Professional Documents
Culture Documents
Questions and Answers: Chapter 1 Self-Test
Questions and Answers: Chapter 1 Self-Test
Chapter 1 Self-Test
1. Good strategy and good strategy execution are the most trustworthy signs of good
management because management is ultimately responsible for a company's
performance and because good execution of a good strategy is the most surefire
recipe (but not a guarantee!) for good company performance.
True
False
6. Which of the following are among the five tasks of strategic management?
a. Forming a strategic vision of what the organization's future business
b. Setting objectives
c. Deciding which objectives are high priority and which are low priority
d. Crafting a strategy to achieve the desired outcomes
e. Doing outside-in strategic thinking
f. Implementing and executing the strategy
g. Evaluating performance, reviewing new developments, and initiating corrective adjustments in the
organization's vision, long-term direction objectives, strategy, and/or implementation
9. A company's strategy
a. is a combination of planned actions and o-the-spot adaptive reactions to fresh developing industry and
competitive events.
b. is a company's means of achieving its objectives.
c. is developed primarily at the same time the company is formed and then evolves slowly thereafter.
d. is aimed more at achieving strategic objectives than at achieving financial objectives.
e. tends to change less often and more slowly than either its strategic vision or its performance targets.
f. reflects managerial choices among alternatives and signals organizational commitment to particular products,
markets, competitive approaches, and ways of operating.
10. Crafting strategy involves outside-in strategic thinking and entrepeneurship because
a. company managers need to keep the strategy responsive to such outside drivers as changing buyer
preferences, the latest actions and moves of rivals, market opportunities and threats, and newly appearing
business conditions.
b. managers can't keep company strategy responsive to chances in the business environment unless they
exhibit entrepeneurship in studying market trends, listening to customers, figuring out ways to enhance the
company activities in new directions in a timely manner.
c. strategy is more adaptive and reactive than intended and planned.
d. good entrepeneurship and astute analysis of the external business environment are keys to a conservative,
risk-avers strategy.
e. shrewd diagnosis of changing market conditions and changing customer preferences and requirements is
one of the keys to keeping company strategies market-driven and customer-driven.
15. A company's long term direction, strategy, and approach to strategy implementation
are never final because
a. changes in the organization's internal or external situation fuel the need for strategic adjustments.
b. it is always incumbent on management to push for better company performance -- to find ways to improve
the existing strategy and how it is being executed.
c. strategic planners sometimes change their minds about what kind of long-range strategy is best for the
company to pursue.
d. the company's board of directors and senior executives may prefer to experiment with several different
strategies and implementation approaches to wee which works best.
e. ineffective strategic planning efforts seem to be the norm in so many companies.
16. The five task of strategic management
a. are best performed by professional strategic planners skilled in the use of strategic analysis techniques.
b. tend to be performed by the CEO in most companies.
c. are primarily the responsibility of a company's board of directors.
d. are best performed by senior executives, with the help and advice from strategic planners.
e. tend to require the involvement of senior managers, middle managers, and lower-echelon managers -- all
managers tend to have a role in the strategy-making, strategy-implementing process.
19. The role and tasks of strategic planners and strategic planning departments in the
strategic management process should consist of
a. helping to gather and organize information that strategy-makers need.
b. doing most of the strategic analysis for line managers and helping free line managers of the tedium of
thinking strategically.
c. taking lead responsibility for strategy-making and allowing line managers to have lead responsibility for
strategy implementation (so as to better fix responsibility for results).
d. working closely with key managers to prepare a sound strategic plan to submit to the board of directors for
final approval.
e. working closely with key managers to prepare a sound strategic plan to submit to the board of directors for
final approval.
20. The advantages of first-rate strategic thinking and conscious management of the
strategy-making, strategy-implementing process include
a. helping to unify the numerous strategy-related decisions made by managers across the organization.
b. creating a more proactive management posture and counteracting tendencies for decisions to be reactive
and defensive.
c. decreased risk of a failed strategic vision.
d. greater ability to out-innovate and out-maneuver rivals, thereby winning a sustainable competitive advantage.
e. raising managers' consciousness regarding the winds of market change, new opportunities, and threatening
developments.
6. Objectives
a. represent a managerial commitment to achieving specific performance outcomes by a certain time.
b. are needed for each key result that managers deem important to organizational success.
c. are best stated in general terms (maximize profits, reduce costs, increase sales) rather than quantifiable
terms (increase after-tax profits by 10% in 2 years, grow sales revenues by 20% annually) so that managers
will have the latitude to adjust target outcomes to levels that prove realistic and achievable.
d. should be aimed more at near-term targets than long-range targets because of the uncertainties associated
with setting long-range targets at realistic levels.
e. should place far more emphasis on financial targets than strategic targets.
7. Which of the following are good examples of strategic objectives (as opposed to
financial objectives)?
a. Achieve earnings growth of 10% annually
b. Increase market share from 17% to 22% within 3 years a c. Achieve the lowest overall costs of any producer
in the industry
d. Achieve a AA bond rating within 2 years
a e. Increase the return on invested capital from 13.5% to 15.0% within 2 years
f. Offer the broadest product line of any company in the industry
g. Be a recognized industry leader in technology and product innovations
8. Establishing and achieving strategic objectives merits very high priority on
management's agenda because
a. pursuing actions that strengthen a company's competitiveness and business position is one of the surest
paths to protecting and sustaining a company's profitability quarter after quarter and year after year.
b. a company's strategic performance is almost as important as a company's financial performance.
c. a company that consistently passes up opportunities to strengthen its long-term competitive position in order
to realize better near-term profitability risks diluting its competitiveness and losing momentum in its target
market.
d. well-chosen strategic objectives are essential to a well-crafted strategy.
e. a company can't have a shrewd strategic vision without having aggressive and competitively astute strategic
objectives.
9. Objectives
a. should be set at high enough levels to stretch an organization to reach its full potential.
b. are needed for the organization as a whole but not for separate businesses, product lines, functional areas,
or departments in order to keep the full attention of all employees and managers trained on achieving the
targeted levels of organization-wide performance.
c. should be set via a bottom-up process rather than a top-down process so as to involve a greater number of
employees.
d. should primarily have a short-range focus because well-chosen short-term objectives greatly reduce the need
for long-term performance objectives.
e. are needed for both the near-term and the long-term.
11. Business strategy (as distinct from corporate strategy, functional strategies, and
operating strategies)
a. concerns the pattern of moves and approaches crafted by management to produce successful performance
in one specific line of business.
b. is usually crafted personally by a company's CEO.
c. is chiefly concerned with HOW to build and strengthen the company's competitive position in a specific
business and market arena.
d. can be judged as powerful or weak depending on whether it has the capacity to produce a sizable and
sustainable competitive advantage or whether it results in competitive disadvantage.
e. is the result of what operating strategies and what functional strategies lower-level managers choose to
pursue.
15. The managerial task of uniting the strategy-making effort from the top to the bottom of
the strategy-making pyramid involves
a. more of a bottom-up process than a top-down process.
b. gaining broad consensus for and commitment to the organization's mission and vision, long-term direction,
and objectives.
c. harmonizing the separate layers of strategy and networking them into a cohesive, coherent, and mutually
reinforcing pattern.
d. exerting strong top-down direction-setting and strategic leadership so as to get lower-level managers to
perform their strategy-making tasks in a manner that is in accord with the company's vision, objectives, and
strategy rather than in a manner that suits departmental or personal interests.
e. a collaborative effort on the part of all managers to set performance targets and invent strategic actions in
their respective areas of responsibility that contribute directly to overall company objectives and strategy.
16. In contemplating what strategy to employ and what strategic actions to pursue,
management
a. can ethically pursue any strategic action that is legal.
b. has a duty to its employees to take into account the impact that strategy or a change in strategy has upon
employees and, where such impacts may be adverse or negative, to undertake such actions equitably,
compassionately, and with due process.
c. has a duty to see that the company's strategic actions are consistent with its being a good citizen in the
communities where it operates and to exercise care in the impact its strategic actions have on these
communities.
d. has no special duty or ethical obligation to customers beyond complying with legal requirements and
governmental regulations.
e. has a moral duty to pursue satisfactory profitability and an acceptable return on owners' investment.
18. In identifying the corporate strategy of a diversified company, one needs to consider
a. what kind of diversification (related, unrelated, or both) the company is pursuing.
b. if diversification is designed to create a strong corporate identity.
c. whether the company is diversifying broadly across many industries or is concentrating its efforts narrowly on
a few different industries.
d. the company's approach to vertical integration.
e. the company's R & D strategy.
f. recent moves to add new businesses to the company's portfolio and build new positions in attractive
industries.
g. whether it has made recent moves to divest weak or unattractive businesses.
h. the company's approach to allocating investment capital across its business units.
i. what kind of competitive approach the company is pursuing in each of its different businesses.
j. whether the company is trying to capture the synergy among related business units and turn it into competitive
advantage.
19. To identify the strategy for a single-business company, one needs to consider
a. whether the company's competitive approach is based on low cost/low price or differentiation (providing
attributes not found in rival brands) or focusing on a specific market niche.
b. the company's approach to allocating investment capital to each of its different activities.
c. the firm's geographic coverage, approach to vertical integration, and its collaborative partnerships and
alliances with others -- all of which combine to establish its competitive scope within the industry.
d. the key functional strategies being employed.
e. what the company is doing to deal with changing industry conditions and other emerging developments.
f. what it is doing to secure a competitive advantage.
g. how many different operating strategies the company has and what their key features are.
h. whether the strategy is ethical or unethical.
i. recent internal moves to change compensation methods.
20. The factors that shape the choice of company strategy can be grouped into 2 broad
categories - factors external to the company and factors internal to the company.
Below is a list of items that may or may not have great bearing on a company's choice
of strategy. If you deem an item is relevant to a firm's choice of what strategy to
employ, then classify it as an external factor (by marking as an "E") or as an internal
factor (by marking as an "I"). If the item is not relevant as a factor, the box should
remain blank.
Shared values and company culture.
How much the product is selling for.
Company opportunities and threats.
How long the product has been on the market industry attractiveness and competitive conditions.
Company resource strengths, resource weaknesses, competencies, and competitive capabilities.
Societal, political, regulatory, and community citizenship considerations.
The personal ambitions, business philosophies, and ethical principles of key executives.
How many strategy options or alternatives the company has.
Chapter 3 Self-Test
1. Industry and competitive analysis aims at developing probing answers to which seven of the following
questions?
a. How well is the company's strategy working?
b. What are the strategic plans of other competitors in the industry?
c. What are the industry's dominant economic features?
d. What key factors will determine competitive success or failure?
e. What are the drivers of change in the industry and what impact will they have?
f. What strengths, weaknesses, opportunities, and threats are evident in the industry environment?
g. What competitive forces are at work and how strong are they?
h. Who's likely to make what strategic and competitive moves next?
i. Which companies are in the strongest/weakest competitive positions?
j. How attractive is the industry in terms of its prospects for above average profitability?
6. Which of the following are generally considered to be barriers to entering a market or industry?
a. The presence of sizable scale economies and experience curve effects
b. The presence of more than 20 rivals already in the industry
c. A product that is pretty much standardized from rival to rival
d. Firms in the industry hold key patents and possess significant proprietary technology
e. The existence of tariffs, import quotas, and government-mandated regulations
f. Difficulty in gaining access to technology and specialized know-how
g. Buyer attachment to established brands
7. The competitive threat that outsiders will enter the industry is weaker when
a. entry barriers are high.
b. the industry's product is standardized.
c. incumbent firms are likely to fight vigorously to prevent a newcomer from siphoning off their customers and eroding their sales volume.
d. substitute products are not a strong competitive factor in the market.
e. newcomers will have a hard time earning attractive profits for several years following entry.
11. Whether the buyers of an industry's product have strong or weak bargaining leverage over the terms and
conditions of sale depends on
a. whether the costs of switching to substitute products are high or low.
b. whether the costs of switching to competing brands are high or low.
c. whether all buyers have the same degree of negotiating power.
d. whether buyers purchase in relatively large or small quantities.
e. whether buyer demand is sporadic or stable, seasonal or year-round, cyclical, or recession-proof.
12. Which of the following are NOT among the most common types of driving forces?
a. Product innovation
b. Shifts in buyer composition and the appearance of new ways of using the product
c. Ups and downs in interest rates and the stock market
d. Advances in technology and the diffusion of more technical know-how across the industry
e. Shifts in buyer preferences away from differentiated products to more or less standardized products
f. The decisions of one or more rivals to try to boost their market shares
g. A reduction in the prices of substitute products
15. Trying to determine what strategic moves rivals are likely to make next
a. is important because of its bearing on a company's own best strategic moves.
b. usually requires evaluating the industry's key success factors as well as how many driving forces are present.
c. involves scrutinizing which of the five competitive forces is strongest.
d. cannot be done effectively without first drawing a strategic group map.
e. entails understanding their strategies, monitoring their actions on a regular basis, gauging how well they are faring in the marketplace,
determining how much pressure they are under to improve their performance, and considering what their options are.
17. Important factors for company managers to consider in drawing conclusions about whether the industry is
an attractive or unattractive business to be in include:
a. whether competitive forces are likely to grow or diminish in strength.
b. the degree of uncertainty and risk in the industry's future.
c. the potential for entry/exit of major firms.
d. the company's ability to capitalize on the vulnerabilities of weaker rivals.
e. whether the company has strong competitive capabilities and is well positioned to improve its market standing and profitability.
21. If an industry has a learning/experience curve effect of 20% for each doubling of cumulative production
volume and if costs per unit are $2.00 for a cumulative production volume of 2 million units, then unit costs
would be $__(1)__ at a cumulative production volume of 4 million units and $__(2)__ at a cumulative
production volume of 8 million units.
1. ________________________
2. ________________________
22. The competitive structure of an industry is deemed _____(1)_____ from a profit-making standpoint if rivalry
among competing sellers is very strong, entry barriers are _____(2)_____, competition from substitutes is
strong, and at least some important suppliers and customers are in a position to exercise considerable
bargaining power.
1. ________________________
2. ________________________
23. _____________________are factors capable of creating significant incentives or pressures for fundamental
changes in an industry's structure and competitive environment.
24. Those industry rivals with similar competitive approaches and market positions comprise a ______________.
25. A sound strategy incorporates efforts to be competent on all industry __________________ and to excel on at
least on factor.
ANSWERS
1. c, d, e, g, h, i, j
2. a, d, f, g, h, i, j
3. a, b, e, f, g, h
4. b, c
5. c, e
6. a, d, e, f, g
7. a, c, e
8. a, b, e
9. d, e
10. a, b, c, d, g
11. a, b, d
12. c, f, g
13. a, d, e
14. b, d
15. a, e
16. b, c, f
17. a, b, c, e
18. c
19. c, d, e, f
20. a, b, c, e
21. (1) 1.50 (2) 1.28
22. (1) unattractive (2) low
23. Driving forces
24. strategic group
25. key success factors
Chapter 4 Self-Test
1. The weaker a company's financial performance and the less strong its competitive position, the more its
current strategy must be called into question.
True
False
2. A core competence gives a company competitive capability and qualifies as a genuine competitive strength,
but it does not qualify as a competitive advantage.
True
False
3. The importance of a distinctive competence to strategy-making rests with the competitively valuable capability
it gives a company, its potential for being a cornerstone of the company's strategy, and the competitive edge it
can potentially produce in the marketplace.
True
False
4. As a rule, company strategies should seek to exploit and leverage company capabilities and its most
competitively valuable resources; strategies that place heavy demand on areas where a company is weak or
has unproven ability should be avoided.
True
False
5. The overall competitive strength scores resulting from a competitive strength assessment provide indication
of net competitive advantage or disadvantage. Companies with higher overall strength ratings have a net com-
petitive advantage over rivals with lower scores, with size of the advantage being a function of the sizes of the
differences in the overall strength ratings.
True
False
6. Company situation analysis focuses on developing solid, probing answers to which of the following questions:
a. What should the company's strategy be?
b. How strong is the company's competitive position relative to its rivals?
c. What does the company's value chain look like?
d. Are the company's prices and costs competitive?
e. Does the company need to pursue benchmarking and activity-based costing?
f. What are the company's resource strengths and weaknesses and its external opportunities and threats?
g. How well is the present strategy working?
h. What strategic issues does the company face?
i. What is the company's competitive environment like --does it confront strong, moderate, or weak competition?
7. Which of the following are criteria for evaluating the performance of a company's present strategy?
a. The company's market share ranking and whether its share is trending up, down, or staying more or less the same
b. Whether the company has at least two core competencies
c. Whether the company's internal strengths and competitive capabilities outweigh its internal weaknesses and competitive vulnerabilities
d. Whether the company's profit margins are increasing or decreasing and how large they are relative to other firms in the industry
e. Whether the company's sales are growing faster or slower than the industry as a whole
f. The firm's image and reputation with customers
g. How many strategic issues the company faces and how serious they are
h. Whether the company is regarded as a leader in some significant area (technology, product quality, service, product innovation, and so on)
i. Whether the firm's value chain is longer or shorter than rivals
j. How strong the company's advertising and promotional programs are relative to those of close rivals
8. The task of sizing up a company's internal resource strengths. and weaknesses and its external opportunities
and threats
a. is called SWOT analysis.
b. provides an overview of whether a firm's strategic situation is fundamentally healthy or unhealthy.
c. helps provide a basis for matching the company's strategy to the company's situation.
d. is the most important part of figuring out how many and what kind of strategic issues and problems the company's management needs to
address.
e. is best done after a thorough competitive strength assessment so that the identification of company strengths, weaknesses, opportunities, and
threats will be easier and more accurate.
9.A company strength
a. is something the company is good at doing or a characteristic that gives it enhanced competitiveness.
b. usually takes the form of a skill/competence or a physical asset.
c. can be a valuable human, organizational, or intangible asset.
d. can result from different company resources teaming together to create a competitive capability. a e. can stem from a competitively important
alliance or cooperative venture.
f. is any kind of company asset that results in a company having a sustainable competitive advantage (otherwise it is not really a strength).
10. For a particular company resource to qualify as the basis for sustainable competitive advantage, it must
a. be hard to imitate.
b. be the company's biggest balance sheet asset.
c. be a physical asset, not a human asset.
d. really be competitively superior.
e. not be readily trumped by different resources/capabilities of rivals.
f. be long-lasting.
g. be tangible rather than intangible.
11. The market opportunities that are most relevant to a company are
a. those best able to assist in correcting the company's competitive weaknesses.
b. those which it has the financial and organizational resources to pursue.
c. those that offer important avenues for growth.
d. those that create defenses against external threats.
e. those where the company has the greatest potential for competitive advantage.
13. Benchmarking
a. is a manager's best tool for determining whether a company is performing particular value chain activities and functions efficiently.
b. is a tool for determining whether a company's costs for particular value chain activities are in or out of line with competitors.
c. is inherently unethical if it is done with companies that are direct competitors.
d. can often be done with the aid of third-party organizations so as to protect the confidentiality of individual company data.
e. is not a valid tool for measuring the cost-effectiveness of an activity unless it is restricted to companies in the same industry.
19. The purpose of developing a list of the strategic issues a company faces is
a. to draw conclusions about the strengths and weaknesses of company's present strategy.
b. to determine whether it has a distinctive competence.
c. to highlight the weaknesses in its competitive market position and to draw conclusions about whether the firm has a net competitive advantage or
disadvantage.
d. to help decide whether the firm needs to shorten or lengthen its value chain in order to better position itself in the marketplace.
e. to develop an agenda for management action.
20. A company's strategic options for overcoming cost disadvantages in the forward (downstream) end of its
overall value chain system include
a. pressuring distributors and other forward channel allies to reduce their costs.
b. working closely with forward channel allies to alter practices and procedures in ways that achieve mutually beneficial cost reductions.
c. integrating forward to gain better control over the costs of downstream activities. a d. shifting to activity-based costing.
e. cutting prices enough to eliminate the cost disadvantage in the forward end of the value chain.
22. involves comparing a company's costs, activity by activity, against the costs of key
rivals and identifying which internal activities are a source of cost advantage or disadvantage.
23. A company's identifies the activities, functions, and business processes that are
performed in designing, producing, marketing, delivering, and supporting its product(s) or service(s).
24. focuses on cross-company comparisons of how well basic functions, activities, and
processes in a company's value chain are performed relative to other companies and organizations.
25. entails developing cost estimates for specific tasks and activities in a company's
value chain; the cost data it provides is substantially different from traditional approaches to cost
accounting.
ANSWERS
1. T
2. T
3. T
4. T
5. T
6. b, d, f, g, h
7. a, d, e, f, h
8. a, b, c
9. a, c, d, e
10. a, d, e, f
11. b, c, e
12. a, g
13. a, b, d
14. b
15. a, b, c
16. e, f
17. a, d, e, f, g, h, j
18. a, b, c, d, e
19. a, e
20. a, b, c
21. distinctive competence
22. strategic cost analysis
23. value chain
24. benchmarking
25. activity-based costing
Chapter 5 Self-Test
12. The characteristics of a focused strategy based either on low-cost or differentiation include
a. concentrating on a narrow piece of the total market.
b. striving for a competitive advantage based on doing a better job than competitors of serving buyers in the target market
niche.
c. the use of guerrilla offensives to capture customers.
d. trying to wrest market share away from rivals via extra advertising, above-average expenditures for promotional programs,
and heavy use of point-of-sale merchandising techniques.
e. an emphasis on using backward vertical integration to satisfy the specialized requirements of niche members.
17. A strategic offensive aimed at going head-to-head against key competitors to match or beat their strengths
a. may be an attractive way of winning market share away from weaker rivals whose strengths and resources can be
outmatched.
b. may be unavoidable if the competitive advantage of a stronger rival is to be narrowed or whittled away entirely.
c. nearly always should involve cutting price below those charged by the rivals being targeted.
d. is the least risky and most-likely-to-succeed of all of the various types of offensive strategies.
e. stands the best chance of succeeding if it is predicated on either a cost advantage or an equal-or-better product offering;
otherwise the offensive is probably destined to hurt profitability because of the extra costs of supporting such an offensive.
18. Guerrilla offensives
a. are particularly well-suited offensives for market leaders to wage against small challengers.
b. utilize the principle of surprise and the principle of hit-and-run.
c. are an excellent offensive tactic for going after market share in markets comprised of many different buyer segments,
because a guerrilla can randomly go after buyers in different market segments to confuse rivals as to what segment the
guerrilla is really interested in.
d. can aim at buyer groups that are not important to larger rivals or at buyers whose loyalty to rival brands is weakest.
e. frequently involve expanding capacity ahead of rivals in hopes of bluffing out rivals from following with expansions of their
own.
f. work best when aimed at attracting the business of the most prestigious customers.
g. can aim at areas where particular rivals are overextended or have spread their resources so thinly as to be temporarily
vulnerable.
21.A company has whenever it has an edge over rivals in attracting customers and
defending against competitive forces.
22. The Achilles heel of alliances and cooperative strategies is the danger of on
other companies for essential expertise and capabilities over the long term.
23. Competitive advantage is nearly always achieved by launching successful (1) strategies;
(2) strategies can protect competitive advantage but rarely are the basis of achieving it.
24. An strategy seeks to avoid head-on competitive challenges (tied to such tactics
as aggressive price-cutting, escalated advertising, or efforts to out-differentiate rivals) and, instead, involve
maneuvering around competitors by aggressively entering unoccupied or less contested market territory by
introducing next-generation products and/or technologies so as to gain first-mover advantages.
25.A strategy involves moving first to secure an advantageous position that rivals
are foreclosed or discouraged from duplicating.
ANSWERS
1. b, c, e, f, g
2. a, d, e, f
3. b, c, d
4. a, b, e
5. a, b, d, f, g
6. a, c, e
7. a, d, f, g, h
8. b, c, d, e, f, h
9. a, b, d, e
10. b, c, d
11. a, e, f
12. a, b
13. a, b, c, d, f
14. a, g, h
15. b, c, d, e, f, i
16. a, b, f, g
17. a, b, e
18. b, d, g
19. a, d, e, f
20. d, g, h
21. competitive advantage
22. becoming dependent
23. (1) offensive (2) defensive
24. end-run offensive
25. preemptive
strike
Chapter 6 Self-Test
1. Competing in emerging industries
a. poses the strategy-making challenge of dealing with uncertainties about how the market will function, how fast it will grow,
and how big it will get.
b. is frequently difficult because of little data and little consensus about which of several competing technologies will win out
and/or which product attributes will ultimately gain the most buyer favor.
c. is less risky than competing in maturing industries.
d. is usually more profitable than competing in either globally competitive industries or industries where market demand is
stagnant or even declining.
e. typically involves high entry barriers and small learning/experience curve effects.
f. generally requires participants to wrestle with (1) how to finance the start-up phase, (2) what market segments to pursue,
and (3) what -kind of competitive advantage to build.
g. usually entails risk-taking entrepeneurship, a bold strategy (often keyed to product superiority), efforts to capture first-mover
advantages and preparing to defend against new entry by profit-seeking outsiders.
Chapter 7 Self-Test
1. The task of crafting corporate strategy for a diversified company concerns
a. making strategic moves to position the company in the industries chosen for diversification.
b. initiating actions to improve the combined performance of the businesses the firm has diversified into.
c. selecting ways to standardize the geographic scope over which all of the company's businesses compete.
d. deciding whether to standardize the manufacturing and marketing approaches used in each business so as to capture
strategic fit benefits.
e. establishing investment priorities and steering corporate resources into the most attractive business units.
2. Companies that are prime candidates for diversifying into new businesses include
a. single business enterprises with diminishing growth prospects in their present business.
b. firms that are fully integrated in a fragmented industry.
c. those with competencies and capabilities that are readily transferable to other businesses.
d. those with the financial resources and managerial depth to expand into other industries.
e. weakly positioned companies in slow-growth industries.
f. those who have competitors that are diversifying.
g. firms that have 25% or greater market shares in their present business.
3. Diversification results in enhanced shareholder value when
a. the company's profits are higher after diversification than before diversification.
b. the company's return on shareholder equity is higher after diversification than before diversification.
c. the industries chosen for diversification are growing faster than the company's present business.
d. diversification results in bigger market shares.
e. the businesses a company has diversified into perform better as part of the same firm than they could have performed as
independent companies.
4. Whether a particular diversification move is capable of enhancing share-holder value can be evaluated via
a. the attractiveness test.
b. the acquisition test.
c. the entry barrier test.
d. the cost-of-entry test.
e. the competition test and the return-on-investment test.
f. the better-off test.
g. the synergy test and the financial test.
5. The strategic options for a company that elects to diversify include
a. expanding into new geographic areas.
b. expanding into a group of geographically related country markets.
c. building positions in related businesses.
d. acquiring a number of companies in businesses that are unrelated to its present business so as to spread its investment risk
across many industries.
e. pursuing a combination of related and unrelated diversification.
f. partial or full vertical integration.
g. expanding its product line to include a much broader and more diverse selection for customers.
6. Acquisition of an existing business
a. is the most popular means of diversifying into another industry.
b. is usually more costly than entering via internal start-up.
c. poses the problem of whether to buy a successful company at a high price or a struggling company at a bargain price.
d. has the advantage of quicker entry into the target market (as compared to internal start-up).
e. is the toughest option for diversifying in a manner that passes the synergy test for enhanced shareholder value.
f. is the most profitable way to enter a new industry.
g. is usually a more profitable way of entering a new business/industry than via a joint venture or strategic alliance with another
company.
7. The big drawbacks to entering a new industry via internal start-up include
a. passing the attractiveness test for enhanced shareholder value.
b. the costs of overcoming entry barriers.
c. passing the better-off test for enhanced shareholder value.
d. the reduced opportunities for capturing strategic fit benefits.
e. the extra time it takes to build a strong and profitable competitive position.
8. Joint ventures are an attractive way to enter new businesses when
a. it is uneconomical or risky for a company to undertake entry on its own
b. pooling the resources and competencies of two or more independent organizations produces a venture arrangement with
more of the skills and resource strengths needed to be a strong competitor.
c. partners with different objectives and strategies can be found.
d. the partners have closely related value chains.
e. such ventures help surmount import quotas, tariffs, other trade restrictions, nationalistic political interests, and cultural
roadblocks.
9. A related diversification strategy
a. involves diversifying into businesses whose value chains have appealing strategic fits.
b. is attractive because of the opportunity to turn strategic fits into competitive advantage.
c. exploits economies of scale whereas an unrelated diversification strategy exploits economies of scope.
d. offers more competitive advantage potential than an unrelated diversification strategy.
e. is usually based on market-related strategic fit rather than operating fits or management fits.
10. The competitive advantage potential of related diversification
a. stems from greater degrees of industry attractiveness than is found with unrelated diversification.
b. can come partly from the ability to transfer expertise or capabilities or technology from one business to another.
c. stems partly from opportunities to combine the related activities of separate businesses into a single operation and reduce
costs.
d. can come from opportunities to leverage use of a company's brand name reputation in new businesses.
e. can stem from opportunities to capture economies of scope.
f. can emerge from collaborative performance of related value chain activities so as to produce valuable new competitive
capabilities.
11. While strategic fit relationships can occur throughout the value chains of different businesses,
a. distribution and customer-related strategic fits are the most common and offer the best potential for economies of scope.
b. most fits are manufacturing-related.
c. most fits fall into the categories of being market-related, technology related, operating-related, or management-related.
d. operating fits tend to be most important, market fits second most important, management fits third most important, and
technology fits fourth most important.
e. most companies prefer to concentrate on technology-related fits and capturing the benefits of skills transfer because of the
greater chances of success and the big payoff in gaining a technology-based competitive advantage.
12. A strategy of unrelated diversification
a. involves a willingness to diversify into any industry or business that holds promise for attractive financial gain.
b. has appeal from the standpoint of diversifying business risk over a set of diverse industries.
c. can offer the potential of stable profits (because hard times in one industry may be offset by good times in another).
d. is generally more profitable than related diversification because financial resources can be directed to industries where profits
are highest rather than restricting investments to industries with strategic fits.
e. involves paying less attention to the attractiveness and cost-of-entry tests than does a related diversification strategy.
f. has appeal from the standpoint of avoiding too many diverse kinds of strategic fits.
13. The drawbacks to unrelated diversification include
a. the inability to pursue joint ventures.
b. the greater business risk.
c. the difficulties of competently managing many unrelated businesses.
d. the absence of added competitive advantage that the presence of strategic fit provides.
e. having to divest businesses which don't work out as planned.
f. too much diversity in the strategic fits among the different businesses.
14. For unrelated diversification to result in enhanced shareholder value, corporate managers
a. must pursue acquisition opportunities in many different kinds of industries both to broadly diversify financial risk and to
stabilize earnings.
b. must pursue multinational diversification.
c. must do a superior job of overseeing the firm's subsidiaries and contributing to how they are managed such that the
businesses perform at a higher level than they could achieve as stand-alone operations.
d. must do a superior job of diversifying into industries and businesses that can produce consistently good returns on
investment.
e. must do an excellent job of negotiating favorable prices in acquiring the companies chosen for the diversification effort.
f. must be shrewd in selling previously-acquired businesses at their peak and getting premium prices (before it becomes clear to
outsiders that the business probably faces eroding long-term profitability).
g. have to aggressively shift corporate resources out of businesses where profit prospects are dimming and into businesses
where there are high returns on investment and potential for rapid profit growth.
15. Which of the following accurately characterize approaches to shareholder value via diversification?
a. Unrelated diversification is an easier and safer way to build shareholder value than is related diversification.
b. Related diversification seeks to build shareholder value by converting the strategic fits among related businesses into an extra
measure of competitive advantage and using this advantage to achieve better profitability and long-term performance.
c. With unrelated diversification, a company's competitive advantages do not extend beyond what each business is able to
achieve on its own.
d. Unrelated diversification involves less competitive risk than related diversification because the competitive positions of
different businesses are not linked together by strategic fit.
e. Creating shareholder value via unrelated diversification is predicated on shrewd deployment of corporate financial resources
and executive skill in spotting financially rewarding business opportunities.
16. Divestiture of an existing business operation
a. can involve selling the business unit outright to a willing buyer.
b. can involve spinning the business off as a financially and managerially independent company in which the parent company
may or may not retain partial ownership.
c. becomes an attractive strategic option when the business's profit prospects sour or when it no longer fits in with the parent
company's long-term direction and overall corporate strategy.
d. is a last resort strategic option because it almost always means taking a large asset writeoff.
e. merits consideration anytime top management concludes it can sell it for more than its original acquisition cost.
17. Portfolio restructuring
a. involves revamping a diversified company's business makeup through a series of divestitures and new acquisitions.
b. is the most-used technique of shifting from a related diversification strategy to an unrelated diversification strategy.
c. merits consideration when a diversified company's long-term performance prospects are poor due to a business portfolio
comprised of too many slow-growth, declining, or competitively weak businesses.
d. focuses on efforts to restore money-losing businesses to profitability instead of divesting them.
e. is usually undertaken when corporate management concludes that the company is in too many businesses and needs to
concentrate its efforts on a few core businesses.
18. Multinational diversification strategies
a. are complex because they involve both a diversity of businesses and a diversity of national markets.
b. usually are predicated on unrelated diversification approaches rather than related diversification approaches.
c. are potentially powerful when built around related diversification.
d. are ill-suited for capturing economies of scope.
e. are ill-suited for creating multiple profit sanctuaries.
f. offer potent advantages for out-competing a one-business domestic company.
g. offer potent advantages for out-competing a one-business multinational company.
19. The sources of competitive advantage for a DMNC include
a. transferring expertise in a core technology to related products and businesses (as Honda has done).
b. concentrating on related global industries where there are strategic fits that produce economies of scope and that offer brand
name transfer benefits.
c. superior product quality.
d. superior customer service.
e. greater potential to employ cross-subsidization tactics against one business domestic competitors and one-business
multinational competitors.
f. a lower risk of asset write-offs in divesting poorly-performing business units.
g. less risk that any one business will fall upon hard times.
h. leveraging its brand name by diversifying into businesses able to use the same brand.
20.A one-business domestic company is weakly positioned to defend its market position against a determined,
aggressive DMNC because
a. diversification is a more powerful strategy than single-business concentration.
b. it has only one profit sanctuary (its home market), which leaves it vulnerable to low prices from a DMNC with multiple profit
sanctuaries.
c. the DMNC may have economy-of-scope advantages growing out of a related diversification strategy.
d. the DMNC can use financial resources generated from its other businesses to fund a long-term competitive offensive in the
domestic company's home market and gradually sap the domestic company's financial strength (by eroding the size of its
home market profit sanctuary).
e. it is more vulnerable to economic recessions.
21. Which of the following are strategic options for improving a diversified company's performance?
a. Acquire new businesses
b. Divest weak-performing businesses
c. Employ portfolio restructuring
d. Retrench to a narrower diversification base
e. Pursue multinational diversification
f. Pursue greater value chain diversity and make sure all businesses that the firm diversifies into pass the competition test and
the profit test
g. Pursue turnaround strategies for poorly performing businesses in the company's business lineup
22. For a potential diversification move to pass the test, the diversifying
company must bring added potential for competitive advantage to the new business it enters or the new
business must offer added competitive advantage potential to the company's present business.
23. (1) exists when different businesses have sufficiently
related (2) that there are opportunities for skills transfer and cost-reduction, thus
forming a basis for competitive advantage.
24. arise from the ability to eliminate costs by operating two or more
businesses under the same corporate umbrella.
25. Related diversification represents a (1) approach to building shareholder value
whereas unrelated diversification is principally a (2) approach to creating shareholder
value.
ANSWERS
1. a, b, e
2. a, c, d
3. e
4. a, d, f
5. c, d, e
6. a, c, d
7. e
8. a, b, e
9. a, b, d
10. b, c, d, e, f
11. c
12. a, b, c
13. c, d
14. c, d, e, f, g
15. b, c, e
16. a, b, c
17. a, c
18. a, c, f, g
19. a, b, e, h
20. b, c, d
21. a, b, c, d, e, g
22. better-off
23. strategic fit, value chains
24. economies of scope
25. strategic, financial
Chapter 8 Self-Test
1. For a diversified company to be a strong performer a substantial portion of its revenues and profits must come
from business units judged to be in attractive industries.
True
False
2. In arriving at quantitative measures of an industry's attractiveness, it is weak methodology to use an
unweighted rating system and assume that the various measures of industry attractiveness are equally
important.
True
False
3. Relative market share is a better indicator of a business's competitive strength and market position than is
absolute market share.
True
False
4. Relative market share is calculated by dividing a company's market share by the market share of its largest
rival.
True
False
5. Shareholder interests are generally best served by concentrating corporate resources on businesses that can
contend for market leadership in their industries.
True
False
6. One factor to consider in determining the attractiveness of an industry that that a company has diversified into
is whether it has valuable strategic fit relationships with other industries represented in the company's busi-
ness portfolio.
True
False
7. Firms emphasizing related diversification should divest businesses with little or no strategic fit unless these
businesses are unusually good financial performers or offer superior growth opportunities.
True
False
8. The businesses in a diversified company's portfolio exhibit good resource fit when they add to a company's
resource strengths (either financially or strategically) and when the company has the resources to support the
requirements of its businesses without stretching itself too thinly.
True
False
9. In deciding whether to divest a business unit, corporate managers should rely primarily on whether the
business is a cash hog or a cash cow -- cash hogs should nearly always be divested; cash cows should almost
never be divested.
True
False
10. A cash hog business is one whose internal cash flows are not big enough to cover annual capital
requirements and thus requires regular infusions of financial capital; a cash cow business is one which
generates positive cash flows more than sufficient to cover its annual capital requirements.
True
False
11. To identify a diversified company's strategy, one needs to consider
a. the extent to which the firm is diversified.
b. the makeup of the value chain of each business the firm has diversified into.
c. whether the firm is pursuing related or unrelated diversification, or a mixture of both.
d. what strategic group each of the firm's businesses is in.
e. whether the scope of company operations is mostly domestic, increasingly multinational, or global.
f. recent moves to add new businesses or divest weak or unattractive businesses.
g. how the company is allocating investment capital and resources among its various businesses.
h. the strength of the five competitive forces in each industry the firm operates in.
12. To evaluate the overall attractiveness of the industries a company has diversified into, it is important to
a. do a SWOT analysis of each industry.
b. draw a strategic group map for each industry.
c. consider the attractiveness of each industry from the standpoint of whether it represents a good business for the company to be
in.
d. prepare a value chain analysis of each industry.
e. evaluate each industry's attractiveness relative to the others.
f. consider how appealing the mix of industries is as a group.
g. determine the strategic fits among the key success factors of each industry the firm is in.
13. Which of the following are pertinent in evaluating the attractiveness of a particular industry that a company
has diversified into?
a. The intensity of competition
b. How many firms in the industry are fully vertically integrated
c. What competitive strategy each industry rival has adopted
d. Emerging industry opportunities and threats
e. Resource requirements
f. Seasonal and cyclical factors
g. The number of strategic groups in the industry
h. Industry profitability
i. The degree of risk inherent in being in the industry
j. Whether the industry has special environmental, regulatory, social, or human impact problems
14. Developing quantitative ratings of which of a diversified company's industries are most attractive and least
attractive involves
a. selecting an appropriate set of industry attractiveness measures.
b. determining the makeup of each industry's value chain.
c. assigning weights to each of the industry attractiveness measures.
d. rating each industry on each attractiveness measure (using a 1 to 5 or 1 to 10 rating scale).
e. multiplying the rating by the assigned weight to get a weighted attractiveness rating.
f. summing the weighted attractiveness ratings to obtain an overall attractiveness rating.
g. using the overall ratings to draw a strategic group map for the industry
h. deciding whether an industry is attractive or unattractive based on its position on the industry strategic group map.
15. The more that a diversified company's business portfolio includes subsidiaries with competitively valuable
strategic fits, the greater is its potential for
a. realizing positive cash flows and being a cash cow.
b. realizing economies of scope.
c. enhancing the competitive capabilities of particular business units. a d. achieving a combined performance greater than the
subsidiaries could achieve operating as an independent company.
e. having the best value chain of any of the rivals against which it competes.
f. having more profit sanctuaries than rivals.
16. Critiquing a diversified company's strategy, assessing its business makeup, and deciding how to improve the
competitive strength and performance potential of its businesses involves
a. applying the cost-0f-entry test.
b. doing a SWOT analysis.
c. drawing a strategic group map.
d. evaluating the long-term attractiveness of each industry the company is in.
e. evaluating the competitive strength of the company's business units to determine which are really strong contenders in their
industries.
f. doing a five forces analysis.
g. determining the competitive advantage potential of any value chain relationships and strategic fits among existing business
units.
h. rating each business unit on the basis of how well it has performed recently and how good its future performance is likely to be.
i. ranking the business units in terms of priority for new investment. identifying cross-subsidization opportunities.
17. The 9-cell industry attractiveness-business strength matrix
a. uses quantitative measures of long-term industry attractiveness and business strength/competitive position to plot each
business's location.
b. stresses giving top priority to businesses having strong competitive positions in industries with high long-term attractiveness.
c. provides real guidance as to the specific strategy actions which need to be taken in each business based on its position in the
industry.
d. is a useful tool for displaying which businesses offer the best strategic fit and resource fit. a e. is a useful tool for gauging the
overall attractiveness of a diversified company's collection of businesses.
18. To arrive at a quantitative measure of business strength/competitive position each business unit in a
diversified company should be rated on the basis of such factors as
a. relative market share.
b. ability to compete on price and/or quality and/or service.
c. how well the business unit's competencies and competitive capabilities match industry key success factors.
d. growth in revenues and profits over the last five years.
e. brand name recognition and reputation.
f. which business has the best strategy.
g. profitability relative to competitors.
h. technology and innovation capabilities.
i. degree of bargaining leverage with suppliers and customers.
19. To determine whether a business fits well strategically in a diversified company's business portfolio, it is
useful to consider whether
a. a business unit has valuable strategic fit with other businesses in the portfolio.
b. the business has a relative market share above 50%.
c. it has the same strategic objectives as other businesses in the portfolio.
d. it is pursuing the same basic competitive strategy as other businesses in the portfolio.
e. the business matches well with the company's long-term strategic direction and can contribute to achieving the company's
strategic vision.
20. The most important considerations in comparing the performance of different businesses in a diversified
company's portfolio are
a. sales growth.
b. profit growth. D c. the debt-to-assets ratio.
d. inventory turnover ratios.
e. percentage contribution to the company's total earnings.
f. the number of core competencies and distinctive competencies each business unit has.
g. the return on capital invested in the business.
h. relative product quality.
i. cash flow generation.
j. the relative number of customers and percentage growth in the customer base.
21. Ranking a diversified company's businesses in terms of priority for new capital investment
a. should be done principally on the basis of relative long-term industry attractiveness and secondarily on the basis of strategic fit
with other businesses.
b. should be based on how much it will take to substantially enhance the competitive standing of each business; attempts should
then be made to fund as much of the needed investments as possible, starting with the business needing the smallest
amount and proceeding to the business needing the largest amount.
c. should be based primarily on strategic fit considerations and long-term growth potential.
d. should be based chiefly on relative competitive strength, recent performance and potential for achieving high positive cash
flows.
e. should take into account all those business aspects relevant to deciding whether a business's outlook and prospects are
excellent, good, fair, or poor; as a general rule, corporate managers should concentrate company resources on businesses
with excellent to good prospects and invest minimally, if at all, in businesses with sub-par prospects.
22. If a diversified company cannot realistically hope to achieve its performance objectives with its current lineup
of businesses, then it can try to close the performance gap by
a. divesting weak-performing or money-losing businesses.
b. adding new businesses to the corporate portfolio.
c. issuing more shares of common stock and using the proceeds to pay off corporate debt.
d. lowering corporate performance objectives.
e. revising the strategic plans of some or all of the businesses in the portfolio to get better performance out of existing businesses.
f. forming strategic alliances or collaborative partnerships to try to remedy the conditions responsible for underperformance.
g. upgrading the company's resource base.
23. In the case of companies with an unrelated diversification strategy, decisions to add more unrelated
businesses to the portfolio lineup tend to be based on
a. the company's financial ability to make another acquisition.
b. whether new acquisitions are needed to boost overall corporate performance.
c. whether the timing is right for another acquisition.
d. whether there are pressing acquisition opportunities that need to be acted on immediately (to avoid being lost altogether).
e. identifying a business to divest so as to make room in the portfolio for a new acquisition.
f. whether corporate management believes it possesses the range and depth of expertise to take on the supervision of an
additional business.
24. Corporate strategy in major enterprises
a. tends to be crafted all at once in comprehensive fashion, following a full-scale portfolio review.
b. usually emerges incrementally, a step at a time, as confidence and consensus build for what strategic moves need to be made
and as attention and resources are concentrated on a few critical thrusts that integrate corporate direction, objectives, and
strategies.
c. changes more slowly than in single-business enterprises because it is harder to make adjustments in corporate strategy than in
business strategy.
d. tends to be more driven by financial considerations than by strategic fit and competitive advantage considerations.
e. requires more formal analysis and brainstorming than is typically required in single-business enterprises because fitting the
pieces of corporate strategy together is more complex than fitting the pieces of business strategy together.
25. In reviewing a diversified company's portfolio and deciding on what strategic moves are needed to improve
overall corporate performance, one needs to consider such factors as whether
a. the company has enough businesses in very attractive industries.
b. the company's business mix is over-weighted with marginally performing businesses, question marks, slow-growth businesses,
or businesses in decline.
c. the company has the financial strength to support the new investment needs of its businesses.
d. the portfolio contains businesses that the company really doesn't need to be in.
e. corporate performance is being dragged down by businesses that are in average-to-weak competitive positions.
f. the makeup of the business portfolio puts the company in good position for the future.
ANSWERS
1. T
2. T
3. T
4. T
5. T
6. T
7. T
8. T
9. F
10. T
11. a, c, e, f, g
12. c, e, f
13. a, d, e, f, h, i, j
14. a, c, d, e, f
15. b, c, d
16. d, e, g, h, i
17. a, b, e
18. a, b, c, e, g, h, i
19. a, e
20. a, b, e, g, i
21. e
22. a, b, d, e, f, g
23. a, b, c, d, f
24. b
25. a, b, c, d, e, f
Chapter 9 Self-Test
1. The multi-skill, multi-activity character of core competencies makes building and strengthening them an
exercise in managing human skills, intellect, and knowledge bases and in networking the efforts of different
workgroups and departments.
True
False
2. One of the first strategy-implementing steps is to put together a solid management team with good personal
chemistry and the mix of experiences, skills, and know-how to implement and execute the strategy.
True
False
3. Of all the different organizational structures, a functional structure has the best overall advantages, the
easiest-to-overcome disadvantages, and the best fit with most strategies.
True
False
4. Reengineering is an organizational tool to reduce business process fragmentation and to cut bureaucratic
overheads.
True
False
5. A decentralized business unit structure is the best organizational arrangement for coordinating the related
activities of related businesses.
True
False
6. Implementing strategy
a. is a task that must be done by the chief executive officer and the heads of major organizational units (business divisions,
functional departments, and key operating units).
b. involves leading, working with others, allocating resources, building and strengthening competitive capabilities, and matching
how the organization performs value chain activities to the requirements for good strategy execution.
c. is easier and less time-consuming than crafting strategy.
d. is a job for the whole management team, not a few senior managers, because every manager needs to be concerned with what
has to be done in his/her area of authority to implement the company's strategy successfully.
e. can be considered successful if the organization achieves its strategic and financial objectives.
f. tests a manager's ability to direct organizational change, motivate people, achieve continuous improvement in strategy-critical
business processes, and meet or beat performance targets.
7. The principal management tasks in implementing strategy include
a. creating a strategy-supportive work environment and corporate culture.
b. reducing the layers of management to a bare minimum.
c. building an organization with the competencies, capabilities, and resource strengths to carry out the strategy successfully.
d. making sure that employees are empowered.
e. establishing strategy-supportive policies and procedures.
f. developing budgets to steer ample resources into those value-chain activities critical to strategic success.
g. monitoring the actions of competitors.
h. installing information, communication, and operating systems that enable personnel to carry out their strategic roles proficiently.
i. tying rewards and incentives to the achievement of performance objectives and good strategy execution.
j. exerting the internal leadership needed to drive implementation forward and to keep improving on how the strategy is being
executed.
8. The organization-building actions most relevant to competent strategy execution are
a. delegating authority to down-the-line managers and employees.
b. effectively and persuasively communicating the case for organizational change to managers and employees.
c. selecting able people for key positions.
d. organizing business processes, value-chain activities, and decision making in a manner conducive to successful strategy
execution.
e. avoiding business process fragmentation.
f. using team-based organization structures.
g. making certain that the organization has the skills, core competencies, managerial talents, technical know-how, resource
strengths, and competitive capabilities it needs.
h. employee empowerment, de-layered management hierarchies, and the reengineering of core business processes for greater
efficiencies.
9. Building core competencies and competitively valuable capabilities in per- forming one or more
strategy-critical activities in the value chain
a. can yield a sustainable competitive advantage over rivals by providing a basis for superior strategy execution.
b. should be the first thing managers do in establishing an organizational structure.
c. requires spending more money on developing competence-related capabilities than competitors.
d. is primarily the responsibility of the employee training department and first-line supervisors.
e. is basically a team-building exercise.
f. is an exercise that is best orchestrated by senior managers with the clout to enforce the necessary networking and collaboration
among individuals, groups, departments, and external allies.
g. is an ongoing task rather than a one-time event.
h. is an inside organization-building challenge, not one where outsiders (suppliers, strategic) allies ought to have an important
role.
i. can sometimes be accomplished through collaborative efforts with external allies and/or by acquiring or merging with another
company.
10. Core competencies and competitively valuable organizational capabilities
a. usually emerge from the specialized skills or work efforts of a single department.
b. can be leveraged into competitive advantage by concentrating enough talent, resources, and management attention on
deepening and strengthening them to ultimately achieve dominating depth.
c. typically emerge from networked and coordinated skills and efforts performed at different value chain locations.
d. can usually be imitated or duplicated by rivals within less than a year, provided they exert concerted effort.
e. need to be an organization-building responsibility of senior managers.
f. that are finely honed and kept current with shifting circumstances can provide a big executional advantage.
g. are more effective when developed in partnership with key suppliers and other strategic allies.
11. Employee training and retraining
a. tends to be strategically important in organizational efforts to create skills-based competencies.
b. is a function that the CEO needs to personally supervise and have responsibility for.
c. are a key strategy-implementing activity in businesses where technical know-how is changing so rapidly that a company loses its
ability to compete unless its skilled people have cutting-edge knowledge and expertise.
d. come into play primarily when core business processes need to be reengineered, thus creating altogether different kinds of jobs
that present employees now have to perform.
e. merit high-priority on the strategy-implementing agenda when a firm revises its strategy in ways that call for new skills or
different know-how.
12. To organize the work effort in a strategy-supportive fashion and fit organizational structure to strategy,
a. those primary activities and key tasks in the value chain that are pivotal to successful strategy execution and are performed
internally should be made the main building blocks in the organization structure.
b. all facets of a strategy-critical business process must be placed under the authority of a single manager.
c. all strategy-critical value-chain activities need to be performed internally rather than out-sourced.
d. support activities should be centralized and primary activities should be decentralized.
e. reporting and coordinating arrangements for support activities need to be woven into an organizational design that facilitates
enhanced performance of strategy-critical value chain activities.
f. It is often both desirable and cost effective to partner with outsiders to add to a company's arsenal of competitive capabilities
and to perform strategy-critical value chain activities.
Chapter 10 Self-Test
1. Cost-effective strategy implementation requires that budgets for organizational units be
prepared ahead of the plans and schedule for implementing strategy -- otherwise
organizational resources are likely to be wasted.
True
False
2. In deciding how many policies and procedures to prescribe and how tight they should
be, a good guideline is to prescribe enough policies to give organizational members
clear direction and make them tight enough to place desirable boundaries on their
actions; then empower people to act within these boundaries however they think makes
sense.
True
False
3. The best policies and procedures are those that give employees sufficient leeway to do
activities whatever way they believe is best.
True
False
4. Benchmarking, best practice implementation, and some form of TQM are basic tools for
implementing strategies keyed to defect-free manufacturing, superior product quality,
superior customer service, and total customer satisfaction.
True
False
5. The essential difference between reengineering and TQM is that reengineering aims at
redesigning the value chain while TQM programs aim at continuously improving how
particular value chain activities are performed.
True
False
6. TQM programs can be a very effective follow-on to reengineering efforts.
True
False
7. Installing state-of-the-art systems to support daily business operations is one of the
keys to better strategy implementation and execution because innovative and
well-conceived operating systems can give employees the capability to perform their
jobs more efficiently and can strengthen organizational capabilities enough to provide a
competitive edge over rivals.
True
False
8. Getting employees to buy into the strategy and commit to making it work is best done
by talking to everyone about how important new strategic practices and achievement of
performance targets are to the company's future and its ability to provide job security.
True
False
9. Negative motivational approaches (the fear of punitive consequences) generally work
better than positive motivational approaches.
True
False
10.The strategy-implementers foremost attention-getting, commitment generating device
is the size of the changes in departmental operating budgets.
True
False
11.The most dependable way to keep company personnel focused on achieving the
objectives laid out in the strategic plan is to generously reward individuals and groups
who achieve their assigned performance targets and to deny rewards to those who
don't.
True
False
12.The key to creating a reward system that promotes good strategy execution is to make
strategically relevant measures of performance the dominating basis for designing
incentives, evaluating individual and group efforts, and handing out rewards.
True
False
13.A strategy-implementers standard for judging whether individuals and organizational
units have done a good job must be whether they achieved their performance targets,
not whether they tried hard or did their best.
True
False
14.It is flawed management to tie incentives and rewards to satisfactory performance of
duties and assigned functions in hopes that the by-products will be the desired
business outcomes and company achievements.
True
False
15.Unless meaningful incentive rewards and career consequences are attached to
successfully implementing strategic initiatives and hitting strategic performance targets,
few company personnel will attach much significance to the company's strategic plan.
True
False
16.Strategy-implementers need to be deeply involved in the budget-making process
because
a. too little funding of strategy-critical organizational units impedes their ability to execute their pieces
of the strategic plan proficiently.
b. implementation of a new or revised strategy usually entails budget reallocations.
c. the funding requirements of any change in strategy need to drive capital allocations and the size of
each unit's operating budget.
d. without budget reallocations it is hard, if not impractical, to match organization structure to the
chosen strategy.
e. aggressive resource reallocation is a prerequisite to reengineering, empowerment, and
decentralization.
17.Prescribing policies and operating procedures aid the task of implementing strategy by
a. helping empower product champions and create self-managed work teams.
b. providing personnel with top-down guidance on how certain things are to be done and what behavior
is expected.
c. placing limits on independent action and channeling individual and group efforts along the intended
path.
d. indicating how reengineering needs to be accomplished.
e. specifying how big operating budgets will need to be for organizational units to carry out their
assigned piece of the strategy in a competent fashion.
f. helping enforce needed consistency in how particular strategy-critical activities are performed in
geographically scattered operating units.
g. paving the way for instituting TQM, best practices, and internal support systems.
h. helping alter the internal work climate and corporate culture in ways that produce a stronger fit with
the strategy being implemented.
18. Identifying and adopting best practices
a. starts with benchmarking how well a company performs specific tasks and activities against
best-in-industry or best-in-world performers.
b. is integral to effective, efficient strategy implementation.
c. needs to be directed chiefly at manufacturing and customer service activities, since these two areas
are generally the most critical to successful strategy implementation.
d. is a prerequisite to effective reengineering of core business processes.
e. provides a basis for setting internal performance targets that gauge organizational competence in
executing strategy.
19. Reengineering, TQM, and the identification and adoption of best practices
a. are tools managers can use to promote better strategy execution.
b. are more effective when used sparingly -- normally in strategy-critical areas of the business; it is
usually a mistake to introduce them on a wide scale throughout the organization.
c. should be undertaken in tandem, not separately.
d. yield their best results in flat, decentralized organization environments rather than in centralized,
vertical structures.
e. have been used widely in Japan and only rarely in U.S. and European companies.
f. need to be instituted before management has a clear fix on the indicators of successful strategy
execution, not after.
20. Building a total quality culture entails
a. management articulation of a quality vision and establishment of specific, measurable quality goals.
b. hiring only those job applicants with the attitudes and aptitudes conducive to quality-based
performance.
c. issuing a quality manual to all employees that describes the policies, procedures, and practices that
must be adhered to if quality targets are to be met.
d. initiating quality training for employees.
e. stressing inspection and immediate correction of mistakes.
f. using teams and team-building exercises to reinforce and nurture individual effort.
g. recognizing and rewarding individual and team efforts regularly and systematically.
h. empowering employees.
i. preaching that there's no such thing as good enough (because competitors aren't resting on their
laurels and customers are always looking for something better) and that continuous improvement
is the only thing which can protect the organization's competitiveness.
21. Well-conceived, state-of-the-art support systems
a. facilitate better strategy execution.
b. can strengthen organizational capabilities enough to provide a competitive edge over rivals.
c. can help a company mobilize information, use knowledge effectively, redeploy resources quickly, and
respond faster.
d. reduce the need for rigidly prescribed policies and procedures.
e. typically have the effect of raising a firm's unit costs because of the high dollar outlays required to
develop and install such systems.
22. In designing strategy-supportive reward systems,
a. the focus should be exclusively on carrots (positive rewards) rather than sticks (punishment for poor
performance).
b. it is particularly important to define jobs and assignments in terms of the duties and functions to be
performed, not the results to be accomplished.
c. achievement of the organization's strategic and financial objectives should be the basis for incentive
compensation.
d. the performance payoff should be a major, not a minor, piece of the total compensation package.
e. the incentives should be restricted to managers.
f. the performance targets each individual is expected to achieve should involve outcomes that the
individual can personally affect.
23. Total quality management (TQM)
a. is a technique for convincing employees that superior product quality is the most reliable key to
strategic success.
b. generally works better than reengineering because of quicker employee buy-in, lower
implementation costs, and easier-to-achieve results.
c. is a term used to describe companies that are best-in-industry in most of the relevant performance
indicators.
d. involves installing a total quality/continuous improvement culture where employees throughout the
organization are committed to doing all tasks and value-chain activities better and better --there's
a never-ending drive to improve on how things are done.
e. is a management approach where managers go through in-depth training to learn how to teach their
employees to do things right and how to supervise them in a manner that results in continuous
improvement in employee productivity.
24. Creating strategy-supportive policies and procedures
a. generally means having many policies rather than few policies (because it usually takes many policies
and procedures to adequately spell out and fully explain how things are to be done correctly).
b. is an important strategy-implementing tool because good strategy execution can seldom be achieved
by giving employees leeway to do tasks the way they think best (without carefully prescribed
policies and procedures, management loses control over how tasks are being performed).
c. is the most reliable way to motivate employees to do things in a first-rate fashion (because very few
employees will knowingly violate company policies).
d. is a prerequisite to successfully imitating the practices and procedures of best-in-industry or
best-in-world performers.
e. aids the implementation process by channeling actions, behavior, and daily job performance along
avenues that are calculated to improve strategy execution.
25. Motivating employees to do their best in trying to make the strategy work entails
a. using monetary incentives.
b. using non-monetary incentives.
c. creating a work climate where there is a constructive amount of pressure for employees to perform
well.
d. taking care to avoid those approaches that could result in employee stress, anxiety, or job insecurity.
e. making sure that all employees are rewarded regularly for their efforts and that the amount of
incentive compensation is pretty much equal from employee to employee.
ANSWERS
1. F
2. T
3. F
4. T
5. F
6. T
7. T
8. F
9. F
10.F
11.T
12.T
13.T
14.T
15.T
16.a, b, c
17.b, c, f, h
18.a, b, e
19.a
20.a, b, d, f, g, h, i
21.a, b, c
22.c, d, f
23.d
24.e
25.a, b, c
26. ANSWERS
1.
Chapter 11 Self-Test
1. It is difficult to implement a strategy successfully when a firm's culture is not well
aligned with the beliefs, practices, behaviors, and business approaches that the strategy
calls for.
True
False
2. Companies, especially large ones, typically have multiple cultures or subcultures.
True
False
3. When a company's culture is out of sync with what is needed for successful strategy
implementation and execution, the wisest and best course of action is to change the
strategy.
True
False
4. The task of reshaping a firm's culture to better fit strategy generally takes from a few
weeks to a month in small firms to as much as a year in large companies.
True
False
5. Symbolic actions to change the corporate culture are more important than substantive
actions.
True
False
6. Charisma and personal magnetism are key traits that a CEO needs in order to
successfully lead efforts to change corporate culture.
True
False
7. High ethical standards are nice, even desirable, but they have little impact on a
company's long-term strategic success or on efforts to build a healthy corporate culture.
True
False
8. In a strong-culture company where strategy and culture are well-aligned, managers are
less dependent on policies, procedures, rules, and supervision to enforce what people
should and should not do because deeply imbedded cultural norms can be counted
upon to guide behavior.
True
False
9. Organizational politics is generally much more of a factor in selecting a strategy than in
implementing the strategy.
True
False
10. Corrective adjustments to strategy and to strategy implementation should be proactive
rather than reactive.
True
False
11.A company's culture is manifested in
a. the values and business principles that management preaches and practices.
b. the traditions the company maintains.
c. the kind of organization structure it has and the kinds of internal support systems it has installed.
d. the particular countries and geographic areas where it operates.
e. the demographic makeup of its work force.
f. the kinds of relationships it has developed with employees, unions, suppliers, customers,
stockholders, and the communities where it operates.
g. its policies and its ethical standards.
h. its folklore (legends, stories, heroes).
i. the types of competitive strategy it employs, its financial and strategic objectives, and its strategic
vision. its supervisory practice, its operating style, and its internal work environment.
12. Once established, company cultures tend to be perpetuated by
a. continuity of leadership (new leaders continue to preach and practice the same values and beliefs
and to reinforce existing norms and traditions).
b. continuity of ownership
c. continuity of strategy
d. continuity of long-term direction (strategic vision and financial and strategic objectives).
e. screening and selecting new employees according to how well their values, attitudes, and personality
fit in.
f. systematic indoctrination of new members in the culture's fundamentals.
g. the telling and retelling of company legends and constant management reiteration of core values in
daily conversations and pronouncements.
h. visibly rewarding people who display cultural ideals and follow cultural norms and penalizing those
who don't.
i. deliberately avoiding diversification or acquisition so as not to upset the internal cultural balance or
risk a cultural clash.
13. In strong culture companies, a tight strategy-culture alignment is a powerful ally in
implementing strategy because
a. a work environment where the culture matches well with the requirements for good strategy
execution provides a ready system of informal rules and peer pressures regarding how to conduct
business internally and how to go about doing one's job.
b. no changes in organization structure will be needed.
c. no new internal support systems will have to be developed.
d. benchmarking, reengineering, and TQM programs will not be needed.
e. a strong strategy-supportive culture promotes the very kinds of work habits, behaviors, values, and
practices needed for proficient strategy execution.
f. it promotes strong employee identification with the company's vision, performance targets, and
strategy.
14. A company's culture can be said to be strong and cohesive when
a. the CEO has exercised strong authoritarian leadership for a number of years.
b. the company conducts its business according to a clear and explicit set of principles and values.
c. management devotes considerable time to communicating these principles and values to
organizational members and explaining how they relate to the company's business environment.
d. the principles and values are widely shared by company personnel.
e. the organization structure has undergone no major changes for a number of years.
f. it is well matched to the company's strategy.
g. employee turnover rates are low.
15. Characteristics that contribute to unhealthy or low-performance cultures include
a. a frequently changing strategy.
b. a frequently changing organization structure.
c. a highly politicized internal environment where influential managers have enough clout to operate
their fiefdoms autonomously and resist needed changes.
d. hostility to change and to people who champion new ways of doing things.
e. an aversion to looking outside the company for superior practice and approaches.
f. promoting managers who are good at internal administration but not so good at entrepeneurship,
strategy-making, motivation, and culture-building.
16. Adaptive cultures are characterized by such traits as
a. leaders who are more strongly committed to timeless business principles and the well-being of
organizational stakeholders than to any specific business strategy or operating practice.
b. personnel who are receptive to risk-taking, experimentation, innovation, and changing to new
strategies and operating practices whenever necessary to serve the legitimate interests of
stakeholders.
c. strong adherence to promoting people from within the company.
d. heavier-than-normal use of bonuses, stock options, and other forms of incentive compensation.
e. a proactive approach to identifying issues, evaluating the implications and options, and implementing
workable solutions.
f. encouraging and rewarding entrepeneurship.
g. openly supporting managers and employees at all ranks who propose or help initiate useful change.
17. Changing a company's culture and aligning it with the requirements for strategic
success
a. are among the toughest management tasks.
b. entails diagnosing which facets of the present culture are strategy supportive and which are not.
c. involves open and candid communication among all concerned about those aspects of the culture
that have to be changed.
d. requires visible actions, both symbolic and substantive, to modify the culture.
e. nearly always requires that senior executives personally lead the culture-changing effort.
f. may require replacing old-culture traditionalist managers with "new breed" managers.
18. Instilling and ingraining a company's values statement and code of ethics in company
policies, practices, and actual conduct entails such actions as
a. making them an integral part of employee training and educational programs.
b. screening out job applicants who do not exhibit compatible character traits.
c. communicating the values and ethics code to all employees and explaining compliance procedures.
d. promptly dismissing any employee who violates the ethics code or disavows company values.
e. the CEO openly and unequivocally endorsing the values and ethics code and leading the enforcement
of ethical standards.
f. having all officers sign statements affirming their belief in the company's values and their agreement
to abide by the ethics code, then circulating these signed statements among all company
personnel.
19. The managerial task of exerting strategic leadership entails
a. fostering a strategy-supportive climate and culture.
b. developing a budget to implement and execute the strategy.
c. staying on top of what is happening and how well things are going (often via MBWA).
d. making sure that policies and procedures are supportive of effective strategy execution.
e. building consensus and dealing with the internal politics of crafting and implementing strategy.
f. being an authoritarian, hard-nosed decision-maker who is willing to make the tough calls. g. being a
strong advocate of TQM. h. enforcing ethical standards.
i. keeping the internal organization responsive, innovative, and alert for new opportunities.
j. pushing corrective actions to improve strategy execution and overall strategic performance.
20. Successful culture-change efforts
a. require a major reorganization to achieve a strategy-supportive organization structure.
b. require strong, forceful top management leadership because considerable internal clout is needed to
bring about major cultural change. c. require major budget reallocations.
d. entail persuasive top management arguments that cultural changes are needed to serve the
long-term best interests of all key constituencies.
e. usually entail challenging the status quo, promoting an openness to new ideas, and gaining the
commitment of individuals and department to support the new strategic direction and needed
new practices.
f. usually requires rewriting the company's code of ethics and altering ethical standards accordingly.
g. frequently involve reengineering core business processes, benchmarking, and promoting TQM.
h. involve recognizing and rewarding people who exhibit the desired new cultural traits and who lead or
promote successful cultural change efforts.
21. refers to a company's values, beliefs, traditions,
operating style, and internal work environment.
22. From a strategy implementation perspective, the best types of corporate culture are
cultures.
23. The difference between a values statement and a code of ethics is that a (1)
is a cornerstone for building a corporate culture whereas a (2) is
a basis for developing a corporate conscience.
24. MBWA stands for .
25 A company's culture can be characterized as if many subcultures
exist, few values are widely shared, and there are few company traditions.
ANSWERS
1. T
2. T
3. F
4. F
5. F
6. F
7. F
8. T
9. F
10. F
11. a, b, g, h, j
12. a, e, f, g, h
13. a, e, f
14. b, c, d
15. c, d, e, f
16. a, b, e, f, g
17. a, b, c, d, e, f
18. a, b, c, e
19. a, c, e, h, i, j
20. b, d, e, h
21. corporate culture
22. adaptive
23. values statement
24. code of ethics
25. managing by walking around
26. weak