Strategic Management

CHAPTER 1
Strategic competitiveness is achieved
when a firm successfully formulates and
implements a value-creating strategy.

Strategy can be defined as an integrated

and coordinated set of commitments and
actions designed to exploit core
competencies and gain a competitive
advantage.
As long as a firm can sustain (or
maintain) a competitive
advantage, investors will earn
above-average returns

True or False
Above-average returns represent returns
that exceed returns that investors expect
to earn from other investments with
similar levels of risk.

Risk is an investor’s uncertainty about

the economic gains or losses that will
result from a particular investment.
What do you call that framework
that can assist firms in their
quest for strategic
competitiveness?

Strategic Management Process

A framework that can assist firms in their
quest for strategic competitiveness is the
strategic management process, the full
set of commitments, decisions and actions
required for a firm to systematically
achieve strategic competitiveness and earn
above-average returns.
 The competitive landscape can be
described as one in which the
fundamental nature of competition is
changing in a number of the world’s
industries. Further, the boundaries of
industries are becoming clearer and more
easier to define.

True or False
What term is often used to
describe the new realities of
competition?

Hypercompetition
Hypercompetition describes competition
that is excessive such that it creates
inherent instability and necessitates
constant disruptive change for firms in the
competitive landscape.
 is one in which goods,
services, people, skills, and
ideas move freely across
geographic borders.
Global Economy
Globalization is the increasing economic
interdependence among countries and
their organizations as reflected in the flow
of goods and services, financial capital,
and knowledge across country borders.
Though global markets are attractive
strategic options for some
companies, they are not the only
source of strategic competitiveness.

True or False
What is a term used to describe how
rapidly and consistently new,
information-intensive technologies
replace older ones?

Perpetual innovation
Three technological trends and conditions
are significantly altering the nature of
competition:
 Increasing rate of technological change
and diffusion
 The information age
 Increasing knowledge intensity
 Strategic flexibility is a set of
capabilities used to respond to
various demands and opportunities
existing in a static and certain
competitive environment.

True or False
 What model suggests that the
external environment should be
considered as the primary
determinant of a firm’s strategic
actions?
Industrial Organization Model
 One assumption of the I/O model
states that most firms competing in
an industry or in an industry
segment control similar sets of
strategically relevant resources and
thus pursue similar strategies

True or False
What model perceives the firm’s
resources and capabilities (the
internal environment) as critical
links to strategic
competitiveness?
Resource-based Model
 Resources are inputs into a firm’s
production process, such as capital
equipment, the skills of individual
employees, patents, finances, and talented
managers.

A capability is the capacity for a set of

resources to perform a task or an activity
in an integrative manner.

Core competencies are capabilities that

serve as a source of competitive advantage
for a firm over its rivals.
One assumption of the Resource-
based model states that resources
and capabilities are highly mobile
across firms.

True or False
 One assumption of the Resource-
based model states that differences
in resources and capabilities are the
bases of competitive advantage and
a firm’s performance rather than its
industry’s structural characteristics.

True or False
Vision is a picture of what the
firm wants to be and, in broad
terms, what it wants to
ultimately achieve.

True or False
 A vision statement articulates the ideal
description of an organization and gives
shape to its intended future. A vision
statement points the firm in the direction
of where it would like to be in the years to
come.

A mission specifies the businesses in

which the firm intends to compete and the
customers it intends to serve.
Earning above-average returns often
is mentioned in mission statements.

True or False
 are the individuals,
groups, and organizations that can
affect the firm’s vision and mission,
are affected by the strategic
outcomes achieved, and have
enforceable claims on the firm’s
performance.

Stakeholders
There are four major stakeholder
groups.

True or False
 Strategic leaders are people located
in different areas and levels of the
firm using the strategic management
process to select strategic actions
that help the firm achieve its vision
and fulfill its mission.

True or False
 Top managers play decisive roles in firms’ efforts
to achieve their desired strategic outcomes. As
organizational strategists, top managers are
responsible for deciding how resources will be
developed or acquired, at what cost, and how they
will be used or allocated throughout the
organization.
Organizational strategists also are responsible for
determining how the organization does business.
This responsibility is reflected in the
organizational culture.
Organizational culture refers to the complex set
of ideologies, symbols, and core values that are
shared throughout the firm and that influence
how the firm conducts business.
CHAPTER 2
Understanding the external environment
helps build the firm’s base of knowledge
and information that can be used to:
(1) help build new capabilities and core
competencies,
(2) buffer the firm from negative
environmental impacts, and
(3) pursue opportunities to better serve
stakeholders’ needs.
The general environment of a firm
includes the demographic,
economic, political, global,
sociocultural, technological and
physical environment.

True or False
 The general environment is the set
of factors that directly influences a
firm and its competitive actions and
responses.

True or False
 The industry environment is
composed of dimensions in the
broader society that influence an
industry and the firms within it.

True or False
The industry environment is best
explained through Porter’s Five
Forces Model.

True or False
How companies gather and interpret
information about their competitors
is called competitor analysis.

True or False
Competitor analysis represents the firm’s
understanding of its current competitors.
This understanding will complement
information and insights derived from
investigating the general and industry
environments.
 External environmental analysis also is
necessary to enable the firm’s managers to
interpret information to identify
opportunities and threats.
An opportunity is a condition in the
general environment that, if exploited
effectively, helps a company reach
strategic competitiveness.
A threat is a condition in the general
environment that may hinder a company’s
efforts to achieve strategic
competitiveness.
There are three parts of the external
environmental analysis.

True or False
 The economic segment is the arena in
which organizations and interest groups
compete for attention, resources, and a
voice in overseeing the body of laws and
regulations guiding interactions among
nations as well as between firms and
various local governmental agencies.

True or False
The global segment includes relevant new
global markets, existing markets that are
changing, important international
political events, and critical cultural and
institutional characteristics of global
markets.

True or False
 The physical environment segment
includes the institutions and activities
involved in creating new knowledge and
translating that knowledge into new
outputs, products, processes, and
materials.

True or False
 The sociocultural segment is
concerned with a society’s attitudes
and cultural values.

True or False
The demographic segment refers to
the nature and direction of the
economy in which a firm competes
or may compete

True or False
An industry is a group of firms producing
products that are close substitutes for
each other. As they compete for market
share, the strategies implemented by these
companies influence each other and
include a broad mix of competitive
strategies as each company pursues
strategic competitiveness and above-
average returns.
The general environment has an
direct effect on strategic
competitiveness and firm
profitability while the effect of the
industry environment is more
indirect.

True or False
The industry environment is best
explained through Porter’s Five
Forces Model.

True or False
If a new competitor brings additional
capacity to the industry when
product demand is not increasing,
prices that can be charged to
consumers generally will fall.

True or False
 New entrants to an industry are
important because with new
competitors, the intensity of
competitive rivalry in an industry
generally decreases.

True or False
 Seven factors represent potentially
significant entry barriers that can
emerge as an industry evolves or
might be explicitly “erected” by
current participants in the industry
to protect profitability by deterring
new competitors from entry.

True or False
 The bargaining power of suppliers
depends on suppliers’ economic
bargaining power relative to firms
competing in the industry. Suppliers
are powerful when firm profitability
is reduced by suppliers’ actions.

True or False
 Buyer groups are powerful relative to
firms competing in the industry when
suppliers’ products are differentiated
and unique, and the buyers represent
a real threat to integrate backward into
the suppliers’ industry using resources
or expertise.

True or False
The threat of substitute products is
greatest when quality and
performance capabilities of
substitutes are equal to/greater
than those of the industry’s
products

True or False
 Industry rivalry increases when
industry growth is fast, there are low
fixed costs or low storage costs, and
when high exit barriers prevent
competitors from leaving the
industry

True or False
 A is a set of firms
emphasizing similar strategic
dimensions and using a similar
strategy.

Strategic group
Competitor intelligence is the set of data
and information the firm gathers to better
understand and anticipate competitors’
objectives, strategies, assumptions, and
capabilities.

Complementors are companies or

networks of companies that sell
complementary goods or services that are
compatible with the focal firm’s good or
service.
CHAPTER 3
A global mind-set is the ability to analyze,
understand, and manage an internal
organization in ways that are not
dependent on the assumptions of a single
country, culture, or context.
 Value is measured by a product’s
performance characteristics and by
its attributes for which customers
are willing to pay.

True or False
 The challenge of analyzing the
internal organization is multiplied
because of three conditions that
characterize important strategic
decisions - uncertainty, complexity,
and intraorganizational conflict.

True or False
A firm's resources can be classified
either as tangible or intangible.

True or False
Tangible resources are assets that can be
observed and quantified.

Intangible resources are assets that are

rooted deeply in the firm’s history,
accumulate over time, and are relatively
difficult for competitors to analyze and
imitate.
 Capabilities emerge over time
through complex interactions among
tangible and intangible resources.

True or False
Core competencies emerge over time
through an organizational process of
accumulating and learning how to
deploy different resources and
capabilities.

True or False
 All of a firm’s resources and
capabilities are strategic assets -
that is, assets that have competitive
value and the potential to serve as a
source of competitive advantage.

True or False
 There are five criteria for
determining strategic capabilities.

True or False
 Valuable capabilities allow the firm to exploit
opportunities or neutralize threats in its external
environment.

Rare capabilities are capabilities that few, if any,

competitors possess.

Costly-to-imitate capabilities are capabilities

that other firms cannot easily develop.

Nonsubstitutable capabilities are capabilities

that do not have strategic equivalents.
Unique historical conditions can
make duplication of capabilities
costly.

True or False
 Social complexity means that a
firm's capabilities are the product of
complex social phenomena such as
interpersonal relationships within
the firm

True or False
What is a framework that firms can
use to identify and evaluate the
ways in which their resources and
capabilities can add value?

Value Chain Analysis

Value-creating activities performed
by the firm can be separated into
value chain activities and support
functions.

True or False
 Value chain activities are activities or
tasks the firm completes in order to
produce products and then sell, distribute,
and service those products in ways that
create value for customers.

Support functions include the activities

or tasks the firm completes in order to
support the work being done to produce,
sell, distribute, and service the products
the firm is producing.
 Value chain activities represent
traditional staff activities such as
supply chain management,
operations, distribution, marketing,
and follow-up service.

True or False
Support functions are represented
by a firm's staff activities and
include its financial infrastructure,
human resource management
practices, and management
information systems activities.

True or False
What do you call the purchase of a
value-creating activity from an
external supplier?

Outsourcing
A firm may outsource all or only part
of one or more primary and/or
support activities.

True or False
Outsource activities in which the
firm itself can create and capture
value.

True or False
Outsource only to firms possessing a
core competence in terms of
performing the primary or
supporting the outsourced activity.

True or False
 can be viewed as
yesterday’s sources of competitive
advantage. These are capabilities
that the organization does well but
that have little current value from a
competitive standpoint.

Core rigidities
 All core competencies have the
potential to become core rigidities.

True or False
CHAPTER 4
 A business-level strategy is an
integrated and coordinated set of
commitments and actions the firm
uses to gain a competitive advantage
by exploiting core competencies in
specific product markets.
Competition in individual product
markets is a question of business-
level strategy.

True or False
Returns earned from relationships
with customers (current and/or
new) are the lifeblood of all firms.

True or False
 is a process used to
cluster people with similar needs
into individual and identifiable
groups.

Market segmentation
Increasing segmentation of markets
throughout the global economy
creates opportunities for firms to
identify increasingly unique
customer needs they can try to serve
by using one of the business-level
strategies.

True or False
Business-Level Strategies are
intended to create differences
between the firm’s competitive
position and those of its
competitors.

True or False
Successful business-level strategies
are founded or based on suppliers’
needs.

True or False
 Firms can choose one of four
strategies from the generic strategy
matrix based on the source of
competitive advantage

True or False
The differentiation strategy is an
integrated set of actions taken to
produce goods or services with
features that are acceptable to
customers at the lowest cost,
relative to that of competitors.

True or False
Firms that wish to be successful by
following a cost-leadership strategy
must maintain constant efforts
aimed at lowering costs (relative to
rivals’ costs) and creating value for
customers.

True or False
 Because differentiated products
satisfy customers’ unique needs or
preferences, firms can charge a
premium price for differentiated
products. But the premium can
exceed what customers are willing to
pay.

True or False
 The focused cost
leadership/differentiation strategy
involves engaging in primary value-
chain activities and support
functions that allow a firm to
simultaneously pursue low cost and
differentiation.

True or False
 is a computer-
controlled processes used to
produce a variety of products in
moderate, flexible quantities with a
minimum of manual intervention.

Flexible Manufacturing System

 link companies
electronically with their suppliers,
distributors, and customers.

Information Networks
 is a managerial
process that emphasizes an
organization’s commitment to the
customer and to continuous
improvement of all processes
through problem-solving approaches
based on empowerment of
employees.

Total Quality Management

 One of the risk in cost leadership
strategy is processes used to
produce and distribute good or
service may become obsolete due to
competitors’ innovations.

True or False
One risk of differentiation is that the
price differential between the
differentiator’s product and the cost
leader’s product becomes too small.

True or False
To implement a focus strategy, firms
must be able to complete various
primary and support activities in a
competitively superior manner, in
order to develop and sustain a
competitive advantage and earn
above-average returns.

True or False
CHAPTER 5
 are firms operating in
the same market, offering similar
products, and targeting similar
customers.

Competitors
Competitive behavior is the ongoing
set of competitive actions and
competitive responses that occur
among firms as they maneuver for
an advantageous market position.

True or False
 Competitive behavior is the set of
competitive actions and responses a
firm takes to build or defend its
competitive advantages and to
improve its market position.

True or False
Multimarket competition occurs when
firms compete against each other in
several product or geographic markets.

Competitive dynamics refer to all

competitive behaviors—that is, the total
set of actions and responses taken by all
firms competing within a market.
Intensified rivalry within an industry
results in decreased average
profitability for firms competing in it
and supports the importance of
understanding these effects.

True or False
Competitive rivalry exists because of
competitive symmetry

True or False
 Firms are mutually interdependent
when a firm’s competitive actions
have noticeable effects on its
competitors, and a firm’s competitive
actions elicit competitive responses
from its competitors.

True or False
 is concerned with the
number of markets with which the
firm and a competitor are jointly
involved and the degree of
importance of the individual
markets to each.

Market commonality
Market commonality is decreasing
as more and more firms compete
internationally.

True or False
High levels of commonality reduce
the likelihood of competitive
interaction.

True or False
 is the extent to which
the firm’s tangible and intangible
resources are comparable to a
competitor’s in terms of both type
and amount.

Resource similarity
 Dissimilar resources may decrease
the likelihood of an attack whereas
firms with similar resources (overlap
between their resource portfolios)
will be more likely to attack because
resource similarity increases the
likelihood of retaliation.

True or False
 Assessing resource similarity is
difficult if critical resources are
intangible, rather than tangible.

True or False
There are three drivers of
competitive behavior

True or False
 Awareness refers to whether or not the
attacking or responding firm is aware of
the competitive market characteristics
such as the market commonality and the
resource similarity of a potential attacker
or respondent.

Motivation is represented by the

incentives that a firm has to either initiate
an attack or to respond when attacked.

Ability relates to each firm’s resources

and the flexibility they provide.
 Resource similarity also influences
competitive actions and responses
between firms, in that the greater the
resource imbalance between the acting
firm and competitors or potential
responders, the greater will be the delay
in response by the firm with a resource
disadvantage.

True or False
A competitive response is a strategic
or tactical action the firm takes to
build or defend its competitive
advantages or improve its market
position.

True or False
A competitive action is a strategic or
tactical action the firm takes to
counter the effects of a competitor’s
competitive action.

True or False
 A tactical action or a tactical
response is a market-based move
that involves a significant
commitment of organizational
resources and is difficult to
implement and reverse.

True or False
 is a firm that takes an
initial competitive action in order to
build or defend its competitive
advantages or to improve its market
position.

First mover
 is a firm that
responds to the first mover’s
competitive action, typically through
imitation.

Second mover
 is a firm that
responds to a competitive action a
significant amount of time after the
first mover’s action and the second
mover’s response.

Late mover
Organizational slack is what makes
it possible for firms to have the
ability (as measured by available
resources) to be first movers.

True or False
First movers can gain market share
that can be difficult for competitors
to take during future competitive
rivalry

True or False
Late movers try to find any mistakes
the first mover made, and avoid
them.

True or False
Late mover’s competitive action
allows it to earn only average
returns and delays its
understanding of how to create
value for customers

True or False
 An organization’s size affects the
likelihood that it will take
competitive actions as well as the
types of actions it will take and their
timing.

True or False
 exists when the firm’s
goods or services meet or exceed
customers’ expectations

Quality
 Quality dimensions of products
include the following: performance,
features, flexibility, accuracy,
durability, conformance,
serviceability, aesthetics, and
perceived quality.

True or False
 Quality dimensions of services
include the following: timeliness,
courtesy, consistency, convenience,
completeness, and accuracy.

True or False
Responses to a competitor’s action
are taken when the action makes
the firm’s market position becomes
less defensible.

True or False
Firms study three other factors to predict
how a competitor is likely to respond to
competitive actions:
(1) type of competitive action, (2) actor’s
reputation, and (3) market dependence.

True or False
 The likelihood of a competitive response to an
action depends on the type of action taken—
strategic or tactical—and the potential effect on
competitors

Actor’s Reputation: To predict the likelihood of a

competitor’s response to a current or planned
action, the firm studies the responses that that
competitor has taken previously when attacked,
in that past behavior is assumed to be a
reasonable predictor of future behavior.

Market dependence denotes the extent to which

a firm’s revenues/profits are derived from a
particular market.
Slow-cycle markets are markets in
which the firm’s competitive
advantages are partially shielded
from imitation and imitation is
moderately costly.

True or False
 Fast-cycle markets are markets in
which the firm’s competitive
advantages are shielded from
imitation, commonly for long periods
of time, and where imitation is
costly.

True or False
 Fast-cycle markets are markets in
which the firm’s capabilities that
contribute to competitive advantages
aren’t shielded from imitation and
where imitation is often rapid and
inexpensive.

True or False
 Competitive advantages are
sustainable in slow-cycle markets.

True or False
 In fast-cycle markets, competitive
advantages are partially sustainable
if their quality is continuously
upgraded.

True or False
 Fast-cycle markets are markets in
which the firm’s capabilities that
contribute to competitive advantages
aren’t shielded from imitation and
where imitation is often rapid and
inexpensive.

True or False
CHAPTER 6
A corporate-level strategy specifies
actions a firm takes to gain a
competitive advantage by selecting
and managing a group of different
businesses competing in different
product markets.
 When a firm diversifies its
operations by operating business in
several industries, corporate-level
strategy becomes a primary focus.

True or False
 Firms that follow single- or
dominant-business strategies have
low levels of diversification.

True or False
A dominant business is a firm that
generates between 75 and 90
percent of its sales within a single
business area.

True or False
 A related-linked firm is one that
earns at least 30 percent of its
revenues from sources outside the
dominant business and whose units
are related to each other

True or False
 Related-constrained firms also earn
at least 30 percent of their revenues
from the dominant business, and all
business units share product,
technological, and distribution
linkages.

True or False
 Highly Diversified firms has less
than 70% of revenue comes from the
dominant business, and there are no
common links between businesses.

True or False
Firms may implement diversification
strategies to enhance or increase the
strategic competitiveness of the
overall organization, and thus the
value of the firm increases.

True or False
Value can be created through either
related or unrelated diversification if
the strategies enable the firm’s mix
of businesses to increase revenues
and/or decrease costs when
implementing business-level
strategies.

True or False
 Firms seek to create value from
economies of scope through two
basic kinds of operational economies:
sharing activities and transferring
skills (corporate core competencies).
However, the levels of the two will
lead to different corporate strategies
with different advantages associated
with each.
 are cost savings that
occur when a firm transfers
capabilities and competencies
developed in one of its businesses to
another of its businesses.

Economies of Scope
 The difference between sharing
activities and transferring
competencies is based on how the
resources are jointly used to create
economies of scope.

True or False
A key to creating value through
sharing essentially separate
activities is to share physical or
tangible resources rather than
know-how or skills.

True or False
Activity sharing can also result in
new risks since closer linkages
between business units create
tighter interrelationships and/or
interdependencies.

True or False
Acquiring firms in the same industry
- a horizontal acquisition - where
sharing of activities and resources is
implemented results in declining
performance and lower returns to
shareholders.

True or False
 are complex sets of
resources and capabilities that link
different businesses, primarily
through managerial and
technological knowledge, experience,
and expertise.

Corporate-level core
competencies
Research suggests that transferring
expertise often does not lead to
performance improvement.

True or False
 exists when a firm is
able to sell its products above the
existing competitive level or to
reduce the costs of its primary and
support activities below the
competitive level, or both.

Market Power
Market power through diversification
may be gained through multipoint
competition

True or False
 Multipoint competition exists
when two or more diversified firms
simultaneously compete in the same
product areas or geographical
markets.
 exists when a
company produces its own inputs or
owns its own source of output
distribution

Vertical Integration
 In forward integration the firm
produces its own inputs while in
backward integration the firm
operates its own distribution system
for delivering its outputs.

True or False
Vertical integration may result in the
firm losing strategic competitiveness
if the internal unit does not keep up
with changes in technology.

True or False
 E-commerce allows vertical
integration to turn into “virtual
integration,” permitting closer
relationships with suppliers and
customers through electronic means
of integration.

True or False
 Firms implementing unrelated
diversification strategies hope to
create value by realizing financial
economies

True or False
 Financial economies are cost
savings realized through improved
allocations of financial resources
based on investments inside or
outside the firm.
 Conglomerate life cycles are fairly
long life cycle because financial
economies are more easily
duplicated by competitors than are
gains from operational and
corporate relatedness.

True or False
A restructuring approach to creating
value in an unrelated diversified firm
involves the buying and selling of
other companies (and their assets)
in the external market.

True or False
 Diversification may be defensive
strategy if product line is growing or
product line is threatened.

True or False
 Synergy exists when the value
created by businesses working
together does not exceeds the value
created by them working
independently.

True or False
 Incentives that encourage
diversification include antitrust
regulation, tax laws, low firm
performance, uncertain future cash
flows, and opportunities to reduce
overall firm risk

True or False
 Value creation is determined more
by incentives to diversify rather than
by appropriate use of resources.

True or False
 Strategic competitiveness is
improved when the level of
diversification is appropriate for the
level of available resources.

True or False
 Diversification allows managers to
increase their compensation because
of positive correlations between
diversification, firm size, and
executive compensation

True or False
God bless and study
smartly!