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Essay Questions of Strategic Management
Essay Questions of Strategic Management
The three integrative strategies are forward integration, backward integration and
horizontal integration. Forward integration is the gaining of ownership or increased
control over distributors or retailers. An example of forward integration is Gateway
Computer Company opening its own chain of retail computer stores. Backward
integration is the seeking of ownership or increased control of a firm’s suppliers. J.P.
Morgan outsourcing its technology operations to firms such as EDS and IBM is an
example of backward integration. Horizontal integration is the seeking of ownership
or increased control over competitors. An example of horizontal integration is when
Reader’s Digest Association acquired Reiman Publications LLC.
Page: 174-177
110. List some guidelines for when forward integration would be a particularly good
strategy to pursue.
Page: 175
Market penetration, market development and product development are the three
types of intensive strategies. Seeking increased market share for present products or
services in present markets through marketing efforts is called market penetration.
An example of this is when American Express launched a $100 million +
advertising campaign in 2002 to boost its lead over Citigroup in the credit card
industry. Market development is introducing present products or services into new
geographic areas. South African Breweries PLC trying to acquire Miller Brewing
Company for about $5 billion is an example of market development. Product
development is seeking increased sales by improving present products or services or
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Page: 177-179
112. List some guidelines for when market development would be a particularly
good strategy to pursue.
Page: 178
Related and unrelated are the two types of diversification strategies. Businesses are
said to be related when their value chains posses competitively valuable cross-
business strategic fits; businesses are said to be unrelated when their value chains are
so dissimilar that no competitively valuable cross-business relationships exist. An
example of related diversification is Amazon.com Inc.’s recent move to sell personal
computers though its online store. An example of unrelated diversification is Trump
Entertainment Resorts starting Trump university, an online business university.
Pages: 181-183
114. List some guidelines for when related diversification would be a particularly
good strategy to pursue.
Six guidelines for when related diversification may be an effective strategy are: (1)
when an organization competes in a no-growth or a slow-growth industry; (2) when
adding new, but related, products would significantly enhance the sales of current
products; (3) when new, but related, products could be offered at highly competitive
prices; (4) when new, but related, products have seasonal sales levels that
counterbalance an organization’s existing peaks and valleys; (5) when an
organization’s products are currently in the declining stage of the product’s life
cycle; and (6) when an organization has a strong management team.
Page: 181
372
115. Define and give examples of joint venture, retrenchment, divestiture and
liquidation.
Page: 184-188
116. Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and
13.
Page: 185
Page: 188
118. What are the characteristics of a firm that is successfully pursuing a cost
leadership strategy?
A successful cost leadership strategy usually permeates the entire firm, as evidenced
by high efficiency, low overhead, limited perks, intolerance of waste, intensive
screening of budget requests, wide spans of control, rewards linked to cost
containment and broad employee participation in cost control efforts.
Page: 190
119. Discuss four common problems that cause joint ventures to fail.
One problem that causes joint ventures to fail is that managers who should
collaborate daily in operating the venture are not involved in forming or shaping
the venture. A second problem is if the venture benefits the partnering companies
but may not benefit customers who then complain about poorer service or criticize
the companies in other ways. A third problem occurs if the venture is not
supported equally by both partners, which creates problems. A final problem that
can cause a joint venture to fail is that the venture may begin to compete more
with one of the partners than the other.
Page: 196
Page: 198
374
Matching external and internal critical success factors is the key to effectively
generating feasible alternative strategies. See Table 6-1 on page 220 for examples of
matching.
Page: 220
2. If you construct a SPACE Matrix and the directional vector points to the lower
left quadrant, what type of strategies would you recommend? Give several
examples.
If the directional vector points to the lower-left quadrant of the SPACE Matrix,
students should suggest defensive strategies. Defensive strategies include
retrenchment, divestiture, liquidation and concentric diversification.
Page: 225-227
3. Give five coordinates of a SPACE Matrix directional vector that would suggest
conservative strategies to be most appropriate.
Student answers will vary. However, five examples they may suggest are (-1,1),
(-2,2), (-3,3), (-4,4), and (-5,5).
Page: 225-227
4. In a BCG Matrix, all divisions are called question marks, stars, cash cows or
dogs. Define each of these terms.
Question Marks have a low relative market share position, yet they compete in a
high-growth industry.
Stars represent the organization’s best long-run opportunities for growth and
profitability.
Cash Cows have a high relative market share position but compete in a low-growth
industry.
Dogs have a low relative market share position and compete in a slow- or no-
market-growth industry.
Page: 230-231
375
The IE Matrix is similar to the BCG Matrix in that both tools involve plotting
organizational divisions in a schematic diagram. Also, the size of each circle
represents the percentage sales contribution of each division, and pie slices reveal
the percentage profit contribution of each division in both the BCG and IE Matrix.
Some important differences between the IE Matrix and the BCG Matrix include: 1)
different axes; 2) the IE Matrix requires more information about the divisions than
the BCG Matrix; and 3) the strategic implications of each matrix are different.
Page: 233
The BCG Matrix has one major benefit: draws attention to the cash flow, investment
characteristics and needs of an organization’s various divisions.
The BCG Matrix has some limitations: 1) Viewing every business as either a star,
cash cow, dog or question mark is an oversimplification; many businesses fall right
in the middle of the BCG Matrix and thus are not easily classified, 2) the BCG
Matrix does not reflect whether or not various divisions or their industries are
growing over time; that is, the matrix has no temporal qualities, but rather it is a
snapshot of an organization as any given point in time; and 3) other variables besides
relative market share position and industry growth rate in sales are important in
making strategic decisions about various divisions.
Page: 232
Student answers will vary when elaborating on what these strategies could mean for
a college or university. However, students should mention that the college or
university could possibly have to be closed or facility and staff may have to be
drastically reduced which leads to unhappy students in very large classes.
Page: 237-238
376
There are three positive features of QSPM: 1) Sets of strategies can be examined
sequentially or simultaneously; 2) there is no limit to the number of strategies that
can be evaluated or the number of sets of strategies that can be examined at once
using the QSPM; and 3) the last positive feature is that it requires strategists to
integrate pertinent external and internal factors into the decision process.
The QSPM is not without some limitations: 1) It always requires intuitive judgments
and educated assumptions; 2) The ratings and attractiveness scores require
judgmental decisions, even though they should be based on objective information;
and 3) it can be only as good as the prerequisite information and matching analyses
upon which it is based.
Page: 239-244
9. Describe the tactics that have been used by politicians that can also aid
strategists.
Page 246
377
Some principles are: No more than two directors are current or former company
executives. No directors do business with the company or accept consulting or legal
fees from the firm. The audit, compensation and nominating committees are made
up solely of outside directors. Each director owns a large equity stake in the
company, excluding stock options. At least one outside director has extensive
experience in the company’s core business and at least one has been CEO of an
equivalent-sized company. Fully employed directors sit on no more than four boards
and retirees sit on no more than seven. Each director attends at least 75 percent of
all meetings. The board meets regularly without management present and evaluates
its own performance annually. The audit committee meets at least four times a year.
The board is frugal on executive pay, diligent in CEO succession oversight
responsibilities, and prompt to act when trouble arises. The CEO is not also the
Chairperson of the Board. Shareholders have considerable power and information to
choose and replace directors. Stock options are considered a corporate expense.
There are no interlocking directorships (where a director or CEO sits on another
director’s board).
Page: 242
2. List four major reasons annual objectives are essential for strategy
implementation.
Annual objectives are essential for strategy implementation because they (1)
represent the basis for allocating resources, (2) are a primary mechanism for
evaluating managers, (3) are the major instrument for monitoring progress toward
achieving long-term objectives and (4) establish organizational, divisional and
departmental priorities.
Page: 264
378
Page: 267
4. There are three major approaches for minimizing and resolving conflict in an
organization. Define these three approaches and give an example of each.
Various approaches for managing and resolving conflict can be classified into three
categories: avoidance, diffusion and confrontation. Avoidance includes such actions
as ignoring the problem in hopes the conflict will resolve itself, or physically
separating the conflicting individuals. Diffusion can include playing down
differences between conflicting parties while accentuating similarities and common
interests, compromising so there is neither a clear winner nor loser, resorting to
majority rule, appealing to a higher authority, or redesigning present positions.
Confrontation is exemplified by exchanging members of conflicting parties so each
can gain an appreciation of the other’s point of view, or holding a meeting at which
conflicting parties present their views and work through their differences.
Student answers will vary on the examples given for each approach.
Page: 269-270
A divisional structure has some clear advantages. The first is that accountability is
clear. Also, it creates career development opportunities for managers, allows local
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Page: 272-274
6. There are four basic ways a divisionally structured firm could be organized.
What are these four ways? Give an example of each.
The four basic ways a divisionally structured firm could be organized are 1) by
geographic area. An example of this would be any organization with similar branch
facilities located in widely dispersed areas; 2) by product or service. Huffy is an
example of divisional structure by product; 3) by customer. Book publishing
companies often organize their activities around customer groups as college,
secondary schools and private commercial schools; and 4) by process. An example
of this is a manufacturing business organized into six divisions: electrical work,
glass cutting, welding, grinding, painting and foundry work. Each division would be
responsible for generating revenues and profits.
Page: 273-274
Students analyzing strategic management cases are often asked to revise and
develop a firm’s organizational structure. This section provides some basic
guidelines for this endeavor. There are some basic do’s and don’ts in regard to
devising or constructing organizational charts, especially for midsize to large
firms. First of all, reserve the title CEO for the top executive of the firm. Don’t
use the title “president” for the top person; use it for the division top managers if
there are divisions within the firm. Also, do not use the title “president” for
functional business executives. They should have the title “chief”, or “vice
president,” or “manager,” or “officer”, such as “Chief Information Officer”, or
“VP of Human Resources”. Further, do not recommend a dual title (such as “CEO
and President”) for just one executive. The Chairman of the Board and CEO of
Bristol-Myers Squibb, Peter Dolan, gave up his title as chairman in 2005.
Actually, “chairperson” is much better than “chairman” for this title. Directly
below the CEO, it is best to have a COO (chief operating officer) with any
division presidents reporting directly to the COO. On the same level as the COO
and also reporting to the CEO, draw in your functional business executives, such
as a CFO (chief financial officer), VP of Human Resources, a CSO (Chief
Strategy Officer), a CIO (Chief Information Officer), a CMO (Chief Marketing
Officer), a VP of R&D, a VP of Legal Affairs, a Investment Relations Officer,
Maintenance Superintendent, etc. Note in Figure 7-6 that these positions are
labeled and placed appropriately. Note that a controller and/or treasurer would
normally report to the CFO.
Page 277
9. What are the three commonly used strategies or approaches for implementing
changes in an organization? Give an advantage and/or disadvantage for each
type of approach.
Although there are various approaches for implementing changes, three commonly
used strategies are a force change strategy, an educative change strategy and a
rational or self-interest change strategy. A force change strategy involves giving
orders and enforcing those orders; this strategy has the advantage of being fast, but
low commitment and high resistance plague it. An educative change strategy is one
that presents information to convince people of the need for change; the
disadvantage of an educative change strategy is that implementation becomes slow
and difficult. However, this type of strategy evokes greater commitment and less
resistance than does the force change strategy. Finally, a rational or self-interest
change strategy is one that attempts to convince individuals the change is to their
personal advantage. When this appeal is successful, strategy implementation can be
relatively easy.
Page: 283-285
381
Students can choose any 10 from the following 12 special natural environment
issues: (1) ozone depletion, (2) global warming, (3) depletion of rain forests, (4)
destruction of animal habitats, (5) protecting endangered species, (6) developing
biodegradable products and packages, (7) waste management, (8) clean air, (9) clean
water, (10) erosion, (11) destruction of natural resources and (12) pollution control.
Page: 294-295
Students may choose any eight of the following 13 major benefits of having a
diverse workforce: (1) improves corporate culture, (2) improves employee morale,
(3) leads to a higher retention of employees, (4) leads to an easier recruitment of new
employees, (5) decreases complaints and litigation, (6) increases creativity, (7)
decreases interpersonal conflict between employees, (8) enables the organization to
move into emerging markets, (9) improves client relations, (10) increases
productivity, (11) improves the bottom line, (12) maximizes brand identity and (13)
reduces training costs.
Page: 297