinational corporate event planning firm. What would make it unappealing to her to consider diversification into a new industry, such as lodging, by forming an internal startup subsidiary to enter and compete in that target industry?

A) when the corporate event planning industry is growing rapidly and the target lodging industry is comprised of several relatively large and well-established firms B) when her company possesses the skills and resources to overcome entry barriers and there is ample time to launch the business and compete effectively C) when adding new lodging capacity will not adversely impact the supply/demand balance in the industry by creating oversupply conditions D) when internal entry is cheaper than entry via acquisition E) when incumbent firms are likely to be slow or ineffective in combating a new entrant’s efforts to crack the market

26)

Opportunities for cross-business strategic fit exist

A) in R&D and technology activities only. B) in supply chain activities only. C) in sales and marketing activities only. D) in production and distribution activities only. E) anywhere along the respective value chains of related businesses; no one place is best.

27)

Cross-business strategic fits are unlikely to be derived from

A) transferring competitively valuable resources, expertise, technological know-how, or other capabilities from one business to another. B) cost sharing between separate businesses whose activities can be combined. C) brand sharing between business units that have common customers or that draw upon common core competencies. D) sharing common administrative and customer service infrastructure. E) activities along the value chain that cannot be shared by different businesses.

28)

Economies of scope

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A) are cost reductions that flow from cost-saving strategic fits along the value chains of related businesses in the business lineup of a multibusiness corporation. B) arise only from strategic fit relationships in the production portions of the value chains of sister businesses. C) are more associated with unrelated diversification than related diversification. D) are present whenever diversification satisfies the attractiveness test and the cost-ofentry test. E) arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.

29)

Economies of scope differ from economies of scale in that

A) scope stems directly from strategic fit along the value chains of related businesses, while scale refers to cost savings that accrue directly from larger-sized operations. B) scope refers to strategic fits to be gained outside the value chain, while scale refers to the impact of the value chain on operations. C) scope refers to the reach of defined savings within the value chain, while scale refers to the magnitude or size of the operation itself. D) scope refers to the possibilities of change, while scale refers to the extent and direction of change. E) they mean the same thing and the only difference is the extent of cost savings accrued from unrelated businesses in each.

30)

What makes related diversification an attractive strategy is the

A) ability to meet the “what’s in it for us?” test. B) potential to stabilize the company’s financial performance. C) opportunity to convert the competitive advantage potential into 1 + 1 = 3 gains in shareholder value. D) potential to escape the power of buyers and suppliers. E) potential to more easily hurdle the barriers to entering foreign markets.

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31) A diversified company that leverages the strategic fits of its related businesses into competitive advantage

A) selects the appropriate value chain operating practices to improve the financial outlook. B) has a clear path to achieving 1 + 1 = 3 synergy gains in shareholder value. C) has a clear path to divesting its best-performing businesses. D) achieves economies of scale and passes the reduced-costs test for crafting a diversification strategy capable of creating added shareholder value. E) forces cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses to ensure compatibility with the overall corporate identity.

32) Procter & Gamble’s acquisition of Gillette was integral to a corporate diversification strategy for building the company around businesses

A) with strategic fit in respect to key value chain activities and competitive assets. B) that are highly independent, proficient, and efficient operating firms. C) with strategic fit across separate value chain activities that drive each business. D) that can also include unrelated businesses with dissimilar resource requirements. E) that have dissimilar value chain activities with no cross-business commonalities.

33)

The essential requirement for different businesses to be “related” is that

A) their value chains possess competitively valuable cross-business fit relationships. B) the products of the different businesses are bought by much the same types of buyers. C) the products of the different businesses are sold in the same types of retail stores. D) the businesses have several key suppliers in common. E) the production methods that they employ both entail economies of scale.

34)

A strategy of diversifying into unrelated businesses

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A) is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit). B) is the best way for a company to pass the attractiveness test in choosing which types of businesses/industries to enter. C) discounts the importance of strategic fit and instead focuses on building and managing a group of businesses in attractive industries that can acquired on financial terms that allow for acceptable returns on investment. D) concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders. E) generally offers more competitive advantage potential than related diversification.

35)

An acquisition of an unrelated business is deemed to have potential if it

A) is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit). B) can achieve at least existing profit margins into the near future. C) passes the competitive fit, financial fit, strategic relatedness, and value chain maximization tests. D) has the opportunity to generate positive buzz in the industry, even if it may not be able to contribute to the parent firm’s bottom line. E) can pass the industry attractiveness and cost-of-entry test, and if it has good prospects for profit growth.

36)

Different businesses are said to be “unrelated” when

A) they are in different industries. B) the products of the different businesses are not bought by the same types of buyers or sold in the same types of retail stores. C) the products of the different businesses satisfy different buyer needs. D) the businesses have different supply chains and different types of suppliers. E) there is an absence of competitively valuable strategic fits between their respective value chains.

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37)

The basic premise of unrelated diversification is that

A) the least risky way to diversify is to seek out businesses that are leaders in their respective industry. B) the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. C) the best way to build shareholder value is to acquire businesses with strong crossbusiness financial fit. D) any company that can be acquired on good financial terms and has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. E) the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

38) The types of companies that make particularly attractive acquisition targets when employing an unrelated diversification strategy are

A) cash cow businesses that provide excellent financial fit. B) companies that are market leaders in their respective industries. C) financially distressed companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital. D) companies that offer the greatest potential to reduce labor costs. E) companies that employ the same basic type of competitive strategy as the parent corporation’s existing businesses.

39)

One of the suggested advantages of an unrelated diversification strategy is that it

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A) expands a firm’s competitive advantage opportunities to include a wider array of businesses. B) spreads the stockholders’ risks across a group of truly diverse businesses. C) increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line. D) results in having more cash cow businesses than cash hog businesses. E) facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification).

40)

A sound justification for unrelated diversification is that doing so

A) can result in risk reduction by spreading a company’s investments over a set of diverse industries. B) can meet expectations for rapid or continuous growth. C) can stabilize earnings, that is, market downtrends, in some of the company’s businesses that will be partially offset by cyclical upswings in its other businesses. D) can support managerial motives including the prospects for higher compensation. E) can deliver enhanced shareholder value if an undervalued company can be purchased at a bargain price.

41)

The success of unrelated diversification is contingent upon management’s ability to

A) acquire new businesses that utilize much the same technology as existing businesses. B) divest businesses whose competitive strategies do not match the overall competitive strategy of the corporation. C) acquire new businesses having attractive distribution-related and customer-related strategic fits with existing businesses. D) identify bargain-priced companies with big upside potential and then turn around their operations quickly with the aid of the parent company’s financial resources and managerial know-how. E) identify potential new acquisition candidates that are cash cows (as opposed to cash hogs).

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42)

Corporate parenting refers to all of the following except

A) efforts to capitalize on the umbrella brands and enhance value proposition across businesses. B) the corporation’s ability to provide generalized support resources so as to create value by lowering companywide overhead costs by eliminating duplication of efforts. C) the oversight that subsidiaries receive in performing better when they utilize astute high-level guidance from corporate executives. D) efforts to judiciously segregate funds for each business in such a way that keeps the money safe and discourages shifting funds across business units. E) the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and capabilities.

43)

The two biggest drawbacks or disadvantages of unrelated diversification are

A) the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense. B) the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business. C) demanding managerial requirements and the limited competitive advantage potential that cross-business strategic fit provides. D) ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses the company has diversified into. E) the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company’s different businesses.

44)

The two biggest drawbacks or disadvantages of unrelated diversification are

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A) underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about. B) insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses the company has diversified into. C) volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. D) the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. E) overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

45) The one factor that company executives need not worry about when their company is managing many diverse, unrelated firms is

A) staying abreast of what’s happening in each industry and subsidiary. B) picking business-unit heads who have the requisite combination of managerial skills and know-how to motivate people. C) understanding the true value of strategic investment proposals by business-unit managers. D) knowing what to do if a business unit stumbles. E) “managing by the numbers”—that is, keeping a close track on the financial and operating results of each subsidiary.

46)

A diversified company has a parenting advantage when it

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A) is more able than other companies to create positive collaboration within its portfolio for different specialty groups and geographic locations. B) is more able than other companies to boost the combined performance of its individual businesses through its high-level guidance, general oversight, and other corporatelevel contributions. C) manages a set of fundamentally similar business operations inside fundamentally similar industries and environments. D) avoids acquiring undervalued companies and thus reduces risks. E) results in supporting short-term economic shareholder value.

47) Which of the following rationales for pursuing unrelated diversification is likely to increase shareholder value?

A) to enable a company to achieve rapid or continuous growth B) to reduce risk by way of spreading the company’s investments over a set of truly diverse industries C) to stabilize earnings; that is, market downtrends in some of the company’s businesses will be partially offset by cyclical upswings in its other businesses D) to provide benefits to managers such as high compensation and reduction in employment risk E) to restructure an underperforming business

48) Kjirstin is the general manager of Labcon USA, a diversified laboratory equipment design and manufacturing business with one major “core” business that accounts for 60 percent of the company’s total worldwide revenues and the remainder, a collection of small related or unrelated businesses. She would define Labcon USA as a

A) corporate parent enterprise. B) narrowly diversified enterprise. C) multibusiness enterprise. D) high-compensation/low-risk enterprise. E) dominant business enterprise.

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49) A major factor that company executives need not worry about when their company is managing many diverse, unrelated firms is

A) choosing business-unit heads having the requisite combination of managerial skills and know-how to motivate people. B) understanding the true value of strategic investment proposals by business-unit managers. C) knowing what to do if a business unit stumbles. D) “managing by the numbers”—that is, keeping a close track on the financial and operating results of each subsidiary. E) staying abreast of what’s happening in each industry and subsidiary.

50) The procedure for evaluating the pluses and minuses of a diversified company’s strategy includes

A) assessing the utility of the products for consumers from all age-groups. B) determining which business units are cash cows and which ones are cash hogs, and then evaluating how soon the company’s cash hogs can be transformed into cash cows. C) firing corporate managers who take on risks without performing due diligence. D) evaluating the extent of cross-business strategic fits and checking whether the firm’s resources fit the needs of the various businesses the company has diversified into. E) measuring the frequency with which strategic alliances and collaborative partnerships are used in each industry, and the extent to which firms in the industry utilize outsourcing.

51) Which of the following is not a major consideration in evaluating the pluses and minuses of a diversified company’s strategy?

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A) checking whether the company’s resources fit the requirements of its present business lineup B) scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into C) ranking the performance prospects of the various businesses from best to worst and determining what the corporate parent’s priorities should be in allocating resources to its different businesses D) evaluating the extent of cross-business strategic fits E) assessing the competitive strength of each business the company has diversified into

52) A comprehensive evaluation of the group of businesses a company has diversified into involves

A) rating the attractiveness of each industry’s strategic and resource fits, summing the attractiveness scores, and determining whether the overall scores for the industries as a group are appealing or not. B) identifying each industry’s average profitability, rating the difficulty of achieving average profitability in each industry, and deciding whether the company’s prospects for aboveaverage profitability are attractive or unattractive, industry by industry. C) determining each industry’s competitive advantage factors, calculating the ability of the company to be successful on each competitive advantage factor, and obtaining overall measures of the firm’s ability to achieve sustainable competitive advantage in each of its industries based on the combined competitive advantage factor ratings. D) determining each industry’s key success factors (KSF), calculating the ability of the company to be successful on each industry KSF, and obtaining overall measures of the firm’s ability to compete successfully in each of its industries based on the combined KSF ratings. E) selecting a set of industry attractiveness measures, weighting the importance of each measure, rating each industry on each attractiveness measure, multiplying the industry ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each industry to obtain an overall industry attractiveness score, and using the overall industry attractiveness scores to interpret the attractiveness of all the industries, both individually and as a group.

53) Calculating quantitative industry attractiveness scores for each industry a company has diversified into

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A) permits a ranking of the attractiveness of the various industry value chains, from best to worst. B) provides a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group, and further to provide an indication of which industries offer the best and worst long-term prospects. C) helps ascertain which industries have the easiest-to-achieve key success factors and strategic fits. D) ignores seasonal and cyclical factors, industry profitability, and whether an industry has significant social, political, regulatory, and environmental problems. E) enables managers to get in position to rank the industries from most competitive to least competitive.

54) On June 26, 2018, CEO John Flannery of General Electric Company (GE) announced that the company planned to spin off its healthcare business and divest its stake in oil services firm Baker Hughes. The slimmed-down company would refocus on jet engines, power plants, and renewable energy. What would you consider not to be an important consideration for CEO Flannery when he evaluated the merits of this diversified company’s new strategy?

A) analyzing the strategic fits and resource fits among the various sister businesses B) assessing the competitive strength of each business GE had previously diversified into C) determining which business units were cash cows and which ones were cash hogs, and then evaluating how soon GE’s cash hogs could be transformed into cash cows D) ranking the performance prospects of the current portfolio of GE businesses from best to worst and deciding what priority to give each of the company’s business units in allocating resources E) assessing the attractiveness of the industries GE had previously diversified into, both individually and as a group

55) When industry attractiveness ratings are calculated for each of the industries a multibusiness company has diversified into, the results help indicate

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A) which industries appear to be the most and least attractive from the standpoint of the company’s long-term performance. B) which industries have attractive key success factors and which have unattractive key success factors. C) which industries have the biggest economies of scale and which have the greatest economies of scope and the overall potential for cost reduction in the industries as a group. D) which industries are most attractive from the standpoint of long-term growth and the growth prospects of all the industries as a group. E) which industries are most attractive from the standpoint of industry driving forces and competitive forces.

56) When calculating industry attractiveness scores, to produce a valid response it is necessary to

master the ability to hurdle barriers to entry, value chain attractiveness, and business

risk. B) calculate the cost reduction potential, customer satisfaction potential, and comparisons of annual cash flows from operations. C) enumerate the relative number of competitive capabilities, the number of products in each business’s product line, which businesses have the highest/lowest market shares, and which businesses earn the highest/lowest profits before taxes. D) employ outside analysts to make an educated guess if the available information is skimpy. E) ensure the appropriate weights are assigned to each measure and that the preparer has sufficient knowledge to rate the industry on each attractiveness measure.

57) Assessments of how a diversified company’s subsidiaries compare in competitive strength should be based on such factors as

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A) vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and vulnerability to fluctuating interest rates and exchange rates. B) relative market share, ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and ability to benefit from strategic fits with sister businesses. C) the appeal of its strategy, relative number of competitive capabilities, the number of products in each businesses product line, which businesses have the highest/lowest market shares, and which businesses earn the highest/lowest profits before taxes. D) the ability to hurdle barriers to entry, value chain attractiveness, and business risk. E) cost reduction potential, customer satisfaction potential, and comparisons of annual cash flows from operations.

58) The value of determining the relative competitive strength of each business a company has diversified into is to

A) have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis-à-vis the rivals in their respective industries. B) have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent’s revenue growth. C) compare resource strengths and weaknesses, business by business. D) have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries. E) have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent’s profitability.

59) The basic purpose of calculating competitive strength scores for each of a diversified company’s business units is to

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A) rank the business unit from best to worst in terms of potential for cost reduction and profit margin improvement. B) provide a quantitative measure of the overall market strength and competitive standing for each business unit. C) determine which business unit has the greatest number of resource strengths, competencies, and competitive capabilities, and which one has the least. D) determine which one has the biggest market share and is growing the fastest. E) rank each business unit’s strategy from best to worst.

60) A competitive strength score above five indicates that a diversified company’s relative position in the market is characterized by

A) industries. B) industries. C) business. D) E)

61)

business units that are all fairly weak market contenders in their respective business units that are all fairly strong market contenders in their respective a competitive strength score that does not relate to the market position of the signals that the company will not likely perform well against its rivals. signals that the company will likely fail.

The nine-cell industry attractiveness-competitive strength matrix

A) is useful for helping decide which businesses should have high, average, and low priorities in allocating corporate resources. B) indicates which businesses are cash hogs and which are cash cows. C) pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix but is less clear about the best strategies for businesses positioned in the bottom six cells. D) identifies which sister businesses have the greatest strategic fit. E) indicates the relative size of the businesses.

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62) The most important strategy-making guidance that comes from drawing a nine-cell industry attractiveness-competitive strength matrix is

A) which businesses in the portfolio have the most potential for strategic fit and resource fit. B) why cash cow businesses are more valuable than cash hog businesses. C) that corporate resources should be concentrated on those businesses enjoying both a higher degree of industry attractiveness and competitive strength and that businesses having low competitive strength in relatively unattractive industries should be looked at for possible divestiture. D) which businesses have the biggest competitive advantages and which ones confront serious competitive disadvantages. E) which businesses are in industries with profitable value chains and which are in industries with money-losing value chains.

63)

The nine-cell attractiveness-strength matrix provides clear, strong logic for

A) concentrating resources to bolster unattractive and competitively weak performers in the corporate portfolio. B) measuring only business strength in allocating resources and investment capital to the different businesses. C) concentrating resources in only those business units that are destined for squeezing out the maximum cash flows. D) using both industry attractiveness and business strength measurements in allocating resources and investment capital to a corporation’s different businesses. E) using both resource fit and product strength measurements in allocating resources and investment capital to its different businesses.

64) In a diversified company, the competitive advantage potential of cross-business strategic fit is greater when

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A) the business lineup includes a number of cash cows. B) valuable opportunities exist to transfer skills, technology, or intellectual capital from one business to another, combine the performance of related activities, or share the use of a wellrespected brand name across multiple products or service categories. C) the strategy maps of the various business units converge. D) businesses included in the corporate portfolio compete in fast-growing industries. E) competition is less intense and driving forces are relatively weak.

65) Checking a diversified firm’s business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of

A) whether the parent company’s competitive advantages are being deployed to maximum advantage in each of its business units. B) whether the competitive strategies employed in each business act to reinforce the competitive power of the strategies employed in the company’s other businesses. C) whether the competitive strategies in each business possess good strategic fit with the parent company’s corporate strategy. D) the extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, or transfer skills or technology or intellectual capital from one business to another. E) how compatible the competitive strategies of the various sister businesses are and whether these strategies are properly aimed at achieving the same kind of competitive advantage.

66)

A diversified company’s business units exhibit good resource fit when

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A) each business is a cash cow. B) a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company’s overall resource strengths. C) each business is sufficiently profitable to generate an attractive return on invested capital. D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business. E) the resource requirements of each business exactly match the resources the company has available.

67)

The businesses in a diversified company’s lineup exhibit good resource fit when

A) the resource requirements of each of its businesses exactly match the resources the company has available. B) its individual businesses add to a company’s resource strengths and when it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin. C) each business unit generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent. D) each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend. E) there are enough cash cow businesses to support the capital requirements of the cash hog businesses.

68) One important dimension of resource fit concerns the potential to generate internal cash flows sufficient to fund capital requirements of its business lineup, termed the firm’s

A) internal capital market. B) debt policy management. C) liquidity management. D) economic value added. E) managerial cost control.

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69)

A cash cow type of business

A) generates unusually high profits and returns on equity investment. B) is so profitable that it has no long-term debt. C) generates positive cash flows over and above its internal requirements, thus providing a corporate parent with cash flows that can be used for financing new acquisitions, investing in cash hog businesses, funding share buyback programs, and/or paying dividends. D) is a business with such a strong competitive advantage that it generates big profits, big returns on investment, and big cash surpluses after dividends are paid. E) has good strategic fit with a cash hog business.

70)

A cash hog type of business

A) is one that is losing money and requires cash infusions from its corporate parent to continue operations. B) generates cash flows that are too small to fully fund its operations and growth, and so must receive cash infusions from outside sources to cover working capital and investment requirements. C) generates negative cash flows from internal operations and thus requires cash infusions from its corporate parent to report a profit. D) is a business growing so rapidly that it does not have the funds to cover its shortand long-term debt obligations. E) is one that has more current liabilities than current assets and faces a liquidity crisis due to declining sales revenues and declining profitability.

71) The difference between a cash cow business and a cash hog business is that a cash cow business

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A) is making money, whereas a cash hog business is losing money. B) generates enough profits to pay off long-term debt, whereas a cash hog business does not. C) generates positive retained earnings, whereas a cash hog business produces negative retained earnings. D) produces large internal cash flows over and above what is needed to build and maintain the business, whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements. E) generates very large increases in sales revenues, whereas a cash hog business has declining sales revenues and chronic deficiencies of working capital.

72)

A diversified company’s business units exhibit good financial resource fit when

A) it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company’s overall strengths. B) cash cow businesses are sufficient to fund its needs to turn cash hogs into potential young stars. C) self-supporting stars are able to plow their cash flows into funding cash cows. D) each business is sufficiently profitable to generate an attractive return on invested capital. E) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.

73) Huawei has hired you to calculate its relative share of the global mobile phone market. How would you conduct this analysis?

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A) by identifying Huawei’s cash cows, which have big relative market shares (above 1.0), and cash hogs, which have low relative market shares (below 0.5) B) by adjusting Huawei’s revenue share up or down by a factor proportional to whether their quality/customer service factors are above/below industry averages C) by dividing Huawei’s percentage share of total industry sales volume by the percentage share held by its largest rival D) by dividing Huawei’s market share (based on dollar volume) by the industry-average market share. E) by subtracting the industry-average market share (based on revenue) from Huawei’s market share to highlight relative share above/below the industry average. This amount is a better indicator of a business’s competitive strength than is just looking at the firm’s market share percentage.

74)

A diversified company’s business units exhibit good financial resource fit when

A) each business is a cash cow. B) a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company’s overall strengths. C) each business is sufficiently profitable to generate an attractive return on invested capital. D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business. E) the resource requirements of each business exactly match the company’s available resources.

75) The tests of whether a diversified company’s businesses exhibit resource fit do not include

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A) whether a business adequately contributes to achieving the corporate parent’s performance targets. B) whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses. C) whether the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into. D) whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating. E) whether the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.

76) Management’s ranking of business units and establishing a priority for resource allocation should

A) utilize activity-based costing and benchmarking to determine the funding needs of each business unit. B) first consider the strength of funding proposals presented by managers of each division or business unit. C) give priority for funding to cash-hog businesses. D) put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list. E) always make the company’s business units with strong resource strengths and competitive capabilities the central focus of funding initiatives.

77) The strategic and financial options for allocating a diversified company’s financial resources do not include

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A) making acquisitions to establish positions in new businesses or to complement existing businesses. B) investing in ways to strengthen or grow existing businesses. C) funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses. D) allocating resources to businesses with dim or marginal prospects. E) paying off existing debt, increasing dividends, building cash reserves, or repurchasing shares of the company’s stock.

78) Which one of the following is not a reasonable option for deploying a diversified company’s financial resources?

A) making acquisitions to establish positions in new businesses or to complement existing businesses B) concentrating most of a company’s financial resources in cash cow businesses and allocating little or no additional resources to cash hog businesses until they show enough strength to generate positive cash flows C) funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses D) paying down existing debt, increasing dividends, or repurchasing shares of the company’s stock E) investing in ways to strengthen or grow existing businesses

79)

Moves to improve a diversified company’s overall performance do not include

A) broadening the company’s business scope by making new acquisitions in new industries. B) divesting weak-performing businesses and retrenching to a narrower base of business operations. C) restructuring the company’s business lineup and putting a whole new face on the company’s business makeup. D) sticking closely to the existing business lineup and pursuing the growth opportunities presented by these businesses. E) selling businesses too late and at too low a price.

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80) The strategic options to improve a diversified company’s overall performance do not include which of the following categories of actions?

A) broadening the company’s business scope by making new acquisitions in new industries B) increasing dividend payments to shareholders and/or repurchasing shares of the company’s stock C) restructuring the company’s business lineup and putting a whole new face on the company’s business makeup D) sticking closely with the existing business lineup and pursuing opportunities these businesses present E) divesting weak-performing businesses and retrenching to a narrower base of business operations

81) Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed, which one of the following is not one of the main strategy options that a company can pursue?

A) Stick closely with the existing business lineup. B) Restructure the company’s business lineup. C) Craft new initiatives to build or enhance the company’s reputation. D) Divest some businesses and retrench to a narrower diversification base. E) Broaden the diversification base.

82)

The option of sticking with the current business lineup makes sense when

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A) the company’s present businesses offer attractive growth opportunities and can be counted on to generate good earnings and cash flows for shareholders. B) companies are seeking multinational diversification. C) corporate executives are excited about market opportunities. D) corporate executives are satisfied with current performance of each of their businesses and can use redirect capabilities and resources for expansion opportunities. E) corporate executives want to divest some businesses and retrench to a narrower diversification base.

83) A company that is already diversified may choose to broaden its business scope by building positions in new related or unrelated businesses because of all of the following considerations except

A) its top management seeks to lessen the company’s vulnerability to seasonal or recessionary influences or to threats from emerging new technologies, legislative regulations, and new product innovations that alter buyer preferences and resource requirements. B) its top management wants to increase its compensation. C) its top management wants to make new acquisitions to strengthen or complement some of its present businesses, market positioning, and competitive capabilities. D) the company’s growth is sluggish and it wants the sales and profit boost that a new business can provide. E) it has resources or capabilities that are eminently transferable to other related or complementary businesses.

84)

Retrenching to a narrower diversification base

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A) is usually the most attractive long-run strategy for a broadly diversified company confronted with recession, high interest rates, mounting competitive pressures in several of its businesses, and sluggish growth. B) is directed at improving long-term performance by building stronger positions in a smaller number of core businesses. C) is an attractive strategy option for revamping a diverse business lineup that lacks strong cross-business financial fit. D) is sometimes an attractive option for deepening a diversified company’s technological expertise and supporting a faster rate of product innovation. E) is a strategy best reserved for companies in poor financial shape.

85) In which of the following instances is retrenching to a narrower diversification base not likely to be an attractive or advisable strategy for a diversified company?

A) when a diversified company has businesses that are weakly positioned in their respective industries and are struggling to earn a decent return on investment B) when a diversified company has too many cash cows C) when one or more businesses are cash hogs with questionable long-term potential D) when businesses in once-attractive industries have badly deteriorated E) when a diversified company has businesses that have little or no strategic or resource fits with the “core” businesses that management wishes to concentrate on

86)

Divestiture can be accomplished by

A) purchasing a business outright from another company. B) spinning an unwanted business off as a managerially and financially independent company by selling shares to the investing public via an initial public offering of stock. C) purchasing a business by selling shares of stock to the investing public or borrowing funds. D) reinvesting in an unwanted business to make a more financially and managerially stable company. E) selecting only businesses that have ample resources to compete successfully on their own for sale to another company.

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87)

Corporate restructuring strategies

A) involve making radical changes in a diversified company’s business lineup, divesting some businesses, and acquiring new ones so as to put a new face on the company’s business lineup. B) entail reducing the scope of diversification to a smaller number of businesses. C) entail selling off marginal businesses to free resources for redeployment to the remaining businesses. D) focus on crafting initiatives to restore a diversified company’s money-losing businesses to profitability. E) focus on broadening the scope of diversification to include a larger number of businesses and boost the company’s growth and profitability.

88) Conditions that may make corporate restructuring strategies appealing include all of the following except

A) ill-chosen acquisitions that haven’t lived up to expectations. B) an excessive debt burden with interest costs that eat deeply into profitability. C) ongoing declines in the market shares of one or more major business units that are falling prey to more market-savvy competitors. D) a business lineup that consists of too many slow-growth, declining, low-margin, or competitively weak businesses. E) a business lineup that consists of too many cash cow businesses.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 89) Briefly discuss when it makes good strategic sense for a company to consider diversification.

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90) Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

91) The attractiveness test is the most important test for determining whether diversification into a new business is likely to result in 1 + 1 = 3 increases in shareholder value (as opposed to simply a 1 + 1 = 2 type of increase). True or false? Justify and explain your answer.

92) Identify and briefly discuss each of the three options for entering new businesses. Which one is the most popular in the sense of being used most frequently? For what reasons?

93) Carefully explain the difference between a strategy of related diversification and a strategy of unrelated diversification.

94) What is meant by the term strategic fit? What are the advantages of pursuing strategic fit in choosing which industries to diversify into?

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95) Identify and explain the meaning and strategic significance of each of the following terms: a. related diversification b. strategic fit c. economies of scope d. retrenching e. unrelated diversification

96)

Discuss the pros and cons of a strategy of unrelated diversification.

97) Identify and briefly describe the six steps involved in evaluating a diversified company’s business lineup and diversification strategy.

98) Imagine that you have been hired by Bill Newlands, President and COO of Constellation Brands (CB), to review the beverage company’s diversified portfolio of businesses. Which analytical tools would use to assess CB’s business lineup for adequate resource fit?

99) Briefly explain the relevance of quantitatively measuring the competitive strength of each business in a diversified company’s business portfolio and determining which business units are strongest and weakest.

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100) Briefly explain the nine-cell industry attractiveness-competitive strength matrix and interpret how a weak performing business unit would be depicted in the matrix.

101) What is meant by the term resource fit as it applies to evaluating a diversified company’s business lineup?

102) Why is it pertinent in evaluating a diversified company’s business lineup to rank a diversified company’s businesses on the basis of their future performance prospects?

103)

Explain the difference between a cash cow business and a cash hog business.

104) What factors should management consider when ranking business units and setting a priority for resource allocation?

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105) What are the four main strategic paths that a diversified company can employ to improve the performance of its overall business lineup?

106) Barbara Rentler, CEO of Ross Stores, Inc. (parent company of Ross Dress for Less and dd’s Discount retail chains) is considering broadening her company’s business scope, by building positions in new related or unrelated businesses. Because of what reasons might you advise Ms. Rentler to pursue a diversification strategy?

107) Under what circumstances might a diversified firm choose to divest one or more of its businesses?

108) Under what circumstances might an already diversified company choose to pursue corporate restructuring?

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Answer Key Test name: Chap 08_7e 1) E 2) B 3) B 4) B 5) C 6) B 7) D 8) D 9) A 10) E 11) A 12) C 13) D 14) C 15) A 16) B 17) C 18) A 19) A 20) E 21) E 22) A 23) D 24) B 25) A 26) E Version 1

27) E 28) A 29) A 30) C 31) B 32) A 33) A 34) C 35) E 36) E 37) D 38) C 39) B 40) E 41) D 42) D 43) C 44) D 45) B 46) B 47) E 48) E 49) A 50) D 51) B 52) E 53) B 54) C 55) A 56) E Version 1

57) B 58) D 59) B 60) B 61) A 62) C 63) D 64) B 65) D 66) B 67) B 68) A 69) C 70) B 71) D 72) A 73) C 74) B 75) E 76) D 77) A 78) B 79) E 80) B 81) C 82) A 83) B 84) B 85) B 86) B Version 1

87) A 88) E 89) Diversifying into new industries always merits strong consideration whenever a single-business company encounters diminishing market opportunities and stagnating sales in its principal business. A company’s opportunities for growth can become limited if its current industry or industries become competitively unattractive. 90) The three tests for judging whether a particular diversification move can create value for shareholders are the industry attractiveness test, the cost-of-entry test, and the better-off test. In evaluating the industry attractiveness test, the industry to be entered through diversification must offer an opportunity for profits and return on investment that is equal to or better than that of the company’s present business lineup. In evaluating the cost-of-entry test, the cost to enter the target industry must not be so high as to erode the potential for good profitability and returns on investment. In evaluating the “better-off” test, diversifying into a new business must offer potential for the company’s existing businesses and the new business to perform better together (1 + 1 = 3) under a single corporate umbrella than they would perform operating as independent, stand-alone businesses. 91) True. In evaluating the “better-off” test, diversifying into a new business must offer potential for the company’s existing businesses and the new business to perform better together (1 + 1 = 3) under a single corporate umbrella than they would perform operating as independent, stand-alone businesses. That is, creating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of its parts.

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92) The means of entering new industries and lines of business can take any of three forms: acquisition, internal development, or joint ventures with other companies. Of those forms, acquisition is the most popular means of diversifying into another industry. Not only is it quicker than trying to launch a new operation, but it also offers an effective way to hurdle such entry barriers as acquiring technological know-how, establishing supplier relationships, achieving scale economies, building brand awareness, and securing adequate distribution. Buying an ongoing operation allows the acquirer to move directly to the task of building a strong market position in the target industry, rather than getting bogged down in the fine points of launching a start-up. 93) A related diversification strategy involves building the company around businesses whose value chains possess competitively valuable strategic fit. An unrelated diversification strategy discounts the importance of pursuing cross-business strategic fit and, instead, focuses squarely on entering and operating businesses in diverse industries that allow the company as a whole to increase its earnings. 94) Strategic fit occurs when value chains of different businesses present opportunities for cross-business combinations such as skills transfer, cost sharing, or brand sharing. Economies of scope is a major advantage that stems directly from cost-saving strategic fit along the value chains of related businesses. Such economies are open only to a multibusiness enterprise and are the result of a related diversification strategy that allows sibling businesses to share technology, perform R&D together, use common manufacturing or distribution facilities, share a common sales force or distributor/dealer network, and/or share the same administrative infrastructure.

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95) Businesses are “related” when their value chains possess competitively valuable cross-business relationships. Strategic fit occurs when value chains of different businesses present opportunities for cross-business combinations such as skills transfer, cost sharing, or brand sharing. Economies of scope stem directly from cost-saving strategic fit along the value chains of related businesses. Such economies are open only to a multibusiness enterprise and are the result of a related diversification strategy that allows sibling businesses to share technology, perform R&D together, use common manufacturing or distribution facilities, share a common sales force or distributor/dealer network, and/or share the same administrative infrastructure. Evidence indicates that pruning businesses and thereby narrowing a firm’s diversification base in a smaller number of core businesses improves corporate performance. An unrelated diversification strategy discounts the importance of pursuing cross-business strategic fit and, instead, focuses squarely on entering and operating businesses in diverse industries that allow the company as a whole to increase its earnings. 96) See Figure 8.1. The two main advantages of unrelated diversification are: (1) spreading risks across completely different businesses and (2) building shareholder value by doing a superior job of selecting which businesses to diversify into and managing the whole collection of businesses in the conglomerate’s portfolio. The two major disadvantages of unrelated diversification are: (1) unrelated diversification requires that corporate executives rely on the skills and expertise of business-level managers to build competitive advantage and boost the performance of individual businesses and (2) without the competitive advantage potential of strategic fit, consolidated performance of an unrelated group of businesses is unlikely to be better than the sum of what the individual business units could achieve independently in most instances.

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97) The procedure for evaluating the pluses and minuses of a diversified company’s strategy and deciding what actions to take to improve the company’s performance involves six steps: (1) assessing the attractiveness of the industries the company has diversified into, (2) assessing the competitive strength of the company’s business units, (3) evaluating the extent of cross-business strategic fit along the value chains of the company’s various business units, (4) checking whether the firm’s resources fit the requirements of its present business lineup, (5) ranking the performance prospects of the businesses from best to worst and determining a priority for allocating resource, and (6) crafting new strategic moves to improve overall corporate performance. 98) Managers of a diversified company should check for opportunities to achieve 1 + 1 = 3 outcomes. Any industry to be entered through diversification must offer an opportunity for profits and return on investment that is equal to or better than that of the company’s present lineup of businesses. A simple and reliable analytical tool for CB’s managers to gauge industry attractiveness involves calculating quantitative industry attractiveness scores based upon the following nine dimensions: (1) market size and projected growth rate; (2) intensity of competition; (3) emerging opportunities and threats; (4) presence of cross-industry strategic fit; (5) resource requirements; (6) seasonal and cyclical factors; (7) social, political, regulatory, and environmental factors; (8) industry profitability; and (9) industry uncertainty and business risk. Those dimensions are first assigned numbers from 1 to 10 and are then weighted to reflect their relative importance. Two conditions are necessary for an industry attractiveness score to be relevant: (1) deciding on appropriate weights for the industry attractiveness measures and (2) possessing sufficient knowledge— particularly on the intensity of competition—to rate the industry on each attractiveness measure. Version 1

99) Conducting a quantitative appraisal of each business unit’s strength and competitive position in its industry not only reveals its chances for industry success but also provides a basis for ranking the units from competitively strongest to weakest. 100) See Figure 8.3. Using the nine-cell industry attractivenesscompetitive strength matrix, a good case can be made for concentrating resources in those businesses that enjoy higher (versus average or lower) degrees of attractiveness and competitive strength, being very selective in making investments in businesses with intermediate positions on the grid, and withdrawing resources from businesses that are lower in attractiveness and strength—unless they offer exceptional profit or cash flow potential. Businesses in the three cells in the lower right corner of the matrix typically are weak performers and have the lowest claim on corporate resources. Such businesses are typically good candidates for being divested or else managed in a manner calculated to squeeze out the maximum cash flows from operations. 101) A diversified company exhibits resource fit when its businesses add to a company’s overall mix of resources and capabilities and when the parent company has sufficient resources to support its entire group of businesses without spreading itself too thin. 102) Once a diversified company’s strategy has been evaluated from the perspective of industry attractiveness, competitive strength, strategic fit, and resource fit, the next step is to use this information to rank the performance prospects of the businesses from best to worst. Such ranking helps top-level executives assign each business a priority for resource support and capital investment. 103) A cash cow generates operating cash flows over and above its internal requirements, whereas a cash hog generates operating cash flows that are too small to fully fund its operations and investment requirements. Version 1

104) As a rule, business subsidiaries with the brightest profit and growth prospects, attractive positions in the nine-cell matrix, and solid strategic and resource fit should receive top priority for allocation of corporate resources. However, in ranking the prospects of the different businesses from best to worst, it is usually wise to also consider each business’s past performance as concerns sales growth, profit growth, contribution to company earnings, return on capital invested in the business, and cash flow from operations. Competitively strong businesses in attractive industries have significantly better performance prospects than competitively weak businesses in unattractive industries. 105) Strategic moves to improve a diversified company’s overall performance include (1) sticking closely with the existing business lineup and pursuing the opportunities these businesses present; (2) broadening the company’s business scope by making new acquisitions in new industries; (3) divesting some businesses and retrenching to a narrower base of business operations; and (4) restructuring the company’s business lineup and putting a whole new face on the company’s business makeup. 106) Several motivating factors for broadening Ross’s current business via diversification could be in play. One is sluggish growth that makes the potential revenue and profit boost of a newly acquired business look attractive. A second is the potential for transferring resources and capabilities to other related or complementary businesses. A third is rapidly changing conditions in one or more of a company’s core businesses, brought on by technological, legislative, or demographic changes. A fourth and very important, motivating factor for adding new businesses is to complement and strengthen the market position and competitive capabilities of one or more of Ross’s present businesses.

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107) Candidates for divestiture in a corporate restructuring effort typically include not only weak or up-and-down performers or those in unattractive industries but also business units that lack strategic fit with the businesses to be retained, businesses that are cash hogs, or businesses in a once-attractive industry that have badly deteriorated. 108) Performing radical surgery on a company’s group of businesses is an appealing corporate strategy when its financial performance is squeezed or eroded by: (1) too many businesses in slow-growth, declining, low-margin, or otherwise unattractive industries; (2) too many competitively weak businesses; (3) an excessive debt burden with interest costs that eat deeply into profitability; and/or (4) ill-chosen acquisitions that haven’t lived up to expectations.

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CHAPTER 9: Ethics, Corporate Social Responsibility, Environmental Sustainability. MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Business ethics concerns

A) developing a consensus among companies worldwide as to what ethical principles that businesses should be expected to observe in the course of conducting their operations. B) what ethical behaviors should be expected of company personnel in the course of doing their jobs. C) the application of ethical principles and standards to business activities, behavior, and decisions. D) developing a special set of ethical standards for businesses to observe in conducting their affairs. E) picking and choosing among the normative ethical standards of society in order to arrive at a set of ethical standards that apply directly to operating a business.

Ethical principles in business

A) deal chiefly with the actions and behaviors required to operate companies in a socially responsible manner. B) deal chiefly with the rules each company’s top management and board of directors make about “what is right” and “what is wrong.” C) are not materially different from ethical principles in general. D) are generally less stringent than the ethical principles for society at large. E) are generally more stringent than the ethical principles for society at large.

3) The results of strategies that cannot pass the test of moral scrutiny often are not manifested in

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A) criminal indictment and convictions of company executives. B) sizable fines. C) devastating hits to public relations and company reputation. D) sharp drops in stock prices and lower dividends. E) increased customer loyalty.

4) Although exposing children to hazardous work and long work hours is unquestionably deplorable, which of the following, if true, leads to a moral dilemma?

A) Children are not as efficient as adults in doing physically demanding work. B) Many child laborers come from poverty-stricken families. C) Banning child labor increases school attendance. D) Working children learn independence. E) Use of adults leads to higher labor costs.

As they apply to business conduct and business decisions, ethical principles

A) deal chiefly with a company’s standards about what is right and wrong insofar as the conduct of its business is concerned and about what behaviors are expected of company personnel. B) deal chiefly with the behaviors that a company’s board of directors expects of all company personnel in both their conduct on the job and their conduct off the job. C) involve the rules a company’s top management and board of directors make about “what is right” and “what is wrong.” D) are not materially different from ethical principles in general. E) are generally less stringent than the ethical principles for society at large because it is well understood that businesses should not be expected to operate any differently from what the law requires of them.

The major drivers of unethical business behavior include

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A) pervasive managerial immorality and a general lack of scruples on the part of top executives regarding how customers and suppliers should be treated. B) corporate cultures that put the bottom line ahead of ethics, heavy pressures on company managers to meet or beat performance targets, and overzealous or obsessive pursuit of wealth accumulation, power, status, and other selfish interests. C) widespread managerial belief in the ethical relativism school of thinking. D) an aversion to ethical correctness on the part of top executives and a belief that unethical behavior is unimportant and probably won’t be discovered. E) intense competitive pressures.

7) Shannon and Ian, student consultants, chose a home construction business as a client for a semester strategic planning assignment. Upon examination of the client’s financial statements, the students discover that their client has been cheating the government out of several thousand dollars a year in taxes. Their client is a company owned by a couple who are in their late 50s and who have two children in college. Jane and John are the only people other than the owners who are in a position to know about this situation. Which ethical principle should guide Jane and John in their decision whether or not to report the owners to the Internal Revenue Service?

A) There is no such thing as “moral free space”—all ethical standards are determined by societal norms, and individuals have an implied social contract to live up to these standards. B) Few nations or cultures have common moral agreement on what is ethically right and wrong. C) There should be no absolute limits put on what actions and behaviors fall inside the boundaries of what is ethically or morally right and which actions/behaviors fall outside. D) Adherence to universal ethical norms always takes precedence over local ethical norms. E) Ethical relativism should always be adhered to before ethical universalism when dealing within boundaries of a country’s culture and norms.

8) Common moral agreement about right and wrong actions and behaviors across multiple cultures and countries, also known as ethical universalism, gives rise to

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A) principles that set forth the traits and behaviors considered virtuous that a good person is supposed to believe in and display. B) principles embodied in international law that all societies and countries are obliged to practice. C) a company culture that puts the profitability and good business performance ahead of ethical behavior. D) principles of right and wrong in judging the ethical correctness of business behavior. E) the attitude among management that “the business of business is business, not ethics.”

A company’s strategy needs to be ethical because

A) of the dangers that top management will be embarrassed if the company’s unethical behavior is publicly exposed. B) a strategy that is unethical not only damages the company’s reputation, but it can also have costly consequences. C) everyone is an ethics watchdog, and somebody is sure to blow the whistle on the company’s unethical behavior. D) of the risks of getting caught and prosecuted by governmental authorities if an unethical strategy is used. E) unethical strategies are inconsistent with or else weaken the corporate culture.

10) Which of the following is considered to be an internal administrative cost that companies may incur when ethical wrongdoing is discovered and punished?

A) lower stock prices B) civil penalties. C) legal and investigative costs D) government fines E) costs of taking corrective actions

11) Which of the following is considered to be an intangible or less visible cost that companies may incur when ethical wrongdoing is discovered and punished? Version 1

A) costs of providing remedial education and ethics training to company personnel B) civil penalties C) legal and investigative costs D) loss of reputation E) costs of taking corrective actions

12) Which of the following is considered to be a visible cost that companies may incur when ethical wrongdoing is discovered and punished?

A) costs of taking corrective actions B) civil penalties C) legal and investigative costs D) costs of providing remedial education and ethics training to company personnel E) hits to company reputation and employee productivity

13) In 2017, it came to light that, in order to meet its demanding profit target, Wells Fargo put such pressure on its employees to hit sales quotas that many employees responded by fraudulently opening customer accounts. Wells Fargo’s ethical lapses are not a good example of

A) how certain universal ethical principles apply in those situations where all societies—those endowed with rationality and moral knowledge—have a common moral agreement on what is right and wrong. B) how, within the boundaries of a social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible. C) how universal ethical principles or norms leave some “moral free space” for the people in a particular country (or local culture or even a company) to make specific interpretations of what other actions may or may not be permissible within the bounds defined by universal ethical principles. D) how universal ethical norms always take precedence over local ethical norms. E) how local ethical norms always take precedence over universal ethical norms.

14) The costs incurred when ethical wrongdoing occurs fall into three specific categories and include all except

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A) intangible costs such as legal and investigative costs incurred by the company. B) internal administrative costs associated with ensuring future compliance. C) intangible costs such as customer defections. D) less visible costs such as costs of complying with often harsher government regulation. E) visible costs to shareholders such as lower stock price.

15)

Notions of right and wrong, fair and unfair, moral and immoral, ethical and unethical

A) vary enormously from religion to religion and country to country across the world. B) are present in all societies, organizations, and individuals. C) ultimately depend on the circumstances—nothing is really black or white when it comes to ethical standards. D) are governed mainly by the thinking and writings of religious clerics at the School of Morally Correct Thinking and Behavior in Geneva, Switzerland. E) ultimately depend on a person’s own values and beliefs.

16) The contentions that (1) many of the same standards of what’s ethical and what’s unethical resonate with peoples of most cultures, societies, and religions, and (2) to the extent there is common moral agreement about right and wrong actions, there exists a set of common ethical standards to which organizations and individuals can be held accountable are defining beliefs of

A) the school of ethical relativism. B) the school of ethical universalism. C) integrated social contracts theory. D) both the school of ethical relativism and the school of ethical universalism. E) the school of ethical relativism, the school of ethical universalism, and integrated social contracts theory.

17)

According to the school of ethical universalism,

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A) concepts of what constitutes ethical behavior and unethical behavior are dictated by subjectively provable moral principles but not by objectively provable moral principles. B) concepts of right and wrong are universal within countries or societies but not across countries or cultures. C) concepts of what is ethical and what is unethical are universal and absolute, leaving no room for deviation from country to country or circumstance to circumstance. D) to the extent there is common moral agreement about right and wrong actions and behaviors across multiple cultures and countries, there exists a set of universal ethical standards to which all societies, all companies, and all individuals can be held accountable. E) all societies and countries are obligated to apply universally defined ethical principles of right and wrong as set forth in the Global Code of Ethical Behavior adopted by 150 nations of the world.

18)

According to the school of ethical universalism,

A) universal ethical principles or norms put limits on what actions and behaviors fall inside the boundaries of what is right and which ones fall outside; such universal norms include honesty, trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary harm to workers or to the users of the company’s product or service. B) all societies and countries are obligated to apply universally defined ethical principles of right and wrong as set forth in the Global Code of Ethical and Social Morality (which is subscribed to by 150 nations of the world). C) all societies and countries apply essentially the very same set of universally defined ethical principles of right and wrong in judging the ethical correctness of business behavior. D) it is only fair that the standards of what’s ethical and what’s unethical be applied universally to all businesses in all countries irrespective of local business traditions and local business norms. E) the standards of what constitutes ethical and unethical behavior in business situations are partly universal, but in the main are governed by local business norms.

19) The contention that because different societies and cultures have divergent values and standards of right and wrong, it is appropriate to judge behavior as ethical or unethical in the light of local customs and social mores rather than according to a single set of ethical standards

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A) defines what is meant by “ethical relativism.” B) defines what is meant by “ethical universalism.” C) is the foundation of integrated social contracts theory. D) is the basis for the theories of both “ethical relativism” and “ethical universalism.” E) is the foundation for all three theories above.

20)

The school of ethical relativism holds that

A) what constitutes ethical or unethical conduct varies according to the religious convictions of each society or each culture within a country. B) when there are country or cross-cultural differences in what is considered ethical or unethical in business situations, it is appropriate for local moral standards to take precedence over what the ethical standards may be elsewhere. C) concepts of right and wrong are always governed by business norms in each country, culture, or society. D) concepts of right and wrong are always a function of each individual’s own set of values, beliefs, and ethical convictions. E) concepts of right and wrong as they apply to business behavior are always varying shades of gray, never absolute (i.e., black or white).

21)

A belief in ethical relativism leads to the conclusion that

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A) because ethical standards are subjective, it is perfectly appropriate for each company to define and implement its own ethical principles of right and wrong as concerns the use of underage labor and the payment of bribes and kickbacks. B) ethical standards are determined objectively (rather than subjectively). C) whether the payment of bribes and kickbacks should be deemed ethical or unethical depends on the moral standards, values, beliefs, convictions, and business norms that prevail in particular cultures, societies, countries, or circumstances. D) ethical standards are objective and universal; thus, whether the use of underage labor and the payment of bribes and kickbacks should be deemed ethical or unethical definitely is not dependent on the moral standards, values, beliefs, convictions, and business norms that prevail in particular cultures, societies, countries, or circumstances. E) standards of right and wrong are governed by what is legal in a given country; thus, whether the use of underage labor and the payment of bribes and kickbacks is ethical or unethical is governed by local law.

22) A company that adopts the principle of ethical relativism in providing guidance to company personnel

A) bases its standards of what is ethical and what is unethical on the Global Code of Ethical Conduct first developed in 1935 and since subscribed to by the governments of 180 countries. B) places itself in a perilous position if it is required to defend these activities to its stakeholders in countries with higher ethical expectations or standards because it has no ethical standards or principles of its own. C) has no fair way to judge the ethical correctness of the conduct of company personnel. D) has a one-size-fits-all set of ethical standards. E) allows each company employee to determine what set of ethical standards to observe.

23) The contention that ethical standards should be governed both by (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and (2) the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behavior and what does not are the basic principles of

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A) the school of ethical relativism. B) the school of ethical universalism. C) integrative social contracts theory. D) the global corruption standards published by Transparency International. E) the Global Code of Ethical and Social Morality developed by the United Nations.

24) According to integrative social contracts theory, the ethical standards a company should try to uphold

A) are governed by the school of ethical universalism. B) are governed both by (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and (2) the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behavior and what does not—but universal norms always take precedence over local ethical norms. C) are governed by each country’s Code of Required Ethical Conduct, which sets forth that each individual, group, business, and organization has a “social contract” to observe the ethical and moral standards that the country has adopted. D) should be determined by the company’s board of directors. E) should never be absolute but rather always provide some wiggle room according to the circumstances of the situation.

25)

Integrative social contracts theory maintains that

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A) there is no such thing as “moral free space”: all ethical standards are determined by societal norms, and individuals have an implied social contract to live up to these standards. B) few nations or cultures have a common moral agreement about what is ethically right and wrong. C) there should be no absolute limits put on what actions and behaviors fall inside the boundaries of what is ethically or morally right and which actions and behaviors fall outside. D) “first-order” universal ethical norms always take precedence over “second-order” local ethical norms. E) each country, culture, and society has commonly held views about what constitutes ethically appropriate actions/behaviors; these common standards of what is ethical and what is not combine to form a “social contract” that all individuals in that country, culture, and society are obligated to observe.

26) A multinational automobile manufacturer issues a public statement that the company’s vehicle emissions tests had been falsified to meet environmental compliance standards over recent years using software specifically designed for that purpose. Following the news, the company’s CEO is replaced, vehicle sales plummet, and the company’s stock price sharply declines. Which of the following has the company incurred?

A) reduced risk of reputation-damaging incidents B) only visible and internal administrative costs C) internal benefits such as improved workforce retention and operational efficiency D) visible and intangible costs E) internal administrative costs but not intangible costs

27) A manufacturer and marketer of prescription pharmaceuticals decided to raise the price of its anti-malaria drug from $15.00 per dose to $750.00 per dose, a price increase of 5,000 percent. Following a public outcry, the CEO was forced to resign, the company was forced to retract the price hike, and the company’s stock price sharply declined. Which of the following has the company incurred?

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A) internal administrative costs but not visible costs B) only visible and internal administrative costs C) visible and intangible costs D) internal administrative costs but not intangible costs E) only intangible costs

28) Which of the following is most likely to be morally valid from the perspective of ethical relativism?

A) agreeing to a country’s policy of prohibiting the education of females B) employing children under the age of nine as laborers C) bribing a government official in an underdeveloped country to obtain a permit to build a hospital D) bribing a government official to allow you to transfer gambling winnings to a tax haven E) performing genital mutilations on non-consenting female teens

29) Which one of the following is not a part of the business case for why companies should act in a socially responsible manner?

A) reduced risk of reputation-damaging incidents B) increased buyer patronage C) internal benefits such as improved workforce retention and operational efficiency D) aggressive pursuit of market share, revenues, and profits E) shareholders’ benefits, such as increased stock price and financial performance

30) You are asked to assist a company to fulfill its corporate social responsibility. Which of the following is an activity you would recommend that a company consider to enhance the quality of life for its employees?

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A) providing work-at-home opportunities B) donating a percentage of its profits to a global charity like UNICEF or the Red Cross C) selling products at a discounted price to customers in underdeveloped countries D) paying to have litter removed from a state highway E) discontinuing business with suppliers that use child labor

31)

Corporate social responsibility (CSR) as it applies to businesses refers to

A) a company’s duty to put the public interest ahead of shareholder interests. B) societal expectations that all company stakeholders will be treated equally and fairly. C) a company’s duty to establish socially acceptable core values and to have a strictly enforced code of ethical conduct. D) the responsibility that top management has for ensuring that the company’s actions and decisions are in the best interest of society at large. E) a company’s duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large.

32) Which of the following is not generally on a company’s menu of actions to consider in crafting a strategy of social responsibility?

A) actions to ensure that the company operates in an honorable and ethical manner B) actions to build a workforce that is diverse with respect to gender, race, national origin, and perhaps other personal characteristics C) actions to look out exclusively for the best interests of shareholders D) actions to protect or enhance the environment (apart from what is required by governmental authorities) E) actions to create a work environment that enhances the quality of life for employees

33) Which of the following should be on a company’s menu of actions to consider in crafting a strategy of social responsibility?

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A) actions to ensure that the company operates in an honorable and ethical manner B) actions to ensure diversity in the workforce C) actions (over and above what is required) to protect or enhance the environment, including both those environmental problems stemming from the company’s own business activities and those problems outside the company’s immediate sphere of operations D) actions to create a work environment that enhances the quality of life for employees and makes the company a great place to work E) actions that place profits and returns to shareholders without respect to commitments to employees, communities, and the environment.

34)

The essence of socially responsible business behavior is

A) encouraging company personnel to run for political offices. B) balancing strategic actions to benefit shareholders against the duty to be a good corporate citizen. C) undertaking actions to balance the interests of all company stakeholders rather than just exclusively look out for the interests of shareholders. D) making sizable contributions to political action committees representing the interests of the industry. E) pursuing actions to keep prices low enough that the company’s profits will not be viewed by the general public as obscenely high or exorbitant.

35) Which of the following should a company not consider in crafting a strategy consistent with corporate social responsibility?

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A) making charitable contributions, donating money and the time of company personnel to community service endeavors, supporting various worthy organizational causes B) taking steps to provide suppliers, distributors, and other value chain partners with handsome profit margins C) initiating actions to build a workforce that is diverse with respect to gender, race, national origin, and other aspects that different people bring to the workplace D) devoting efforts to employ an ethical strategy and observe ethical principles in operating the business E) pursuing actions to keep prices low enough that the company’s profits will not be viewed by the general public as obscenely high or exorbitant

36)

Good corporate citizens

A) go beyond meeting society’s expectations for ethical strategies and business behavior by fostering social benefit and balancing the interests of all. B) are active participants in the political process. C) identify up-and-coming managers who have a future in local- or state-level politics. D) create a democratic workplace in which the voices of lower-level employees are heard through representation on the board of directors. E) ensure that their workforce is diverse.

37)

Environmental sustainability involves

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A) a corporate commitment to go beyond society’s expectations for ethical strategies and business behavior to address the unmet noneconomic needs of society. B) striking a balance between (1) the economic responsibility to reward shareholders with profits, (2) the legal responsibility to follow the laws in countries where it operates, (3) the ethical responsibility to abide by society’s moral norms, and (4) the discretionary philanthropic responsibility to contribute to the noneconomic needs of society. C) deliberate actions to protect the environment, provide for the longevity of resources, maintain ecological support systems for future generations, and guard against the ultimate endangerment of the planet. D) developing strategies that yield a sustainable competitive advantage that will allow the company to be sustainable for the long term. E) deliberate actions that companies take in the environmental arena in order to meet the needs of the present while foregoing the needs of the future.

38)

Companies committed to environmental sustainability

A) consider the commitment to shareholders as a “first-order” priority, commitment to employees as a “second-order” priority, and commitment to the environmental protection as a “third-order” commitment. B) consider the commitment to the environment as a “first-order” priority, commitment to employees as a “second-order” priority, and commitment to shareholders as a “third-order” commitment. C) consider the commitment to the environment as a “first-order” priority, commitment to shareholders as a “second-order” priority, and commitment to employees as a “third-order” commitment. D) undertake initiatives directed at improving the company’s triple bottom line (TBL), which places importance on economic, environmental, and social metrics. E) believe that it is important to convince consumers to change buying habits that first consider meeting the consumer’s needs to first considering whether the product is environmentally friendly.

39) Which of the following is not something a company should usually consider in crafting a strategy of social responsibility?

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A) actions to benefit shareholders (such as raising the dividend to boost the stock price) B) making charitable contributions and donating money and the time of company personnel to community service endeavors C) actions to ensure the company has an ethical strategy and operates honorably and ethically D) actions to protect or enhance the environment E) actions to create a workforce diversity program

40) Which one of the following elements does not typically comprise a company’s social responsibility strategy?

A) actions to enhance workforce diversity and make the company a great place to work B) making charitable contributions and donating the time of company personnel to community service endeavors C) actions to protect or enhance the environment D) conscious efforts to ensure that all elements of the company’s strategy are ethical and actions to protect or enhance the environment (beyond what is legally required) E) actions to keep prices low enough that the company’s profits will not be viewed by the general public as obscenely high or exorbitant

41)

Good corporate citizens

A) provide work-from-home options to working mothers residing in distant locations. B) develop and market products that are solely “environmentally friendly.” C) identify up-and-coming managers who have a future in local- or state-level politics. D) create a democratic workplace whereby the voices of lower-level employees are heard through representation on the board of directors. E) go beyond meeting society’s expectations for ethical strategies and business behavior by fostering social benefit and balancing the interests of all.

42)

Good corporate citizens do not

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A) meet legal, ethical, and economic responsibilities imposed by shareholders. B) identify up-and-coming managers who have a future in local- or state-level politics. C) seek to improve standards of communities in which they operate. D) attempt to sustain profitability for stakeholders while in the pursuit of social responsibility. E) pursue discretionary activities that contribute to the betterment of society, especially in areas where government has chosen not to focus its efforts or has fallen short.

43) Which one of the following is not a part of the business case for why companies should act in a socially responsible manner?

A) Every business has a moral duty to be a good corporate citizen. B) Acting in a socially responsible manner reduces the risk of reputation-damaging incidents. C) Acting in a socially responsible manner is in the overall best interest of shareholders. D) To the extent that a company’s socially responsible behavior wins applause from consumers and fortifies its reputation, a company may win additional patronage. E) Acting in a socially responsible manner can generate internal benefits (as concerns employee recruiting, workforce retention, training, and improved worker productivity).

44) Which one of the following is false as concerns the merits of why acting in a socially responsible manner is “good business”?

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A) Companies with good reputations for contributing time and money to bettering society are better able to attract and retain employees compared to companies with tarnished reputations. B) There is a high correlation between socially responsible behavior that addresses social issues and a firm’s competitive advantage and financial performance. C) To the extent that a company’s socially responsible behavior wins applause from consumers and fortifies its reputation, a company may win additional patronage. D) Operating in a socially responsible manner protects the company from consumer, environmental, and human rights activist groups that are quick to criticize businesses whose behavior they consider to be out of line. E) Well-conceived social responsibility strategies help avoid or preempt legal and regulatory actions that could prove costly to the company.

45) Which of the following actions would you not advise Blair Kellison, CEO of Traditional Medicinals Inc., a California-based manufacturer of herbal and medicinal teas, to consider in crafting his company’s strategy of social responsibility?

A) actions to benefit Traditional Medicinals’ shareholders, such as raising the dividend or boosting the stock price B) making charitable contributions, supporting community service endeavors by Traditional Medicinals’ employees, and reaching out to make a difference in the lives of the disadvantaged C) actions to ensure that Traditional Medicinals has an ethical strategy and operates honorably and ethically D) actions that promote good stewardship (by protecting and enhancing) the environment E) actions to enhance Traditional Medicinals’ workforce diversity

46) Juanita has opened a jewelry shop in your community and sources precious gems and metals only from Canada rather than Africa. Her rationale for her corporate social responsibility and environmentally sustainable business practices likely include all of the following except

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A) increasing buyer patronage. B) shortening the supply chain. C) lowering costs and enhancing employee recruiting and workforce retention. D) creating opportunities for revenue enhancement and best long-term profits for shareholders. E) reducing her exposure to the risk of reputation-damaging incidents.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 47) What is the difference between ethics and business ethics?

48) Imagine you are CEO of a multinational company supplying infant care products to emerging economies. Consider the legal requirements. Do you and your company have a duty to go beyond legal requirements? Also, consider whether you should conform to the ethical norms of the societies where the company operates. Explain your decisions.

49) Identify and briefly describe the three main drivers of unethical strategies and unethical managerial and business behavior.

50)

What is the business case for why a company should pursue ethical strategies?

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51) What are the strengths and weaknesses of the thesis that ethical standards are (or should be) universal?

52) Explain the difference between the school of ethical universalism and the school of ethical relativism.

53) Ethical relativism equates to sometimes conflicting sets of ethical standards. True or false? Explain your answer.

54) What is meant by integrative social contracts theory? How does such an approach ensure a strong commitment to business ethics in companies with international operations?

55) Discuss briefly what is meant by the terms ethical universalism and ethical relativism. Where does integrative social contracts theory fit into the debate about ethical standards? Which of the three schools of thought stands on the strongest ground?

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56) Explain the difference between ethical universalism and integrative social contracts theory. Which school of thought do you think is most valid? Explain the reasons for your answer.

57)

Explain what is meant by the “triple bottom line.”

58) Imagine you are the founder of a company that provides shelter for pets that have neither homes nor owners to return to after a major weather disaster such as a fire, hurricane, or flood. What moral case could you provide to your staff as to why your company should engage in socially responsible actions and environmentally sustainable business practices?

59) Explain the key tenets of the concept of environmental sustainability. How does striving for environmental sustainability impact strategic initiatives involving a company’s shareholders, its employees, and the environment?

60) Explain how companies committed to environmental sustainability are able to address society’s concerns about protecting the environment while lowering costs and/or creating value for customers.

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61) Provide at least three examples of companies that pursue sustainability strategies and explain what their activities have entailed.

62)

Why should a company endeavor to be socially responsible in its actions and conduct?

63) There is a high correlation between socially responsible behavior that addresses social issues and a firm’s competitive advantage and financial performance. Explain this correlation.

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Answer Key Test name: Chap 09_7e 1) C 2) C 3) E 4) B 5) D 6) B 7) D 8) A 9) B 10) E 11) D 12) B 13) E 14) A 15) B 16) B 17) D 18) A 19) A 20) B 21) C 22) B 23) C 24) B 25) D 26) D Version 1

27) C 28) C 29) D 30) A 31) E 32) C 33) E 34) B 35) B 36) A 37) C 38) D 39) A 40) E 41) E 42) B 43) A 44) B 45) A 46) B

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47) There is no difference. Ethical principles in business are not materially different from ethical principles in general because business actions have to be judged in the context of society’s standards of right and wrong. There is no special set of rules that businesspeople decide to apply to their own conduct. If dishonesty is considered unethical and immoral, then dishonest behavior in business—whether it relates to customers, suppliers, employees, or shareholders—qualifies as being equally unethical and immoral. If being ethical entails adhering to generally accepted norms about conduct that is right and wrong, then managers must consider such norms when crafting and executing strategy. 48) Any company does have a duty to go beyond legal requirements and conform to the ethical norms of the societies in which it operates. A broader understanding of the ethical norms is important to understand rights and wrongs in letter and spirit. Legal regulations dictate only requirements that make actions lawful, while ethical norms dwell deeper into the complexities of morality that are not always black and white like the laws. While most company managers are careful to ensure that a company’s strategy is within the bounds of what is legal, evidence indicates they are not always so careful to ensure that all elements of their strategies and operating activities are within the bounds of what is considered ethical. The consequences of crafting strategies that cannot pass the test of moral scrutiny are manifested in sizable fines, devastating public relations hits, sharp drops in stock prices that cost shareholders billions of dollars, criminal indictments, and convictions of company executives.

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49) The three drivers of unethical strategies and unethical business behavior are: (1) faulty oversight, (2) heavy pressures on managers to meet performance targets, and (3) company cultures that place profits and performance ahead of ethical behavior. There is generally faulty oversight of executives driven by enlightened self-interest, status, power, greed, arrogance and the like. When key personnel come under pressure to do whatever it takes to meet analysts’ expectations or other performance targets, rules may be stretched and ethical boundaries breached. Finally, cultural pressures to utilize unethical means if circumstances become challenging can prompt otherwise honorable people to behave unethically. 50) Shareholders suffer major damage when a company’s unethical behavior is discovered and punished. Making amends for unethical business conduct is costly, and it takes years to rehabilitate a tarnished company reputation. Figure 9.1 depicts the costs a company can incur when unethical behavior is discovered and it is forced to make amends for its behavior, and the more egregious a company’s ethical violations, the higher are the costs and the bigger the damage to its reputation. Beyond those retributive costs, buyers tend to shun companies known for their shady behavior. Companies known to have engaged in unethical conduct have difficulty recruiting and retaining talented employees.

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51) Ethical norms considered to be universal include honesty, trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary harm to workers or to the users of a company’s product or service. That said, however, beyond universal ethical norms, some ethical standards likely vary from one country to another because of divergent religious beliefs, social customs, and prevailing political and economic doctrines. Ethical relativism holds that when there are national or cross-cultural differences in what is deemed an ethical or unethical business situation, it is appropriate for local moral standards to take precedence over what the ethical standards may be in a company’s home market. Yet codes of conduct based upon ethical relativism can be ethically dangerous by creating a maze of conflicting ethical standards for multinational companies. Integrative social contracts theory: (1) suggests that there is a “social contract” by which managers in all situations have a duty to serve and (2) posits that “firstorder” universal ethical norms always take precedence over “secondorder” local ethical norms in those circumstances in which local ethical norms are more permissive. Integrative social contracts theory offers managers in multinational companies clear guidance in resolving crosscountry ethical differences. 52) Ethical universalism is based on the premise that companies and their personnel should adhere to social norms that include honesty, trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary harm to workers or to the users of a company’s product or service. Ethical relativism is based on the premise that company personnel should be held only to local ethical standards, which vary from country to country or culture to culture, assuming that what prevails as local morality is an adequate guide to ethical behavior.

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53) True. The school of ethical relativism holds that when there are national or cross-cultural differences in what is deemed an ethical or unethical business situation, it is appropriate for local moral standards to take precedence over what the ethical standards may be in a company’s home market. The thesis is that whatever a culture thinks is right or wrong really is right or wrong for that culture. From a global markets perspective, ethical relativism may result in a maze of conflicting ethical standards for multinational companies. 54) Integrative social contracts theory: (1) suggests that there is a “social contract” by which managers in all situations have a duty to serve and (2) posits that “first-order” universal ethical norms always take precedence over “second-order” local ethical norms in those circumstances in which local ethical norms are more permissive. That is, universal ethical principles based on collective views of multiple cultures combine to form a “social contract” that all employees in all country markets have a duty to observe. Within the boundaries of this social contract, there is room for host-country cultures to exert some influence in setting their own moral and ethical standards. Integrative social contracts theory thus offers a middle ground between ethical universalism and ethical relativism, and can provide managers in multinational companies with guidance in resolving cross-country ethical differences.

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55) Ethical norms considered universal include honesty, trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary harm to workers or to the users of a company’s product or service. That said, beyond universal ethical norms, some ethical standards likely vary from one country to another because of divergent religious beliefs, social customs, and prevailing political and economic doctrines. Ethical relativism holds that when there are national or crosscultural differences in what is deemed an ethical or unethical business situation, it is appropriate for local moral standards to take precedence over what the ethical standards may be in a company’s home market. Yet codes of conduct based upon ethical relativism can be ethically dangerous by creating a maze of conflicting ethical standards for multinational companies. Integrative social contracts theory: (1) suggests that there is a “social contract” by which managers in all situations have a duty to serve and (2) posits that “first-order” universal ethical norms always take precedence over “second-order” local ethical norms in those circumstances in which local ethical norms are more permissive. Integrative social contracts theory offers managers in multinational companies clear guidance in resolving cross-country ethical differences. 56) Ethical universalism is based on the premise that companies and their personnel should adhere to social norms that include honesty, trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary harm to workers or to the users of a company’s product or service. Integrative social contracts theory suggests that there is a “social contract” by which managers in all situations have a duty to serve that provides that “first-order” universal ethical norms always take precedence over “second-order” local ethical norms in circumstances where local ethical norms are more permissive.

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57) Corporate social responsibility (CSR) initiatives undertaken by companies are frequently directed at improving the company’s “triple bottom line”—a reference to three types of performance metrics: social, environmental, and economic, sometimes referred to as “People,” “Planet,” and “Profits.” The goal is for a company to succeed simultaneously in all three dimensions. The term People refers to the various social initiatives that make up CSR strategies, such as corporate giving and community involvement. Planet refers to a firm’s ecological impact and environmental practices. Profit has a broader meaning with respect to the triple bottom line than it does otherwise. It encompasses not only the profit a firm earns for its shareholders but also the economic impact the company has on society more generally. 58) The essence of the business case for why your or any company should engage in socially responsible actions and environmentally sustainable business practices boils down to “It’s the right thing to do.” Ordinary decency, civic-mindedness, and contributions to society’s wellbeing should be expected of any business. In today’s social and political climate, most business leaders can be expected to acknowledge that socially responsible actions are important and that businesses have a duty to be good corporate citizens. But there is a complementary school of thought that business operates on the basis of an implied social contract with the members of society. According to this contract, society grants a business the right to conduct its business affairs and agrees not to unreasonably restrain its pursuit of a fair profit for the goods or services it sells. In return for this “license to operate,” a business is obligated to act as a responsible citizen, do its fair share to promote the general welfare, and avoid doing any harm. Such a view clearly puts a moral burden on a company to operate honorably, provide good working conditions to employees, be a good environmental steward, and display good corporate citizenship. Version 1

59) Environmental sustainability involves deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against the ultimate endangerment of the planet. Sustainability initiatives undertaken by companies are directed at improving the company’s triple bottom line: its performance on economic, environment, and social metrics. Strategic initiatives include: (1) reengineering internal processes to improve a company’s overall performance on sustainability measures, (2) packaging redesign for products to conserve natural resources and reduce the volume of consumer waste, (3) sourcing from suppliers that practice sustainable farm management, and (4) addressing societal needs of consumers in developing countries. 60) Sometimes, cost savings and improved profitability are drivers of corporate sustainability strategies. That is, social responsibility strategies linked to a customer value proposition or to key value chain activities may also help build competitive advantage. Examples include emphasizing local procurement, establishing a foundation for humane animal husbandry, running vehicles on biofuels, using only biodegradable cleaning products, and pursuing responsible waste management policies at Whole Foods Markets.

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61) Sustainable business practices are those that meet the needs of the present without compromising the ability to meet the needs of the future. Examples may include:• Keurig Green Mountain, whose focus is on three primary solutions: (1) helping farmer improve their farming techniques, (2) addressing local water scarcity and planning for climate change, and (3) strengthening farmers’ organizations. • Unilever Sustainable Living Plan (USLP) has resulted in, among other actions: (1) setting up a central corporate team dedicated to spreading best sustainability practices from one factory or business unit to the rest of the company; (2) creating a “small actions, big differences” fund to invest in innovative ideas that help the company achieve its sustainability goal; (3) working with its suppliers to source sustainable agricultural products to reduce emissions from the overall footprint of its products and extend its sustainability efforts to its entire supply chain; and (4) enabling over 716,000 small farmers to improve their agricultural practices and/or their incomes. • By helping two-thirds of its employees to stop smoking and by investing in a number of wellness programs for employees, Johnson & Johnson saved $250 million on its health care costs over a 10-year period. • Tyson Foods now produces jet fuel for B-52 bombers from the vast amount of animal waste resulting from its meat product business. Staples has become one of the largest nonutility corporate producers of renewable energy in the United States due to its installation of solar power panels in all of its outlets (and the sale of what it does not consume in renewable energy credit markets).

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62) There are several good business reasons why the exercise of corporate social responsibility is also good business: (1) increased buyer patronage; (2) reducing the risk of reputation-damaging incidents; (3) internal benefits such as improved efficiency and workforce retention; and (4) shareholder benefits, based on apparent correlations between corporate social responsibility and stock price and other measures of financial performance. Shareholders are likely to view the business case for social responsibility as a strong one, even though they certainly have a right to be concerned about whether the time and money their company spends to carry out its social responsibility strategy outweigh the benefits and reduce the bottom line by an unjustified amount. 63) The jury is still out on the correlation between corporate social responsibility and stock price performance and competitive advantage. Corporate social agendas that address generic social issues may help boost a company’s reputation, but it is still not yet conclusive whether or not they contribute to improving its competitive strength in the marketplace. For example, a two-year study of leading companies found that improving environmental compliance and developing environmentally friendly products enhance earnings per share, profitability, and the likelihood of winning contracts. Also, the stock prices of companies that rate high on social and environmental performance criteria have been found to perform 35 to 45 percent better than the average of the 2,500 companies comprising the Dow Jones Global Index, Finally, a review of some 135 studies indicated there is a positive, but small, correlation between good corporate behavior and good financial performance; only 2 percent of the studies showed that dedicating corporate resources to social responsibility harmed the interests of shareholders.

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CHAPTER 10: Superior Strategy Execution—Another Path to Competitiv MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Once company managers have decided on a strategy, the emphasis turns to

A) converting the strategy into actions and good results. B) empowering employees to revise and reorganize value chain activities to match the strategy. C) establishing policies and procedures that instruct company personnel in the ways and means of executing the strategy. D) developing a detailed implementation plan that sets forth exactly what every department and every manager needs to do to proficiently execute the company’s strategy. E) building the core competencies and competitive capabilities needed to execute the strategy.

Strategy execution

A) consists of choosing among broad or narrow low cost and differentiation strategies to compete against rivals. B) involves selecting a capable management team. C) requires revamping the value chain in order to maximize operating efficiency. D) requires deciding which core competencies and value chain activities to leave as is and which ones to overhaul and improve. E) depends on management’s ability to direct organizational change.

Good strategy execution involves

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A) continuous improvements in the value chain in order to maximize operating efficiency. B) selecting a capable management team. C) making choices among broad or narrow low cost and differentiation strategies to compete against rivals. D) only senior-level managers to be accomplished on a timely basis. E) team participation to perform strategy-critical activities in light of prevailing circumstances.

What does a successful strategy execution require?

A) Little consensus building is required, despite the magnitude of the proposed changes, because employees know the benefits to be gained from the planning process. B) A team effort is required, with all managers having strategy executing responsibility in their areas of authority, and all employees should be active participants in the strategy execution process. C) Additional investments in capital projects are necessary, rather than adding to a company’s talent base and building intellectual capital. D) Making choices among broad or narrow low cost and differentiation strategies to compete against rivals is a requirement. E) Incremental changes to current operating practices should be implemented to ensure existing resource capabilities are not impacted too severely.

5) Imagine that you are about to become the manager of a local chain consisting of four upscale restaurants. To prepare for the position, you have been reviewing the eight managerial tasks of successful strategy execution. What would not be among those tasks?

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A) creating and nurturing a strategy-supportive culture across all restaurant locations B) developing and meeting (or exceeding) performance targets consistently C) managing the people, talents, and business processes of an operations-driven restaurant chain D) directing organizational change and achieving continuous improvement in restaurant operations and business processes at and across all locations E) focusing on how market conditions impact your restaurant chain’s resources and capabilities

6) The principal managerial actions and initiatives undertaken in the strategy execution process include which of the following?

A) deciding how much to spend on employee training B) instituting policies and procedures that facilitate rather than impede effective strategy execution C) doing an effective job of empowering employees D) revamping the value chain in a manner calculated to maximize operating efficiency E) selecting a capable top management team

7) Natalie, owner and president of Russian River Brewing, a craft beer company, is facing growing competition from local craft beer taprooms. She has sought your advice about the managerial task of executing strategy. What would you not be likely to advise her to do?

A) Be action-oriented, and make things happen. B) Direct organizational change, achieve continuous improvement in operations and business processes, create and nurture a strategy-supportive culture, and consistently meet or beat performance targets. C) Employ new techniques to overcome managerial resistance to change. D) Direct a team effort which entails that every manager think through the answer to, “What does my area have to do to implement its part of the strategic plan, and what should I do to get these things accomplished effectively and efficiently?” E) Focus solely on your operations, management of people, and business processes.

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The three components of building a capable organization are

A) making periodic changes in the firm’s internal organization to keep people from getting into a comfortable rut, instituting a decentralized approach to decision making, and developing the appropriate competencies and capabilities. B) hiring a capable top management team, empowering employees, and establishing a strategy-supportive corporate culture. C) putting a centralized decision-making structure in place, determining who should have responsibility for each value chain activity, and aligning the corporate culture with key policies, procedures, and operating practices. D) staffing the organization, building core competencies and competitive capabilities, and structuring the organization and work effort. E) optimizing the number of core competencies and competitive capabilities, making sure that all managers and employees are empowered, and maximizing internal operating efficiency.

Building an organization capable of good strategy execution entails

A) staffing the organization, building core competencies and competitive capabilities, and structuring the organization and work effort. B) decentralizing authority for performing strategy-critical value chain activities, establishing at least two distinctive competencies, and hiring talented employees. C) investing heavily in employee training, using an empowered organization design and structure to maximize labor productivity, and employing effective incentive compensation systems. D) centralizing authority in the hands of a chief strategy implementer so as to create the leadership authority for driving implementation forward at a rapid pace. E) empowering employees, maximizing internal operating efficiency, and optimizing core competencies.

10) Practices that the most successful companies like Alphabet, Boston Consulting Group, Edward Jones, Deloitte, Facebook, Genentech, Intuit, and Salesforce.com use to hire the best people they can find do not ordinarily include

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A) weeding out the 20 percent lowest-performing employees each year. B) coaching average performers to improve their skills and capabilities. C) striving to retain talented, high-performing employees via promotions, salary increases, and other perks. D) rotating people through jobs that span functional and geographic boundaries. E) careful screening and evaluation of job applicants.

11)

Putting together a capable top management team

A) should take top priority in building competitively valuable core competencies. B) is particularly important when the firm is pursuing unrelated diversification or making a number of new acquisitions in related businesses. C) is important in building an organization capable of proficient strategy execution but is nearly always less crucial than doing a superior job of training and retraining employees. D) entails filling key managerial slots with people who are good at figuring out what needs to be done and skilled in “making it happen” and delivering good results. E) is particularly essential for executing a strategy to keep a company’s costs lower than rivals’ and become the industry’s low-cost leader.

12)

The overriding aim in building a management team should be to

A) select people who are committed to decentralizing decision making and empowering employees. B) assemble a critical mass of talented managers who can function as agents of change and further the cause of first-rate strategy execution. C) choose managers experienced in controlling costs and flattening the organization structure. D) select people who have similar management styles, leadership approaches, business philosophies, and personalities. E) choose managers who believe in having a strong corporate culture and deeply ingrained core values.

13)

Recruiting and retaining capable employees

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A) is usually much more important to good strategy execution than is assembling a capable top management team. B) is important because the quality of an organization’s people is always an essential ingredient of successful strategy execution—knowledgeable, engaged employees are a company’s best source of creative ideas for the nuts-and-bolts operating improvements that lead to operating excellence. C) is more important during periods of rapid growth than during periods of crisis and attempted turnarounds. D) is an important organization-building element, particularly when it comes to transforming a competence into a core competence or distinctive competence. E) is easily the most critical aspect in building competitively valuable core competencies and capabilities.

14) Which one of the following statements about recruiting and retaining capable employees is true?

A) The quality of an organization’s people is always an essential ingredient of successful strategy execution—knowledgeable, engaged employees are a company’s best source of creative ideas for the nuts-and-bolts operating improvements that lead to operating excellence. B) Recruiting and retaining capable employees is an essential element of developing a distinctive competence. C) Recruiting and retaining capable employees is closely tied to developing strong information capital capabilities. D) It is very difficult for a company to competently execute its strategy and achieve operating excellence without a cadre of young managerial talent committed to staying with the company for at least a decade. E) In many industries, adding to a company’s talent base and building intellectual capital are more important than having a good situational fit between the company’s strategy and its external environment.

15) Which of the following is generally not among the practices that companies use to staff jobs with the best people they can find?

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A) careful screening and evaluation of job applicants B) rotating people through jobs that span functional and geographic boundaries C) weeding out the 20 percent lowest-performing employees each year D) striving to retain talented, high-performing employees via promotions, salary increases, and other perks E) coaching average performers to improve their skills and capabilities

16) Which one of the following is not a means of building and strengthening competitively valuable resources and capabilities?

A) engaging in experience-building activities such as collaborative efforts in R&D engineering and design B) shifting from decentralized to centralized decision-making so as to give senior executives more authority and control in driving cultural change C) acquiring capabilities through mergers and acquisitions D) entering into collaborative partnerships with suppliers, competitors, or other companies that possess needed expertise E) crafting and implementing strategies that directly copy those of successful competitors

17) If management is to match a company’s organization structure to its strategy in an effective way, then it is essential

A) that company personnel be empowered to make both strategic decisions and operating decisions. B) for strategy-critical value-chain activities to be the main building blocks on the organization chart. C) that value chain activities be deliberately organized so as to produce maximum strategic fit. D) to define the jobs of company personnel in terms of the functions to be performed rather than in terms of the results to be achieved. E) for the company to be organized around cross-functional teams rather than around functional specialties and functional departments.

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18) The rationale for making strategy-critical value chain activities the primary building blocks in a company’s organizational chart is based on the

A) much shorter time it takes to build core competencies and competitive capabilities. B) benefit such an organizational scheme has in reducing costs. C) benefit such an organizational scheme has in improving the productivity of geographically scattered organizational units. D) thesis that if activities crucial to strategic success are to have the resources, decisionmaking influence, and organizational impact they need, they have to be centerpieces in the organizational scheme. E) benefit such an organizational scheme has in making the empowerment of employees more effective.

19)

The most common building blocks for a company’s organizational structure

A) are almost always the departments performing such key administrative support functions as finance, accounting, information technology, human resource management, and R&D. B) involve a functional or departmental structure that includes process, geographic, product, or customer groups performing one or more major processing steps along the value chain. C) typically consist of an unempowered employee department, an empowered employee department, teams of front-line supervisors, teams of middle-level managers and administrators, and the group of top-level executives who comprise the company’s “executive suite.” D) usually consist of supply chain management, components manufacture, assembly, distribution, and administration. E) usually consist of two divisions: a division charged with performing primary value chain activities and a division charged with performing support activities.

20) Companies engaged in a single line of business most commonly utilize an organizational structure that can be

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A) a functional (departmental) organizational structure. B) either a centralized, principal, or critical-path organizational structure. C) either independent, consolidated, or hybrid profit centers. D) hybrid functional organizations with a combination of decentralized and centralized decision making. E) expected to evolve over time into a matrix or hybrid structure.

21) General Electric has an up-or-out policy, where key personnel in underperforming units are pressured to boost performance to acceptable levels and keep it there or risk being replaced. What type of policy is this?

tying rewards and incentives directly to the achievement of strategic and financial

targets B) corporate evolution to a centralized, principal, or critical-path organizational structure C) adopting best practices and business processes to drive continuous improvement in strategy execution activities D) exercising the internal leadership needed to propel strategy implementation forward E) continuously improving the resources and organizational capabilities required for successful strategy execution

22) that

For decentralized decision making to be successful, it should be predicated on a belief

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A) top executives should establish a collegial, collaborative culture in which decisions are made by general consensus on what to do and when. B) strict enforcement of detailed procedures backed by rigorous managerial oversight is necessary because company personnel cannot be counted on to act wisely or keep costs to a barebones level. C) decision-making authority should be pushed down to the lowest organizational level capable of making timely, informed, competent decisions. D) most company personnel have neither the time nor the inclination to direct and properly control the work they are performing and that they lack the knowledge and judgment to make wise decisions about how best to do their work. E) lower-level managers and employees should go up the ladder of command for approval on most all strategic and operating issues of much importance.

23)

The chief advantage of a decentralized organizational structure is to

A) put decision-making authority in the hands of those closest and most knowledgeable about the situation. B) make it easy to fix accountability when company performance targets are not met. C) increase productivity on the part of the workforce. D) enhance cross-unit coordination and capture of strategic fits. E) create a collegial, collaborative culture in which teamwork is a core value and decisions are made on the basis of consensus.

24) The organizing challenge of a decentralized structure that stresses employee empowerment is

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A) how to keep empowered employees from making lots of stupid decisions. B) establishing a collegial, collaborative culture so that decisions can be made by gaining a quick consensus on what to do and when to do it. C) how to avoid demotivating employees (because empowered employees are expected to take responsibility for their actions and decisions). D) how to exercise adequate control over the actions and decisions of empowered employees so that the business is not put at risk while trying to capture the benefits of empowerment. E) how to convince lower-level managers and employees that they are empowered.

25)

Among the major drawbacks of highly centralized organizational structure is that it

A) allows top executives to retain authority for most strategic and operating decisions. B) is based on strict enforcement of detailed procedures backed by rigorous managerial oversight as the most reliable way to keep the daily execution of strategy on track. C) allows for tight control from the top that makes it easy to fix accountability when things do not go well. D) relies on the assumption that most company personnel have neither the time nor the inclination to direct and properly control the work they are performing and, further, that they lack the knowledge and judgment to make wise decisions about how best to do their work. E) can lengthen response times by those closest to the market conditions because they must seek approval for their actions.

26)

Which one of the following falsely characterizes a centralized organizational structure?

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A) Top executives should retain authority over most strategic and operating decisions and keep a tight rein on business-unit heads, department heads, and the managers of key operating units. B) Strict enforcement of detailed procedures backed by rigorous managerial oversight is the most reliable way to keep the daily execution of strategy on track. C) Tight control by the manager in charge makes it easy to fix accountability when things do not go well. D) Most company personnel have neither the time nor the inclination to direct and properly control they work they are performing, and they lack the knowledge and judgment to make wise decisions about how best to do their work. E) A company that draws on the combined intellectual capital of its people can outperform a company that relies on command and control.

27)

The disadvantages of a centralized organizational structure include

A) making the organization sluggish in responding to changing conditions. B) a loss of top management control. C) putting too much decision-making authority in the hands of lower-level company personnel. D) making it hard to fix accountability when things do not go well and putting the organization at risk when bad decisions are made. E) impeding cross-unit coordination and capture of strategic fits.

28) A company’s ability to marshal adequate resources in support of new strategic initiatives and steer them to the appropriate organizational units is important to the strategy execution process because

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A) a change in strategy nearly always calls for budget reallocations and resource shifting. B) accurate budgets are the key to exercising tight financial controls over organizational units. C) tight budget control is management’s most powerful tool for first-rate strategy execution. D) lean, carefully managed budgets protect the company’s financial condition and eliminate wasteful use of cash. E) lean, strictly enforced budgets are management’s best and most used means of getting organizational units to exercise fiscal discipline.

29)

Coordinating the work efforts of internal organization units is best accomplished by

A) having frequent meetings among the heads of closely related activities and work units in order to establish mutually agreeable deadlines. B) having the heads of support activities report to the heads of primary, strategy-critical activities. C) having closely related activities report to a single executive who has the authority and organizational clout to coordinate, integrate, and arrange for the cooperation of units under their supervision. D) establishing monetary incentives to reward people for being cooperative team players. E) establishing a corporate culture where teamwork is a core value and decisions are made by general consensus among team leaders in the affected work units.

30)

A change in strategy nearly always entails budget reallocations because

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A) revamping the performance of value chain activities can be costly. B) the accompanying policy revisions and compensation incentives tend to require different levels of funding than before. C) organizational units important in the prior strategy but having a lesser role in the new strategy may need downsizing, while units and activities that now have a bigger and more critical strategic role may need more people, new equipment, additional facilities, and aboveaverage increases in their operating budgets. D) empowering employees to carry out the new strategy elements typically requires substantial new funding and budget revisions. E) adopting best practices and pushing for continuous improvement tend to reduce costs and overall resource requirements.

31) Dara Khosrowshahi, CEO of Uber, Inc., is prescribing new policies and operating procedures to aid management’s task of implementing strategy. Of the following, what would be the least likely justification for any new policy or procedure?

A) Doing so helps to build employee commitment to adopting best practices and using the tools of TQM and Six Sigma. B) Doing so helps to enforce consistency in how particular activities are performed. C) Doing so promotes the creation of a can-do work climate that facilitates good strategy execution. D) Doing so may counteract tendencies for some people to resist change—most people refrain from violating company policy or going against recommended practices and procedures without first gaining clearance or having strong justification. E) Doing so provides top-down guidance to operating managers, supervisory personnel, and employees regarding how to alter past practice and how things need to be done now.

32)

A useful guideline in designing strategy-facilitating policies and operating procedures is

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A) to prescribe enough policies to give organizational members clear direction in implementing strategy and to place desirable boundaries on their actions, then empower them to act within these boundaries however they think makes sense. B) that strictly enforced policies work better than loosely enforced policies. C) that more policies and procedures work better than fewer policies and procedures and that strict enforcement always beats lax enforcement. D) to let individuals act in an empowered and self-directed way, subject only to the constraint that their actions and behavior be ethical and in step with the corporate culture. E) to prescribe enough policies and procedures that little is left to chance in performing value chain activities; employees should have no leeway to do things in a manner that deviates from the company’s best practices standard.

33)

Which of the following practices most exemplifies good strategy execution?

A) The policy document of Little Caesar’s Pizza discusses strategy but not the routines for running the outlets. B) The policy document of Domino’s Pizza ensures consistency in service behavior patterns across outlets. C) The policy document of Pizza Hut allows for differences in product range and quality across outlets. D) The policy document of RoundTable Pizza is adverse to standardization of the way activities are performed. E) The policy document of Boston Pizza leaves ample scope for each member of the staff to act independently.

34) Imagine you are a consultant to a hydroponic farming equipment chain. You have been asked to design a superior strategy execution effort for the owners of the company. What process management tool would you most likely not provide to the owners?

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A) best practices methods to drive continuous improvement in how internal operations are and should be conducted at the hydroponic farming equipment chain B) operating practices that generate economies of scale and scope without a reconfiguration of the hydroponic farming equipment company’s current value chain activities C) “best-in-company” operating activities and processes to standardize how the different locations of the hydroponic farming equipment chain should perform the same functions D) benchmarking of the hydroponic farming equipment chain’s operating activities and business processes against “best-in-industry” and “best-in-world” performers E) performance yardsticks for judging effectiveness and efficiency for particular value chain activities and business processes that are deemed strategically critical for the hydroponic farming equipment chain

35) Angelina, the owner of a regional high-end women’s fashion retail chain, has asked you to provide a tool that her company managers can use to promote continuous improvement (operating excellence) in performing value chain activities. You would not recommend which tool for this purpose?

A) variability reduction analysis in work processes B) Six Sigma quality control techniques C) total quality management (TQM) D) business process reengineering E) strategic group mapping

36)

Business process reengineering is a tool for

expediting the redesign of existing products and shortening the design-to-market

cycle. B) pulling the pieces of strategy-critical activities out of different departments and unifying their performance in a single department or cross-functional work group. C) instituting total quality management. D) making the most effective use of Six Sigma techniques. E) rapidly redesigning an organization’s structure so as to rapidly create organizational competencies and capabilities.

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37)

Reengineering how a firm performs a business process

A) is a tool for pulling the pieces of strategy-critical processes out of different departments and unifying their performance in a single department or cross-functional work group. B) is the most frequently used tool of total quality management (TQM). C) requires that a company have many strategic partnerships and alliances with outsiders. D) is typically cheaper and easier to do than using Six Sigma techniques to achieve the same cost savings. E) is usually a company’s most important “best practice” for achieving operating excellence.

38)

Total quality management (TQM)

A) is a philosophy of managing a set of business practices that emphasizes continuous improvement in all phases of operations, 100 percent accuracy in performing tasks, involvement and empowerment of employees at all levels, team-based work design, benchmarking, and total customer satisfaction. B) is a valuable tool for helping company managers identify what the best practice is for performing a particular activity. C) works best when used in conjunction with Six Sigma quality control techniques. D) is an excellent tool for reengineering business processes and making quantum gains in the efficiency and effectiveness with which the processes are performed. E) is a philosophy of doing things that aims at mistake-free management of a company’s entire business.

39)

Total quality management (TQM) emphasizes all except

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A) 100 percent accuracy in performing tasks. B) continuous improvement in all phases of operations. C) widespread adoption of industry standard operating practices. D) benchmarking and total customer satisfaction. E) empowerment of employees and team-based work design.

40)

A blended approach to Six Sigma implementation that is gaining in popularity is

A) dealing exclusively with procedures to achieve defect-free manufacturing and assembly. B) finding other ways to contribute more to the achievement of operating excellence than either business process reengineering or Six Sigma quality control techniques. C) known as the ambidextrous organization, not only adept at employing continuous improvement in operating processes but also allowing R&D to operate under a set of rules that allows for the development of breakthrough innovations. D) for organizations to become more effective in improving manufacturing and assembly activities than they are in improving such value chain activities as R&D, human resources management, supply chain management, information technology, sales and marketing, and finance. E) not considered the best tool for reengineering strategy-critical business processes.

41)

Six Sigma quality control

A) is a strategy-implementer’s best, most reliable tool for simultaneously achieving topnotch product quality and low manufacturing costs. B) consists of a disciplined, statistics-based system aimed at producing not more than 2.5 defects per million iterations for a manufacturing or assembly process. C) consists of a disciplined, statistics-based system aimed at producing not more than 3.4 defects per million iterations for any business process. D) consists of a disciplined, statistics-based system aimed at fewer than 5.0 complaints per million customer transactions. E) is a powerful tool for companies whose customers are very picky about product quality and product performance and who can’t afford for the product they use to break down and require repairs.

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42)

The statistical thinking underlying Six Sigma is based on these three principles.

A) All activities can be controlled, employee empowerment is the best control tool, and 100 percent control is possible. B) All work is a process, all processes have variability, and all processes create data that explain variability. C) All work activities can be done accurately most of the time, empowered employees are necessary for effective control, and good statistical data are an empowered employee’s best control tool. D) All work is a statistically controllable process, 100 percent control is possible, and every well-controlled process is defect-free. E) Most business processes are subject to control, Six Sigma can remove variability in how processes are performed, and most defects can be eliminated.

43)

The statistical thinking underlying Six Sigma is not based on the principle that

A) all work is a process. B) all processes create data that explain variability. C) 100 percent control is possible, and every well-controlled process is defect-free. D) data that explain variability can be statistically analyzed. E) all processes have variability.

44)

The Six Sigma process of define, measure, analyze, improve, and control (DMAIC) is

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A) an improvement system for existing processes falling below specification and needing incremental improvement; the DMAIC process is a particularly good vehicle for improving performance when there are wide variations in how well an activity is performed. B) an improvement system used to develop new processes or products at 100 percent defect-free levels. C) a system of statistical procedures for achieving 100 percent control over how a task is performed. D) an improvement system used to develop new processes or products at Six Sigma levels. E) a system of statistical procedures for eliminating 100 percent of the variability in how a task is performed.

45) Which of the following organizations makes use of Six Sigma programs to improve quality and strategy execution?

A) La Tagliata Boutiques offers a different range of products at different outlets across London. B) LG Electronics reengineers its value chain activities by creating cross-functional teams. C) Memphis & Company applies advanced statistical methods to identify and remove the causes of defects. D) Milwaukee Hospital improves the accuracy of administering the proper drug doses to patients. E) Amtrak replaces its train repair facility in Beech Grove, Indiana, with mobile repair vans to cut operational costs by 40 percent.

46) The big difference between business process reengineering and continuous improvement programs such as TQM or Six Sigma is that

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A) reengineering is a tool for installing process organization, whereas TQM and Six Sigma concern defect-free production methods and delivering world-class customer service. B) reengineering helps create core competencies, whereas TQM and Six Sigma are tools for making a core competence stronger and more efficient. C) reengineering is a tool for achieving one-time quantum improvements, whereas TQM and Six Sigma programs aim at incremental progress improvement (striving for inch-byinch gains again and again in a never-ending stream). D) business process reengineering requires benchmarking, whereas TQM and Six Sigma do not. E) reengineering represents an effort to totally revamp a firm’s value chain, whereas TQM looks at incrementally improving the performance of two or three targeted value chain activities.

47) Essential state-of-the-art operating and information systems that support company strategies and value-creating internal processes include all of the following except

A) customer database systems. B) information systems to track supplier/partner/collaborative ally data. C) human resources systems that maintain employee data. D) systems to record and report financial performance data. E) data management systems for undertaking benchmarking, TQM, and Six Sigma quality control.

48) Enlisting employees’ sustained and energetic commitment to good strategy execution and achievement of the strategic priorities and financial objectives is best done by

A) a resourceful and effective use of motivational incentives, both monetary and nonmonetary. B) a clever and innovative use of benchmarking and best practices. C) developing core competencies in the use of TQM, Six Sigma programs, and business process reengineering. D) providing employees with a high degree of job security and attractive perks. E) having top executives commit to making employees the company’s most valuable competitive asset.

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49)

A well-designed reward system

A) is focused on “what to achieve” to be rewarded as opposed to “what to do” and is management’s most powerful tool for gaining employee commitment to superior strategy execution. B) should be free of elements that induce stress, anxiety, tension, pressure to perform, and job insecurity. C) puts the primary emphasis on denying rewards to those who fail to perform tasks in the prescribed fashion. D) emphasizes weeding out employees who are consistently low performers. E) strives for a 50-50 balance between positive and negative rewards and a 50-50 balance between monetary and nonmonetary rewards.

50) An important consideration in designing a strategy-supportive motivation and reward system is to

A) link the payment of all monetary rewards to the company’s profitability. B) employ incentives that will help motivate employees to work hard at performing their assigned duties and activities. C) choose those types of rewards and incentives that focus employees’ attention on “what to do.” D) make across-the-board wage and salary increases the cornerstone of monetary rewards. E) make both monetary and nonmonetary rewards integral parts of the reward system.

51) Management’s most powerful tool for winning employee commitment to good strategy execution and operating excellence is

A) the establishment of strategy-supportive policies and procedures. B) empowering employees and encouraging them to adopt best practices. C) setting stretch objectives. D) a properly designed system of rewards and incentives. E) aggressive use of TQM and Six Sigma quality control programs.

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52) The guidelines for designing an incentive compensation system that will help drive successful strategy execution include

A) making the payoff for meeting or beating performance targets a major, not minor, piece of the total compensation package. B) having a bonus and incentive plan that applies to managers only (employees should generally not be included in incentive pay plans but should have attractive wages and salaries). C) having an outside wage and salary expert administer the system, so that there is no doubt as to its fairness and impartiality. D) basing the incentives on group performance rather than individual performance. E) making minimal use of nonmonetary incentives and rewarding people for diligently performing their assigned duties.

53) Shelina, who runs a motorbike riding camp for girls, is considering the creation of an effective compensation system for her camp staff. What would you advise Shelina to do first?

A) Establish ethical compensation policies and convince employees that they are the firm’s most valuable competitive asset. B) Design monetary and nonmonetary incentives that boost labor productivity and help lower the firm’s overall labor costs. C) Generously reward and recognize people who meet or beat performance targets and to deny rewards and recognition to those who don’t. D) Pay employees a bonus for each strategic and financial objective that the company achieves. E) Allow employees to propose what rewards they would like to receive to achieve the company’s stretch objectives.

54) Which of the following is not characteristic of a compensation and reward system designed to help drive successful strategy execution?

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A) tying incentives to performance outcomes directly linked to good strategy execution and financial performance B) keeping the time between achieving the target performance outcome and the payment of the reward as short as possible C) making sure the performance targets that each individual or team is expected to achieve involve outcomes that the individual or team can personally affect D) generous rewards for people who turn in outstanding performances E) a reward system that involves 50 percent nonmonetary rewards and a work environment that avoids placing pressure on managers and employees to perform at high levels

55) In trying to gain their employees’ wholehearted commitment to good strategy execution and operating excellence, managers are well advised to use all of the following incentives except

A) adopting promotion-from-within policies and acting on suggestions from employees. B) creating a work atmosphere in which there is genuine caring and mutual respect among workers and between management and employees. C) giving awards and public recognition to high performers and showcasing company successes. D) providing attractive perks and fringe benefits. E) withholding information from employees about financial performance, strategy, and competitors’ actions.

56)

A company’s corporate culture is best defined and identified by

A) the strategy and business model that a company has adopted. B) the character of a company’s internal work climate—as shaped by the company’s core values, beliefs, and business principles. C) its statement of core values and its code of ethics. D) its internal politics. E) the traditions that company executives are committed to maintaining.

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57)

Why is a company’s corporate culture important?

A) It codifies formal traditions that company executives are committed to maintaining to ensure the company strategy-supportive culture is change resistant. B) It represents the integration of the strategy and business model that a company has adopted. C) It influences the organization’s dedication to ethical conduct and accepted work practices. D) It influences the organization’s actions and approaches to conducting business. E) It guides core values and its internal code of ethics.

58) The character of a company’s corporate culture is a product of all of the following except

A) its approach to people management and the “chemistry” and “personality” that permeates its work environment. B) its style of operating and ingrained behaviors and attitudes. C) its standards of what is ethically acceptable and what is not and the stories that get told over and over to illustrate and reinforce the company’s shared values, business practices, and traditions. D) its work practices and behaviors that define “how we do things around here”. E) its lack of mechanisms for aligning, constraining, and regulating the actions, decisions, and behaviors of company personnel.

59)

Which one of the following is not a fundamental part of a company’s culture?

A) work practices and behaviors that define “how we do things around here” B) “Chemistry” that permeates its work environment C) the company’s core values and business principles D) the company’s strategic vision, strategic intent, and strategy E) the company’s style of operating and ingrained behaviors and attitudes

60)

The hallmarks of a high-performance corporate culture include

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A) frequently revised and updated values and ethics statements, a deep commitment to employee training, and unusually attractive fringe benefit packages for company personnel. B) a “can-do” spirit, pride in doing things right, no-excuses accountability, and a pervasive results-oriented work climate in which people go the extra mile to meet or beat stretch objectives. C) a balanced scorecard approach to measuring performance, strong emphasis on teamwork, strict enforcement of company policies and procedures, and incentive compensation for all employees. D) a deep commitment to pioneering new best practices, a preference for being a fast follower as opposed to a first mover or late mover (because the risks are more acceptable), and across-the-board bonuses for all personnel when the company meets or beats stretch objectives. E) a deep commitment to top-notch quality and superior customer service, dedicated use of TQM and/or Six Sigma quality control programs, and the payment of big performance bonuses and stock options.

61)

Which one of the following statements about a high-performance culture is false?

A) High-performance cultures are characterized by a pride in doing things right and a no-excuses sense of accountability. B) High-performance cultures often have a low regard for high ethical standards, a strong preference for high-risk strategies, and a slow and methodical approach to responding to changes in the marketplace. C) The challenge in creating a high-performance culture is to inspire high loyalty and dedication on the part of employees, such that they are energized to do things right. D) In a high-performance culture, there’s a razor-sharp focus on what needs to be done. E) In high-performance cultures, there’s a strong sense of involvement on the part of company personnel and emphasis on individual initiative and creativity.

62)

The hallmark of an adaptive corporate culture is

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A) a shared willingness to adapt core values to fit the changing requirements of an evolving strategy. B) a conservative strategy, prudent risk taking, and strong peer pressures to observe cultural norms. C) a willingness on the part of organizational members to accept change and take on the challenge of introducing and executing new strategies. D) a commitment to the types of core values and ethical standards that make a company a great place to work. E) a strong preference for performance-based compensation systems, especially the payment of bonuses and stock options.

63)

Which of the following statements about adaptive corporate cultures is false?

A) The hallmark of adaptive corporate cultures is a willingness on the part of organizational members to accept change and take on the challenge of introducing and executing new strategies. B) Internal entrepreneurship and initiative on the part of individuals and groups is discouraged and punished. C) Change is willingly embraced by management and nonmanagerial employees. D) Adaptive cultures are exceptionally well suited to companies with fast-changing strategies and market environments. E) For an adaptive culture to remain intact over time, top management must orchestrate organizational changes in a manner that (1) does not compromise core values and long-standing business principles and (2) tries to satisfy all their legitimate interests simultaneously.

64)

Which of the following is not a common trait of an unhealthy company culture?

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A) a politicized internal environment B) hostility to change and a wariness of people who champion new ways of doing things C) aversion to looking outside the company for best practices, new managerial approaches, and innovative ideas D) aversion to incentive compensation, failure to recruit the best and brightest employees, subpar support for employee training, and overemphasis on working in teams E) disregard for high ethical standards and an overzealous pursuit of wealth and status on the part of key executives

65)

Which of the following does not describe an unhealthy company culture?

A) politicized B) unethical and greed-driven C) insular and inwardly-focused D) change-resistant E) hyper-adaptive

66)

Unhealthy company cultures typically have such characteristics as

A) tight budget controls, overly strict enforcement of long-standing policies and procedures, and low ethical standards. B) a preference for conservative strategies, an aversion to incentive compensation, and excessive emphasis on profitability. C) a politicized internal environment; hostility to change; an insular, inwardly focused culture; and unethical or greed-driven behavior on the part of executives. D) overemphasis on employee empowerment, a complacent approach to building competencies and capabilities, no coherent business philosophy, and excessively bureaucratic policies and procedures. E) too little emphasis on innovation, a strong preference for hiring managers from outside the company, very few core values and traditions, and a weakly enforced code of ethics.

67)

Companies with politicized cultures

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A) are typically opposed to performance-based incentive compensation and employee empowerment. B) tend to be preoccupied with making sure the company has a safe, follow-theindustry-leader type of strategic vision and to avoid risky business strategies. C) tend be plagued with infighting that consumes a great deal of organizational energy and often results in the company’s strategic agenda taking a backseat to political maneuvering. D) are typically opposed to sound strategic initiatives designed to promote the wellbeing of specific functions. E) are typically run by political managers who have little regard for high ethical standards.

68)

Companies with change-resistant cultures

A) are typically opposed to performance-based incentive compensation and employee empowerment. B) are prone to be preoccupied with avoiding risks, are unlikely to pursue bold actions to capture emerging opportunities, have a widespread aversion to continuous improvement in performing value chain activities, and prefer following rather than leading market change. C) are often overly gung ho about looking outside the company for best practices, new managerial approaches, and innovative ideas. D) tend to be preoccupied with making sure the company has a safe, follow-theindustry-leader type of strategic vision and to avoid risky business strategies. E) are typically run by amoral managers who have little regard for high ethical standards.

69)

Companies with insular, inwardly focused cultures usually

A) believe they have all the answers because of their past great market success. B) value their customers’ opinions and fully understand their needs and expectations. C) has a commitment to hiring young people who can offer fresh thinking and new perspectives. D) thrive on doing better by adapting to fresh thinking from outside the company. E) never underestimate their rivals because of their proven track record in defending challenges.

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70) The single most visible factor that distinguishes successful culture-change efforts from failed attempts is

A) forceful management actions to empower employees to adopt new operating practices. B) competent leadership at the top. C) delayering the management hierarchy. D) developing a new values statement that inspires company personnel to put forth their best efforts to achieve performance targets. E) convincing employees that top management is genuinely committed to high ethical standards and the exercise of corporate social responsibility.

71)

Changing a problem culture

A) is one of the toughest managerial tasks because of the tendency of company personnel to cling to familiar practices and ways of doing things. B) is best done by instituting an aggressive program to train employees in the ways and beliefs of the new culture to be implanted. C) is best done by selecting a team of key employees to lead the culture change effort. D) requires writing a new statement of core values and describing in writing the kind of culture that is needed. E) can be done quickly only if managers tie incentive compensation to exhibiting the desired new cultural behaviors and if managers visibly praise people who exhibit the desired new cultural traits.

72)

Changing a problem culture typically does not involve

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A) altering the company’s financial objectives. B) both symbolic and substantive actions by executives to implant new cultural behaviors. C) designing compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors and hit change-resisters in the pocketbook. D) replacing old-culture managers with new-breed managers. E) using company gatherings and ceremonial occasions to praise individuals and groups that display the desired new cultural traits and behaviors.

73)

Management can try to change a problem culture by

A) selling company personnel on the need for a new set of behaviors and work practices. B) spending heavily on programs to train employees in the ways and beliefs of the new culture to be implanted. C) visibly praising and rewarding people who exhibit traits and behaviors that undermine the existing culture. D) writing a new values statement and describing in highly motivating terms the kind of culture that is needed. E) instituting incentive compensation programs that generously reward employees for adopting best practices.

74)

To remedy a problem culture, management should do all of the following except

A) identify which aspects of the present culture are supportive of good strategy execution and which ones are not. B) avoid cross-unit cooperation. C) talk openly about the problems of the present culture and how new behaviors will improve performance. D) employ visible, forceful actions—both substantive and symbolic—to ingrain a new set of behaviors, practices, and cultural norms. E) specify what new actions, behaviors, and work practices should be prominent in the “new” culture.

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75)

When trying to change a problem culture, management should undertake such steps as

A) selecting a team of key employees to lead the culture change effort and design a plan for cultural change. B) identifying which aspects of the present culture are supportive of good strategy execution and which ones are not. C) drawing up an action plan to change the present culture and then persuading company personnel why this plan of action is good and will be successful. D) conducting an employee survey to determine the organization’s cultural norms and what company personnel like and dislike about the current culture. E) employing a consultant with expertise in culture change and following his or her advice on how to proceed.

76) Which one of the following is a substantive culture-changing action that a company’s managers can undertake to alter a problem culture?

A) identifying aspects of the present culture that pose problems B) revising policies and procedures in ways that will help drive cultural change and replacing senior executives who may be stonewalling needed organizational and cultural changes C) empowering employees to adopt whatever new work practices they believe will be an improvement D) making a concerted effort to turn the company’s core competencies into distinctive competencies E) shifting from decentralized to centralized decision making so as to give senior executives more authority and control in driving cultural change

77) Which one of the following is not a substantive culture-changing action that a company’s managers can undertake to alter a problem culture?

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A) promoting individuals who have stepped forward to advocate the shift to a different culture and who can serve as role models for the desired cultural behavior B) revising policies and procedures in ways that will help drive cultural change C) screening all candidates for new positions carefully and hiring only those who appear to fit in with the new culture D) urging company personnel to search outside the company for work practices and operating approaches that may be an improvement over what the company is presently doing E) designing compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors and hit change-resisters in the pocketbook

78)

Symbolic culture-changing actions include all of the following except

A) ceremonial events to celebrate actions that exemplify the performance culture. B) frugality if a low-cost strategy is being executed. C) ensuring all management actions are “walking the talk.” D) revising policies and procedures in ways that will help drive cultural change. E) those actions top executives take to lead by example.

79)

Leading the strategy execution process does not require

A) delegating authority to middle and lower-level managers and creating a sense of empowerment among employees to move the implementation process forward. B) spending time with, listening to, and encouraging people in the organization to act on their own initiative. C) gathering information firsthand and gauging the progress being made. D) blocking input from field managers, relying upon second-hand reports regarding how well operations are going, and challenging the extent and direction of the company’s progress. E) holding periodic ceremonies to honor people who excel in displaying the company values and ethical principles.

80)

Proficient strategy execution requires executive managers to

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A) be current with events and closely monitor progress, put constructive pressure on the organization for operating excellence, and initiate corrective action when necessary to improve performance and achieve desired results. B) understand all the tasks required to implement the strategy so as to ensure staff will not shortchange any strategic-critical activity. C) attach great importance to gathering statistics that define every task effort and ensure limited variability. D) initiate a problem-solving search to ensure obstacles to success are identified. E) take a wait-and-see attitude towards monitoring progress, relaxing the pressure on the organization to achieve operating excellence, and staying the course when performance and results are below or above expectations.

81) Which of the following is not one of the leadership roles that senior managers have to play in pushing for good strategy execution and operating excellence?

A) being out front personally, leading the execution process, and driving the pace of progress B) being out in the field, seeing how well operations are going C) weeding out managers who are consistently in the ranks of the lowest performers (the bottom 10 percent) and who are not enthusiastic about the strategy or how it is being executed D) delegating authority to middle- and lower-level managers and creating a sense of empowerment among employees to move the implementation process forward E) being out front personally, leading the execution process and driving the pace of progress

82) When management is leading the drive for good strategy execution and operating excellence, it calls for all of the following actions on their part except

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A) establishing a must-be-invented-here mindset. B) staying on top of what is happening. C) empowering rank-and-file employees to act on their own initiative. D) putting constructive pressure on the organization to execute the strategy with excellence. E) monitoring progress closely.

83) MBWA, or , refers to a technique that can be utilized by leaders to stay informed on how well the strategy execution process is progressing.

A) modifying businesses with action B) managers being well-advised C) managing by walking around D) multi-business warning approaches. E) make better waking actions.

84)

The purpose of managing by walking around, or MBWA, is to

A) learn more about company operations and see how activities are really being done. B) gather information about what is happening from people at different organizational levels and learn firsthand how well the strategy execution process is proceeding. C) give employees a chance to make suggestions for improvement. D) gather information about what strategy to follow and to learn what competitors are doing. E) be visible and accessible to employees.

85) Putting constructive pressure on the organization to achieve good results and operating excellence entails

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A) postponing implementation of policies and procedures that foster continuous improvement. B) utilizing the full range of disincentives that serve to punish unacceptable levels of performance. C) treating employees with dignity and respect. D) discouraging employees from using initiative and creativity in performing their work. E) isolating individuals and groups that do not sustain initiative and creativity in their work.

86)

Success in making corrective actions does not depend on

A) (1) a thorough analysis of the situation, (2) the exercise of good business judgment in deciding what actions to take., and (3) good implementation of the corrective actions that are initiated. B) good implementation of the corrective actions that are initiated. C) getting an organization back on track rather quickly. D) the exercise of good business judgment in deciding what actions to take. E) a failure to show measurable progress in implementing corrective actions in a timely fashion.

87) Successfully leading the effort to foster a results-oriented, high-performance culture generally requires simple leadership practices, such as

A) treating employees with dignity and respect. B) encouraging employees to use initiatives and creativity in performing their work to continually make changes to operating practices. C) setting strain objectives to push the envelope on sales efforts. D) focusing attention on motivational techniques that instill self-interest, which is the cornerstone of the free enterprise system. E) celebrating management’s success with high incentives and loyalty trips.

88)

The process of making corrective adjustments in strategy execution

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A) varies according to the situation. B) enables companies to indoctrinate new hires rapidly into widely shared and strongly held values, principles, and behavioral norms. C) exemplifies a results-oriented work climate where people go the extra mile to meet or beat stretch objectives. D) features a ceremony honoring individuals who believe so strongly in their ideas that they take it on themselves to hurdle the bureaucracy, maneuver their projects through the system, and turn them into improved services, new products, or even new businesses. E) is a typical cultural mechanism for aligning, constraining, and regulating the actions, decisions, and behaviors of company personnel.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 89) Identify and briefly explain at least four major components of the strategy execution effort.

90) Identify four tactics that are common among companies dedicated to staffing jobs with the best people they can find.

91) Explain the difference between a centralized and a decentralized organization structure. Which one is more likely to further the cause of good strategy execution? Why?

92) A decentralized organization structure is more likely to further the cause of good strategy execution than is a centralized organization structure. True or false? Justify your answer. Version 1

93) What is meant by empowerment of employees? How does it differ from delegation of authority? In what ways can empowerment of employees aid the cause of good strategy execution?

94) Why does a company’s budget need to be closely linked to the needs of good strategy execution? Why might a change in strategy call for budget reallocations?

95) How do well-conceived policies and procedures aid the task of implementing and executing strategy? Explain how well-conceived policies and procedures facilitate organizational change and good strategy execution.

96) You are the owner and CEO of a manufacturer of camping and outdoor adventure equipment. What might be the payoff for implementing total quality management (TQM) in your business?

97) What three principles underlie the statistical thinking of Six Sigma quality control programs? Version 1

98) Sandi has been hired as a consultant to develop a state-of-the-art information and operating system for a local winery to enable better strategy execution. How have Mike and Chris, owners of the winery, justified retaining Sandi and adopting the new IT system?

99) The use of incentives and rewards is the single most powerful tool at management’s disposal to win strong employee commitment to carrying out the strategic plan. True or false? Explain.

100) Identify at least four guidelines for creating incentive compensation systems that link employee behavior to organizational objectives.

101) Give at least three examples of nonmonetary motivation and rewards practices that have the capability to foster good strategy execution, and explain how they act to produce such a result.

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102) What is meant by the term corporate culture? Identify the three major types of corporate cultures. Which of the three types of company cultures is most beneficial to evolving a company’s strategy? Why is corporate culture an important factor in implementing and executing strategy?

103) Identify and briefly discuss the key features that can be used to describe the corporate culture of a company.

104) In 2017, it came to light that in order to meet its demanding profit target, Wells Fargo put such pressure on its employees to hit sales quotas that many employees responded to by fraudulently opening customer accounts. Characterize Wells Fargo’s corporate culture. How did its culture undercut its strategy execution effort? What lessons about the importance of culture to the strategy execution effort can be learned from this situation?

105)

What are the characteristics of unhealthy cultures?

106) Vicky is COO and Chief Nursing Officer of a regional Kaiser Permanente health care facility. She has asked you for help in understanding how important a healthy culture is for her organization. How might you explain to Vicky the purpose and benefits of closely aligning Kaiser’s corporate culture with its requirements for proficient and often mission-critical strategy execution?

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107) Identify and briefly discuss four steps that managers can take to change a culture that is out of step with the company’s strategy.

108) Give two examples of “symbolic” culture-changing actions and two examples of “substantive” culture-changing actions.

109) Janeen has been hired to manage an auto dealership that is characterized by hostility to change, heavily politicized decision-making, insular thinking, unethical and greed-driven behaviors, and the presence of incompatible, clashing subcultures. These traits, individually and together, are indicative of what type of corporate culture? What steps, if any, would you suggest that Janeen take to change that culture?

110)

Identify the actions that are key elements of leading the strategy execution process.

111) What constitutes effective managerial leadership in achieving superior strategy execution?

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112) Gina has recently been hired as the CEO of the St. Vincent DePaul Society affiliate in your local community. She recognizes that her current organization, a charity, is dysfunctional. Employees and volunteers alike stubbornly pose obstacles to executing her strategic initiatives to grow donations to the charity, sales of donated items, and possible diversification into other activities that could provide financial support to her organization’s mission. What might be Gina’s options regarding culture-changing actions that could lead to rectifying St. Vincent DePaul’s dysfunctional culture?

113) You are an employee at a pharmaceutical company that manufactures and markets offpatent, generic treatments for various common ailments. It has just been reported in the press that the CEO of your company personally spearheaded a sudden fourfold price increase in the prices charged for a particular generic medication while taking a huge pay raise for herself. The CEO has worked for your company for 25 years. The same press report revealed that your CEO’s alma mater awarded her a business degree 10 years after she had attended the school, even though she had completed only about half of the coursework. Your company’s motto states: “We challenge every member of every team to challenge the status quo. Embrace change. And drive the business forward with passion and commitment. We have integrity. We behave responsibly.” As an employee of this company, how would you characterize the culture?

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Answer Key Test name: Chap 10_7e 1) A 2) E 3) E 4) B 5) E 6) B 7) C 8) D 9) A 10) A 11) D 12) B 13) B 14) A 15) C 16) B 17) B 18) D 19) B 20) A 21) A 22) C 23) A 24) D 25) E 26) E Version 1

27) A 28) A 29) C 30) C 31) A 32) A 33) B 34) B 35) E 36) B 37) A 38) A 39) C 40) C 41) C 42) B 43) C 44) A 45) D 46) C 47) E 48) A 49) A 50) E 51) D 52) A 53) C 54) E 55) E 56) B Version 1

57) D 58) E 59) D 60) B 61) B 62) C 63) B 64) D 65) E 66) C 67) C 68) B 69) A 70) B 71) A 72) A 73) A 74) B 75) B 76) B 77) D 78) D 79) E 80) A 81) C 82) A 83) C 84) B 85) E 86) E Version 1

87) A 88) A 89) See Figure 10.1. Eight managerial tasks crop up repeatedly in company efforts to execute strategy, and these include: (1) building an organization—consisting of the capabilities, people, and structure needed to execute the strategy successfully; (2) allocating ample resources to strategy-critical activities—budget reallocations and resource-shifting (growing or downsizing strategic business units); (3) ensuring that policies and procedures facilitate rather than impede effective strategy execution—enforcing consistency, supporting change, and promoting a can-do work climate; (4) adopting process management programs that drive continuous improvement in how strategy execution activities are performed—continuous improvement via business process reengineering, TQM, and Six Sigma; (5) installing information and operating systems that enable company personnel to perform essential activities—tracking real-time operating and performance data; (6) tying rewards directly to the achievement of performance objectives—both substantive (financial compensation) and symbolic (culture-affirming); (7) fostering a corporate culture that promotes good strategy execution— transforming an unhealthy culture into an adaptive or high performance culture; and (8) exerting the internal leadership needed to propel implementation forward—staying on top, setting the tone, leading by example, using constructive pressure, making corrective adjustments, and so on.

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90) Tactics common among companies dedicated to staffing jobs with the best people they can find include: (1) putting forth considerable effort in screening and evaluating job applicants—selecting only those with suitable skill sets, energy, initiative, judgment, aptitudes for learning, and adaptability to the company’s culture; (2) investing in training programs that continue throughout employees’ careers; (3) providing promising employees with challenging, interesting, and skillstretching assignments; (4) rotating people through jobs that span functional and geographic boundaries; (5) striving to retain talented, high-performing employees via promotions, salary increases, performance bonuses, stock options and equity ownership, fringe benefit packages, and other perks; and (6) coaching average performers to improve their skills and capabilities, while weeding out underperformers and benchwarmers.

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91) It depends. Each decision-making structure has its own advantages and drawbacks. Decentralized decision-making means that the managers of each organizational unit are delegated lead responsibility for deciding how best to execute strategy. The ultimate goal of decentralized decision-making is to put decision-making authority in the hands of those persons or teams closest to and most knowledgeable about the situation. Yet control issues often arise in decentralized structures. In centralized, authoritarian-structured organizations, it is easy to know who is accountable when things do not go well. The big drawback of the centralized structure is that an organization may be sluggish in responding to changing conditions because of the time it takes for the review/approval process to run up all the layers of the management bureaucracy. Also, centralized decision making is often impractical—the larger the company and the more scattered its operations, the more that decision-making authority has to be delegated to managers closer to the scene of the action. Regardless of the type of existing structure, attempting to carry out a new strategy with an old organizational structure is usually unwise.

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92) It depends. Both structures have drawbacks. Pushing decisionmaking authority deep down into the organization structure and empowering employees in a decentralized organization presents its own organizing challenge: how to exercise adequate control over the actions of empowered employees so that the business is not put at risk at the same time that the benefits of empowerment are realized. In contrast, hierarchical command-and-control structures typical of centralized or authoritarian organizations may make an organization sluggish in responding to changing conditions because of the time it takes for the review/approval process to run up all the layers of the management bureaucracy. Also, centralized decision making is often impractical—the larger the company and the more scattered its operations, the more that decision-making authority has to be delegated to managers closer to the action. 93) The case for empowering down-the-line managers and employees to make decisions related to daily operations and executing the strategy— also known as decentralized decision-making—is based on the belief that a company that draws on the combined intellectual capital of all its employees can outperform a command-and-control (centralized or authoritarian) company. Decentralized decision-making means that the managers of each organizational unit are delegated lead responsibility for deciding how best to execute strategy. The ultimate goal of decentralized decision-making is to put decision-making authority in the hands of those persons or teams closest to and most knowledgeable about the situation. Decentralized decision making in strategy execution means, for example, that employees may be empowered to do what it takes to please suppliers and decrease defect rates or cycle time, or to please customers and increase volume purchases or repeat sales.

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94) A change in strategy nearly always calls for budget reallocations and resource shifting. Previously important units, now having a lesser role in the new strategy, may need downsizing. Units that now have a bigger strategic role may require above-average increases in their budget allocations to afford more people, new equipment, and/or additional facilities. That is, managers must be deeply involved in reviewing budget proposals, directing the proper amounts of resources to strategycritical organization units, and exercising their power to put enough resources behind new strategic initiatives to make things happen, and they have to make the tough decisions to kill projects and activities that are no longer justified. 95) Well-conceived policies and procedures aid strategy execution; outof-sync ones are barriers to effective implementation. Well-conceived policies and operating procedures act to facilitate organizational change and good strategy execution in three ways: (1) enforce needed consistency in how particular strategy-critical activities are performed; (2) provide top-down guidance regarding how to alter past practice and how certain things now need to be done; and (3) promote a positive, cando work climate or transform an unhealthy corporate culture into a healthy culture that facilitates good strategy execution.

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96) TQM is a management tool that has attracted numerous users and advocates over several decades, and it can deliver good results when used properly. TQM will likely take a fairly long time to show significant results—very little benefit emerges within the first six months. The long-term payoff of TQM, if it comes, depends heavily on management’s success in implanting a culture within which the TQM philosophy and practices can thrive. Still, TQM doctrine preaches that there’s no such thing as “good enough” and that everyone has a responsibility to participate in continuous improvement. TQM is thus a race without a finish. Success comes from making little steps forward each day, a process that the Japanese call kaizen. 97) The statistical thinking underlying Six Sigma is based on the following three principles: All work is a process, all processes have variability, and all processes create data that explain variability. 98) Well-conceived state-of-the-art operating systems not only enable better strategy execution but also strengthen organizational capabilities—enough at times to provide a competitive edge over rivals. If the systems it employs are advanced systems that have not yet been adopted by rivals, the systems may provide the company with a competitive advantage as long as the costs of deploying the systems do not outweigh their benefits. 99) True. A properly designed reward structure is management’s most powerful tool for gaining employee commitment to superior strategy execution and excellent operating results. The more a manager understands what motivates subordinates and is able to use appropriate motivational incentives, the greater will be employees’ commitment to good day-in, day-out strategy execution and achievement of performance targets.

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100) Among the guidelines for creating incentive compensation systems that link employee behavior to organizational objectives are: (1) make the performance payoff a major, not minor, piece of the total compensation package; (2) offer incentives that extend to all managers and all workers, not just top management; (3) administer the reward system with scrupulous objectivity and fairness; (4) tie incentives to performance outcomes directly linked to good strategy execution and financial performance; (5) make sure the performance targets that each individual or team is expected to achieve involve outcomes that the individual or team can personally affect; and (6) keep the time between achieving the target performance outcome and the payment of the reward as short as possible. 101) In addition to monetary or financial rewards, most successful companies also make extensive use of nonmonetary incentives, which can include: (1) attractive perks and fringe benefits to improve employees’ quality of life, reduce turnover, and curb absenteeism; (2) promotion-from-within policies to bind workers to the organization and incentivize good performance; (3) acting on suggestions from employees to empower a sense of ownership and boost productivity; (4) a work milieu in which there is genuine sincerity, caring, and mutual respect to promote team-building and camaraderie; (5) information-sharing (transparency) with employees about financial performance, strategy, operational measures, market conditions, and competitors’ actions, etc., to build trust; and (6) attractive office spaces and facilities to boost morale.

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102) Corporate culture is a company’s internal work climate or “organizational DNA,” and it is shaped by its core values, beliefs, and business principles. A company’s culture is critical to the strategy execution effort because it influences its traditions, work practices, and style of operating. Types of corporate cultures include high-performance cultures, adaptive cultures, and unhealthy cultures. Of these, adaptive cultures work to the advantage of all companies. Every company operates in a market and business climate that is changing to one degree or another. As a company’s strategy evolves, an adaptive culture is a definite ally in the strategy implementation, strategy execution process as compared to cultures that have to be coaxed and cajoled to change. 103) The chief things to look for include the values, business principles, and ethical standards that management preaches and practices; the company’s approach to people management and the official policies, procedures, and operating practices that provide guidelines for the behavior of company personnel; the atmosphere and spirit that pervades the work climate; the way managers and employees interact and relate to one another; the strength of peer pressure to do things in particular ways and conform to expected norms; the actions and behaviors that management explicitly encourages and rewards and those that are frowned upon; the company’s revered traditions and oft-repeated stories about “heroic acts” and “how we do things around here”; and the manner in which the company deals with external stakeholders.

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104) Wells Fargo Bank is an exemplar of a company that had little regard for ethical standards or was run by executives driven by greed and ego gratification. Executives that work in unhealthy corporate cultures like Wells Fargo’s exude the negatives of arrogance, ego, greed, and an “ends-justify-the-means” mentality in pursuing overambitious revenue and profitability targets. Senior managers may wink at unethical behavior and may cross over the line to unethical (and sometimes criminal) behavior themselves. Some executives go so far as to adopt accounting principles that make financial performance look better than it really is. When a company’s present culture promotes attitudes, behaviors, and ways of doing things that are in sync with the chosen strategy and conducive to first-rate strategy execution, the culture functions as a valuable ally in the strategy execution process. 105) Unhealthy corporate cultures tend to be: (1) highly politicized and prone to infighting and turf wars; (2) change-resistant, risk-averse, and prone to avoidance of continuous improvement; (3) insular, arrogant, and plagued by a “not-invented-here” syndrome; (4) unethical and greed-driven, plagued by an “ends-justify-the-means” mentality; and/or (5) characterized by incompatible subcultures by department, location, or subunit that tend to clash with one another or are out of tune with the overall culture. 106) When a company’s culture is grounded in many of the needed strategy-executing behaviors, Kaiser employees feel genuinely better about their jobs, the health care company they work for, and the merits of what the regional facility is trying to accomplish. Greater employee buy-in for what Kaiser is trying to accomplish boosts motivation and marshals organizational energy behind the drive for good strategy execution. An energized workforce enhances the chances of achieving execution-critical performance targets and good strategy execution.

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107) See Figure 10.2. The place for management to begin a major remodeling of the corporate culture is by identifying those facets of the current culture that are conducive to good strategy execution and those that are not. The next step involves specifying what actions, behaviors, and work practices should be prominent in the “new” culture. The third step is to talk openly about the problems of the present culture and discuss how new behaviors will improve company performance. The final step involves selling company personnel on the need for new-style behaviors and work practices. Doing so involves making a compelling case for culture change, which can be accomplished by: (1) citing reasons the current strategy has to be modified and why new strategic initiatives are being undertaken; (2) citing why and how certain behavioral norms and work practices in the current culture pose obstacles to good execution of new strategic initiatives; (3) explaining why new behaviors and work practices have important roles in the new culture and will produce better results; and (4) following up quickly with forceful, high-profile actions that are both substantive and symbolic.

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108) The most important symbolic culture-changing action is for management to “lead by example.” Another symbolic action is a group gathering or employee training program or even a “ceremonial event” that serves to acknowledge and celebrate each culture-changing success. Substantive culture-changing actions involve top management so that personnel can see “unmistakable support,” and among these actions are: (1) replacing key executives who stonewall change; (2) promoting individuals who have advocated the culture shift and who can serve as role models for the desired cultural behavior; (3) appointing outsiders with the desired cultural attributes to high-visibility positions; (4) screening all new recruits carefully and hiring only those who appear to fit in with the new culture; (5) mandating that all personnel attend culture-changing programs and events; (6) designing compensation incentives that boost the pay of individuals who display desired cultural behaviors, while hitting the nonbelievers in the pocketbook; and (7) revising policies and procedures in ways that will support the new culture. 109) Hostility to change, heavily politicized decision-making, insular thinking, unethical and greed-driven behaviors, and the presence of incompatible, clashing subcultures indicate that Jason’s auto dealership has an unhealthy corporate culture. Among the four steps that you could suggest that Janeen take to change a dysfunctional culture, that is, a culture out of sync with the company’s strategy are: (1) identify facets of the present culture that are dysfunctional and impede good strategy execution; (2) specify clearly what new actions, behaviors, and work practices should characterize the new culture; (3) talk openly about problems with the current culture and make a persuasive case for cultural reform; and (4) follow with visible, forceful actions—both substantive and symbolic—to ingrain a new set of behaviors, practices, and norms. Version 1

110) In general, leading the drive for good strategy execution and operating excellence calls for three actions on the part of the manager: (1) stay on top of what is happening and closely monitoring progress, (2) put constructive pressure on the organization to execute the strategy well and achieve operating excellence, and (3) initiate corrective actions to improve strategy execution and achieve the targeted performance results. 111) Proficient strategy execution requires company managers to be diligent and adept in spotting problems, learning what obstacles lie in the path of good execution, and then clearing the way for progress: the goal must be to produce better results speedily and productively. One of the best ways for executives to stay on top of strategy execution is by regularly visiting the field and talking with many different people at many different levels—a technique often labeled managing by walking around [MBWA]. While leadership efforts to instill a spirit of high achievement into the culture usually necessitate putting constructive pressure on the organization to reward or accentuate positive behaviors and attitudes, there are negative reinforcements too. Low-performing workers and people who reject the results-oriented cultural emphasis have to be weeded out or at least moved to out-of-the-way positions. Finally, the leadership challenge of making corrective adjustments is twofold: deciding when adjustments are needed and deciding what adjustments to make.

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112) Actions that Gina can take to change a culture that is out of step with the charity’s strategy are: identify facets of the present culture that are dysfunctional and impede good strategy execution; specify clearly what new actions, behaviors, and work practices should characterize the new culture; talk openly about problems with the current culture and make a persuasive case for cultural reform; and follow with visible, forceful actions—both substantive and symbolic—to ingrain a new set of behaviors, practices, and norms.Examples of symbolic culture-changing actions might include inexpensive decorations in the facility, conservative expense accounts and entertainment allowances, a lean administrative staff, scrutiny of budget requests, reduced executive perks, and so on. Another category of symbolic actions includes holding ceremonial events to place the spotlight on and honor paid staff and volunteers whose actions and performance exemplify what is called for in the new culture. Examples of substantive culture-changing actions that display Gina’s commitment to instill a new culture include: replacing key personnel who are resisting or obstructing needed cultural changes, and promoting individuals who have stepped forward to spearhead the shift to a different culture and who can serve as role models for the desired cultural behavior.

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113) The culture of this pharmaceutical company is weak and unhealthy, whereas a strong culture would encourage actions, behaviors, and work practices that are in sync with the chosen strategy and conducive to good strategy execution. A strong culture is a valuable ally in the strategy execution process, although sometimes some of the very behaviors needed to execute the strategy successfully run contrary to the attitudes, behaviors, and operating practices embedded in the prevailing culture. Such a clash poses a real dilemma for company personnel. Should they be loyal to the culture and company traditions (to which they are likely to be emotionally attached) and thus resist or be indifferent to actions that will promote better strategy execution—a choice that will certainly weaken the drive for good strategy execution? Alternatively, should they go along with management’s strategy execution effort and engage in actions that run counter to the culture—a choice that will likely impair morale and lead to a less-than-enthusiastic commitment to good strategy execution? Those less-than favorable or negative culture traits appear to have been the case at the pharmaceutical company depicted in the example above. Culture-bred resistance to the actions and behaviors needed for good strategy execution, particularly if it is as strong and widespread at the pharmaceutical company in the example, would pose a formidable hurdle that must be surmounted in order for any strategy execution effort at that company to be successful going forward.

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