This Document Contains Chapters 1 to 2 Chapter 01 Strategic Management: Creating Competitive Advantages True/False Questions 1. The success Apple, Inc. achieved over the past decade was a direct result of the creative and forceful leadership of its late CEO, Steve Jobs. According to the text, this would be an example of the "romantic" perspective of leadership. Answer: True Rationale: In the romantic view of leadership, the implicit assumption is that the leader is the key force in determining an organization's success or lack thereof. 2. Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Answer: True Rationale: According to the textbook, this is the definition of strategic management. 3. The three interrelated and principal activities of strategic management are: strategy analysis, strategy formulation, and strategy implementation. Answer: True Rationale: Strategic management is defined by the text as consisting of the analyses, decisions and actions an organization undertakes in order to create and sustain competitive advantages. It incorporates the three major processes: strategy analysis, strategy formulation, and strategy implementation. 4. According to the textbook, strategic management does not consist of the analyses that an organization undertakes in order to create and sustain competitive advantages. Answer: False Rationale: According to the textbook, strategic management consists of the analyses, decisions and actions an organization undertakes in order to create and sustain competitive advantages. 5. Management innovations such as total quality, just-in-time, benchmarking, business process reengineering, and outsourcing are important, but not enough for building sustainable competitive advantage. Answer: True Rationale: Sustainable competitive advantage cannot be achieved through operational effectiveness alone. Popular management innovations of the last two decades like total quality, just-in-time, benchmarking, business process reengineering, and outsourcing are concerned with operational effectiveness. 6. Strategic management recognizes the trade-offs between effectiveness and efficiency. Answer: True Rationale: The fourth attribute of strategic management is that it involves the recognition of trade-offs between effectiveness and efficiency. Some authors have referred to this as the difference between doing the right thing (effectiveness) and doing things right (efficiency). 7. According to Henry Mintzberg, a management scholar, most firms realize their original intended strategy. Answer: False Rationale: Henry Mintzberg states that the intended strategy rarely survives in its original form. Unforeseen environmental developments, unanticipated resource constraints, or changes in managerial preferences may result in at least some parts of the intended strategy remaining unrealized. On the other hand, good managers will want to take advantage of a new opportunity presented by the environment, even if it was not part of the original set of intentions. 8. According to the text, formulating strategy includes taking into consideration strategy at the business, corporate, and international levels. Answer: True Rationale: The strategy formulation decisions of a firm are developed at several levels. First, business-level strategy addresses the issue of how to compete in a given business to attain competitive advantage. Second, corporate-level strategy focuses on two issues: (a) what businesses to compete in and (b) how businesses can be managed to achieve synergy. Third, a firm must develop international strategies as it ventures beyond its national boundaries. Fourth, managers must formulate effective entrepreneurial initiatives. 9. Business-level strategy focuses on (1) what businesses to compete in, and (2) the management of the business portfolio to create synergy among its businesses. Answer: False Rationale: Corporate-level strategy focuses on two issues: (a) what businesses to compete in, and (b) how this portfolio of businesses can be managed to achieve value synergy. 10. Corporate-level strategy addresses how firms compete and outperform their rivals as well as achieve and sustain competitive advantages. Answer: False Rationale: Business-level strategy addresses the issue of how to compete in a given business to attain competitive advantage. 11. Effective leadership can play a large role in fostering corporate entrepreneurship. Corporate entrepreneurship can have a very positive impact on the bottom line of a firm. Answer: True Rationale: Entrepreneurial activity aimed at new value creation is a major engine for economic growth. For entrepreneurial initiatives to succeed viable opportunities must be recognized and effective strategies must be formulated. This requires effective leadership. 12. The three primary participants in corporate governance are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the employees. Answer: False Rationale: The primary participants are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors. 13. Decisions by boards of directors are always consistent with shareholder interests. Answer: False Rationale: The board of directors (BOD) are the elected representatives of the shareholders charged with ensuring that the interests and motives of management are aligned with those of the owners (i.e., shareholders). Recent scandals have resulted in criticism and cynicism that the BOD fulfills this charge. 14. Former Chrysler vice chairman Robert Lutz observed that companies exist to serve the shareholder and create shareholder value. He insisted that the only person who owns the company is the person who paid good money for it. This is an example of a symbiotic approach to stakeholder management. Answer: False Rationale: This is zero-sum stakeholder management. On the other hand, organizations can achieve mutual benefit through stakeholder symbiosis, which recognizes that stakeholders are dependent upon each other for their success and well-being. 15. Stockholders in a company are the only individuals with an interest in the financial performance of the company. Answer: False Rationale: A stakeholder can be defined as an individual or group, inside or outside the company, that has a stake in and can influence the performance of the organization. Each stakeholder group makes various claims on the company. Refer To: Exhibit 1.5 16. Stockholders, employees, and the community-at-large are among the stakeholders of a firm. Answer: True Rationale: A stakeholder can be defined as an individual or group, inside or outside the company, that has a stake in and can influence the performance of the organization. Stakeholders include stockholders, employees, suppliers, governments, and others. Refer To: Exhibit 1.5 17. Symbiosis is the ability to recognize interdependencies among the interests of multiple stakeholders within and outside an organization. Answer: True Rationale: Organizations can achieve mutual benefit through stakeholder symbiosis, which recognizes that stakeholders are dependent upon each other for their success and well-being. 18. Procter and Gamble developed a laundry detergent compaction technique that appeals to consumers, retailers, shipping and wholesalers, and environmentalists. This is an example of stakeholder symbiosis. Answer: True Rationale: According to the text, the Procter and Gamble technique that compacts two to three times as much cleaning powder into a liquid concentration has led to a change in consumer shopping habits and has revolutionized industry supply-chain economics. This is an example of stakeholder symbiosis in action. 19. Social responsibility is the idea that organizations are not only accountable to stockholders but also to the community-at-large. Answer: True Rationale: Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of society. From the perspective of a business, this means that managers must take active steps to make society better by virtue of the business being in existence. 20. The concept of shared value redefines the purpose of the corporation as creating shared value in order to create a more even distribution of the profits to all employees, not just top level executives. Answer: False Rationale: Shared value can be defined as policies and operating practices that enhance the competitiveness of a company, while simultaneously advancing the economic and social conditions in which it operates. It is not about personal values or sharing the value created by firms, which is a redistribution approach. Instead, it is about expanding the total pool of economic and social value. 21. Shell, NEC, and Procter and Gamble have been measuring their performance according to what has been called a triple bottom line. This technique involves an assessment of financial, social, and environmental performance. Answer: True Rationale: Many companies are now measuring what has been called a triple bottom line. This involves assessing financial, social, and environmental performance. Shell, NEC, Procter and Gamble, and others have recognized that failing to account for the environmental and social costs of doing business poses risks to the company and its community. 22. The strategic management process should be addressed only by top-level executives. Mid-level and low-level employees are best equipped to implement the strategies of the organization. Answer: False Rationale: To develop and mobilize people and other assets, leaders are needed throughout the organization. No longer can organizations be effective if the top level does the thinking and the rest of the organization does the work. Everyone must be involved in the strategic management process. 23. The vision of an organization is the top level of its hierarchy of organizational goals. The vision statement should be massively inspiring, overarching, and long term. Answer: True Rationale: A vision is a goal that is massively inspiring, overarching, and long term. 24. Strategic objectives are more specific than vision statements. Answer: True Rationale: Strategic objectives are used to operationalize the mission statement. 25. According to the text, a mission statement is an overarching statement that is massively inspiring, long term, and only discusses the purpose of the company. Answer: False Rationale: A mission statement is a set of organizational goals that includes the purpose of the organization, its scope of operations, and the basis of its competitive advantage. 26. A mission statement encompasses both the purpose of the organization as well as its basis of competition, and the basis of its competitive advantage. Answer: True Rationale: A mission statement is a set of organizational goals that includes the purpose of the organization, its scope of operations, and the basis of its competitive advantage. 27. Some excellent examples of mission statements are: To be the happiest place on earth (Disneyland) and Restoring patients to full life (Medtronic). Answer: False Rationale: These are examples of visions. 28. Strategic objectives should be measurable, specific, appropriate, and realistic, but not constrained by time deadlines. Answer: False Rationale: Timely is one of the five criteria that strategic objectives must meet in order to be considered meaningful. There must be a time frame for achieving the objective. 29. Much research has supported the notion that individuals work much harder when they are asked to do their best rather than when they are striving toward a specific goal. Answer: False Rationale: Challenging objectives can help to motivate and inspire employees to higher levels of commitment and effort. Much research has supported the notion that people work harder when they are striving toward specific goals instead of being asked simply to do their best. 30. Objectives in organizations should be clear, stated, and known by employees throughout the organization. Answer: True Rationale: For objectives to be meaningful, they need to satisfy several criteria. For one, they must be specific. This provides a clear message as to what needs to be accomplished. 31. Strategic management should only include short-term objectives. Long-term objectives are covered in the vision statement of the organization. Answer: False Rationale: Strategic objectives are typically more long term. Organizations have lower-level objectives that are more specific than strategic objectives. These are often referred to as short-term objectives. 32. Organizational goals and objectives should be vague in order to allow for changes in strategy. Answer: False Rationale: Specific is one criterion for strategic objectives. This provides a clear message as to what needs to be accomplished. Multiple Choice Questions 33. The text addresses two perspectives of leadership as well as their implications. These two perspectives are: A. romantic and unromantic B. romantic and internal control C. external control and unromantic D. romantic and external control Answer: D. romantic and external control Rationale: The two perspectives of leadership are the romantic and the external control perspectives. 34. A CEO made a lot of mistakes in assessing the market and the competitive conditions and improperly redesigning the organization into numerous business units. Such errors led to significant performance declines. According to the text, this example illustrates the __________ perspective of leadership. A. external control B. romantic C. internal mechanism D. operational Answer: B. romantic Rationale: In the romantic view of leadership, the implicit assumption is that the leader is the key force in determining the success (or lack of success) of an organization. This view dominates the popular press in business magazines such as Fortune, BusinessWeek, and Forbes, wherein the CEO is either lauded for the success of the firm or chided for its demise. 35. According to the text, the strategic management process entails three ongoing processes: A. analyses, actions, and synthesis B. analyses, decisions, and actions C. analyses, evaluation, and critique D. analyses, synthesis, and antithesis Answer: B. analyses, decisions, and actions Rationale: The strategic management of an organization entails three ongoing processes: analyses, decisions, and actions. 36. Management innovations such as total quality, benchmarking, and business process reengineering cannot lead to sustainable competitive advantage because: A. companies that have implemented these techniques have lost money B. there is no proof that these techniques work C. they cost too much money and effort to implement D. every company is trying to implement them and hence it does not make a company different from others Answer: D. every company is trying to implement them and hence it does not make a company different from others Rationale: The popular management innovations of the last two decades (total quality, just-in-time, benchmarking, business process reengineering and outsourcing) are all about operational effectiveness. Each of these is important, but none leads to sustainable competitive advantage because everyone is doing them. Strategy is all about being different. 37. The organizational versus the individual rationality perspective suggests that: A. what is good for a functional area is always good for the organization B. what is good for the organization is always good for a functional area C. what is best for a functional area may not be best for the organization D. the incremental perspective may be best for functional areas while the "rational" perspective may be best for the organization Answer: C. what is best for a functional area may not be best for the organization Rationale: Strategic management is directed toward overall organizational goals and objectives. Effort must be directed at what is best for the total organization, not just a single functional area. Some authors have referred to this perspective as organizational versus individual rationality. What might look rational or ideal for one functional area, such as operations, may not be in the best interest of the overall firm. 38. The four key attributes of strategic management include the idea that: A. strategy must be directed toward overall organizational goals and objectives B. strategy must be focused on long-term objectives C. strategy must be focused on one specific area of an organization D. strategy must focus on competitor strengths Answer: A. strategy must be directed toward overall organizational goals and objectives Rationale: The key attributes of strategic management are that it directs the organization toward overall goals and objectives, includes multiple stakeholders in decision making, needs to incorporate short-term and long-term perspectives, and recognizes trade-offs between efficiency and effectiveness. 39. The four key attributes of strategic management include all of the following EXCEPT: A. including multiple stakeholder interests in decision making B. incorporating both short-term and long-term perspectives C. recognizing the trade-offs between effectiveness and efficiency D. emphasis on the attainment of short-term objectives Answer: D. emphasis on the attainment of short-term objectives Rationale: The key attributes of strategic management are that it directs the organization toward overall goals and objectives, includes multiple stakeholders in decision making, needs to incorporate short-term and long-term perspectives, and recognizes trade-offs between efficiency and effectiveness. 40. Effectiveness is often defined as: A. doing things right B. stakeholder satisfaction C. doing the right thing D. productivity enhancement Answer: C. doing the right thing Rationale: Effectiveness is tailoring actions to the needs of an organization rather than wasting effort, or doing the right thing. 41. All of the following are ambidextrous behaviors EXCEPT: A. taking initiative and being alert to opportunities beyond the confines of one's own job B. being cooperative and seeking opportunities to combine one's efforts with others C. intensely focusing on the responsibilities of one individual and maximizing the output of the department in the organization in which that individual works D. being brokers, always looking to build internal linkages Answer: C. intensely focusing on the responsibilities of one individual and maximizing the output of the department in the organization in which that individual works Rationale: Ambidextrous behaviors include the following: (1) Individuals take time and are alert to opportunities beyond the confines of their own jobs; (2) they are cooperative and seek out opportunities to combine their efforts with others; (3) they are brokers, always looking to build internal networks; and (4) they are multitaskers, who are comfortable wearing more than one hat. 42. According to Henry Mintzberg, the realized strategies of a firm: A. are a combination of deliberate and emergent strategies B. are a combination of deliberate and differentiation strategies C. must be based on the strategic plan of the company D. must be kept confidential for competitive reasons Answer: A. are a combination of deliberate and emergent strategies Rationale: The final realized strategy of any firm is a combination of deliberate and emergent strategies. 43. According to Henry Mintzberg, decisions following from the strategic analysis of the firm are its: A. emergent strategy B. deliberate strategy C. intended strategy D. realized strategy Answer: C. intended strategy Rationale: Decisions following from analysis, in the alternative model by Mintzberg, constitute the intended strategy of the firm. 44. __________ may be considered the advance work that must be done in order to effectively formulate and implement strategies. A. Goal setting B. Corporate entrepreneurship C. Strategy analysis D. Organizational design Answer: C. Strategy analysis Rationale: Strategy analysis may be looked upon as the starting point of the strategic management process. It consists of the advance work that must be done in order to effectively formulate and implement strategies. 45. __________ involves ensuring proper strategic controls and organizational designs. A. Corporate governance B. Corporate-level strategy C. Strategy implementation D. Business-level strategy Answer: C. Strategy implementation Rationale: Strategy implementation involves ensuring proper strategic controls and organizational designs, which includes establishing effective means to coordinate and integrate activities within the firm as well as with its suppliers, customers, and alliance partners. 46. The three participants in corporate governance are: A. the shareholders, board of directors, and employees B. the shareholders, labor unions, and employees C. the shareholders, board of directors, and management D. the shareholders, banks and lending institutions, and management Answer: C. the shareholders, board of directors, and management Rationale: The primary participants in corporate governance are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors. 47. While working to prioritize and fulfill their responsibilities, members of the board of directors of an organization should: A. represent their own interests B. represent the interests of the shareholders C. direct all actions of the CEO D. emphasize the importance of short-term goals Answer: B. represent the interests of the shareholders Rationale: The board of directors (BOD) are the elected representatives of the shareholders charged with ensuring that the interests and motives of management are aligned with those of the owners (i.e., shareholders). 48. Members of boards of directors are: A. appointed by the Securities and Exchange Commission B. elected by the shareholders as their representatives C. elected by the public D. only allowed to serve one term of four years Answer: B. elected by the shareholders as their representatives Rationale: The board of directors (BOD) are the elected representatives of the shareholders charged with ensuring that the interests and motives of management are aligned with those of the owners (i.e., shareholders). 49. An organization is responsible to many different entities. In order to meet the demands of these groups, organizations must participate in stakeholder management. Stakeholder management means that: A. interests of the stockholders are not the only interests that matter B. stakeholders are second in importance to the stockholders C. stakeholders and managers inevitably work at cross-purposes D. all stakeholders receive financial rewards Answer: A. interests of the stockholders are not the only interests that matter Rationale: Stakeholder management is the strategy of the firm for recognizing and responding to the interests of all its salient stakeholders. 50. Stakeholders are: A. a new way to describe stockholders B. individuals, groups, and organizations who have a stake in the success of the organization C. creditors who hold a lien on the assets of the organization D. attorneys and their clients who sue the organization Answer: B. individuals, groups, and organizations who have a stake in the success of the organization Rationale: A stakeholder can be defined as an individual or group, inside or outside the company, that has a stake in and can influence an organization's performance. Each stakeholder group makes various claims on the company. 51. Procter and Gamble has perfected a technique for compacting cleaning powder into a liquid concentration. Consumers, retailers, shipping and wholesalers, and environmentalists all have benefited from the resulting change in consumer shopping habits and the revolution in industry supply-chain economics. According to the text, this is an example of __________. A. zero-sum relationship among stakeholders B. stakeholder symbiosis C. rewarding stakeholders D. emphasizing financial returns Answer: B. stakeholder symbiosis Rationale: Organizations can achieve mutual benefit through stakeholder symbiosis, which recognizes that stakeholders are dependent upon each other for their success and well-being. 52. There are several perspectives of competition. One perspective is zero-sum thinking. Zero-sum thinking means that: A. all parts of the organization gain at no loss B. in order for someone to gain others must experience no gain or benefit C. one can only gain at the expense of someone else D. everyone in the organization shares gains and losses equally Answer: C. one can only gain at the expense of someone else Rationale: In the zero-sum view, the role of management is to look upon the various stakeholders as competing for the resources of the organization. In essence, the gain of one individual or group is the loss of another individual or group. 53. Managers should do more than just focus on short-term financial performance. One concept that helps managers do this is stakeholder symbiosis. This means that: A. stakeholders are dependent on each other for their success B. stakeholders look out for their individual interests C. one can only gain at the expense of someone else D. all stakeholders want to maximize shareholder returns Answer: A. stakeholders are dependent on each other for their success Rationale: Organizations can achieve mutual benefit through stakeholder symbiosis, which recognizes that stakeholders are dependent upon each other for their success and well-being. 54. Firms must be aware of goals other than short-term profit maximization. One area of concern should be social responsibility which is: A. the expectation that business will strive to improve the overall welfare of society B. the idea that organizations are solely responsible to local citizens C. the fact that court costs could impact the financial bottom line D. the idea that businesses are responsible to maintain a healthy social climate for their employees Answer: A. the expectation that business will strive to improve the overall welfare of society Rationale: Social responsibility is the expectation that businesses or individuals will strive to improve the overall welfare of society. From the perspective of a business, this means that managers must take active steps to make society better by virtue of the business being in existence. 55. According to the text, the triple bottom line approach to corporate accounting includes three components: A. financial, environmental, and customer B. financial, organizational, and customer C. financial, environmental, and social D. financial, organizational, and psychological Answer: C. financial, environmental, and social Rationale: Many companies are now measuring what has been called a triple bottom line. This involves assessing financial, social, and environmental performance. 56. Many organizations have a large number of functional areas with very diverse and sometimes competing interests. Such organizations will be most effective if: A. each functional area focuses on achieving their own goals B. functional areas work together to attain overall goals C. goals are defined at the bottom and implemented at the top D. management and employees have separate goals Answer: B. functional areas work together to attain overall goals Rationale: Strategic management requires managers to take an integrative view of the organization and assess how all of the functional areas and activities fit together to help an organization achieve its goals and objectives. This cannot be accomplished if only the top managers in the organization take an integrative, strategic perspective of issues facing the firm and everyone else fends for themselves in their independent, isolated functional areas. Instead, people throughout the organization must strive toward overall goals. 57. Strategy formulation and implementation is a challenging ongoing process. To be effective, it should not involve: A. the CEO and the board of directors B. the board of directors, CEO, and CFO C. competitors D. line and staff managers Answer: C. competitors Rationale: To develop and mobilize people and other assets, leaders are needed throughout the organization. No longer can organizations be effective if the top does the thinking and the rest of the organization does the work. People throughout the organization must strive toward overall goals. 58. The text argues that a strategic perspective in an organization should be emphasized: A. at the top of the organization B. at the middle of the organization C. throughout the organization D. from the bottom up Answer: C. throughout the organization Rationale: No longer can organizations be effective if the top does the thinking and the rest of the organization does the work. People throughout the organization must strive toward overall goals. 59. Peter Senge, of MIT, recognized three types of leaders. __________ are individuals that, although having little positional power and formal authority, generate their power through the conviction and clarity of their ideas. A. Local line leaders B. Executive leaders C. Internal networkers D. Shop floor leaders Answer: C. Internal networkers Rationale: Internal networkers, although they have little positional power and formal authority, generate their power through the conviction and clarity of their ideas. 60. Peter Senge, of MIT, recognized three types of leaders. __________ champion and guide ideas, create a learning infrastructure, and establish a domain for taking action. A. Local line leaders B. Executive leaders C. Internal networkers D. Shop floor leaders Answer: B. Executive leaders Rationale: Executive leaders champion and guide ideas, create a learning infrastructure, and establish a domain for taking action. 61. Leadership is a necessary (but not sufficient) condition for organizational success. Leaders should emerge at which level(s) of an organization? A. only at the top B. in the middle C. throughout the organization D. only during times of change Answer: C. throughout the organization Rationale: To develop and mobilize people and other assets, leaders are needed throughout the organization. 62. The hierarchy of organizational goals is in this order (least specific to most specific): A. vision statements, strategic objectives, mission statements B. mission statements, strategic objectives, vision statements C. vision statements, mission statements, strategic objectives D. mission statements, vision statements, strategic objectives Answer: C. vision statements, mission statements, strategic objectives Rationale: Organizations express priorities best through stated goals and objectives that form a hierarchy of goals, which includes its vision, mission, and strategic objectives. What visions may lack in specificity, they make up for in their ability to evoke powerful and compelling mental images. On the other hand, strategic objectives tend to be more specific and provide a more direct means of determining if the organization is moving toward broader, overall goals. 63. Vision statements are used to create a better understanding of the overall purpose and direction of the organization. Vision statements: A. are very specific B. provide specific objectives C. set organizational structure D. evoke powerful and compelling mental images Answer: D. evoke powerful and compelling mental images Rationale: A vision is an organizational goal(s) that evoke(s) powerful and compelling mental images. 64. Effective vision statements include: A. all strategic directions of the organization B. a brief statement of the company's direction C. strategic posturing and future objectives D. financial objectives and projected figures Answer: B. a brief statement of the company's direction Rationale: A vision is a goal that is massively inspiring, overarching, and long term. It represents a destination that is driven by and evokes passion. What visions may lack in specificity, they make up for in their ability to evoke powerful and compelling mental images. 65. Examples of __________ include: To be the happiest place on earth (Disneyland), and Restoring patients to full life (Medtronic). A. vision statements B. mission statements C. strategic objectives D. operational objectives Answer: A. vision statements Rationale: One of the most famous examples of a vision is that of Disneyland (To be the happiest place on earth). Another example is that of Medtronic (Restoring patients to full life). 66. WellPoint Health Network states: WellPoint will redefine our industry: through a new generation of consumer-friendly products that put individuals back in control of their future. This is an example of a: A. strategic objective B. vision statement C. vague statement of direction D. line manager's individual goal Answer: B. vision statement Rationale: Effective visions provide a fundamental statement of the values, aspirations and goals of an organization. Such visions go well beyond narrow financial objectives, of course, and strive to capture both the minds and hearts of employees. 67. In contrast to the vision of an organization, its mission should: A. be shorter in length B. encompass both the purpose of the company as well as the basis of competition C. encompass all the major rules and regulations of the corporate work force D. be less detailed. Answer: B. encompass both the purpose of the company as well as the basis of competition Rationale: The mission statement of a company differs from its vision in that it encompasses both the purpose of the company as well as the basis of competition and competitive advantage. 68. The vision and mission statements of a company set the overall direction of the organization. Strategic objectives serve what role? A. operationalize the mission statement B. modify the mission statement C. are a shorter version of the mission statement D. are only clarified by the board of directors Answer: A. operationalize the mission statement Rationale: Strategic objectives are used to operationalize the mission statement. That is, they help to provide guidance on how the organization can fulfill or move toward the higher goals in the goal hierarchy, that of the mission and vision. 69. Successful organizations are effective in motivating people. Employees work best when: A. they are asked to do their best B. work requirements are vague and unclear C. they are striving toward specific goals D. they are guided by an abstract mission statement Answer: C. they are striving toward specific goals Rationale: Challenging objectives can help to motivate and inspire employees to higher levels of commitment and effort. Much research has supported the notion that people work harder when they are striving toward specific goals instead of being asked simply to do their best. 70. Fortune Brands states they will cut corporate overhead costs by $30 million a year. This is an example of a: A. nonfinancial strategic objective B. financial strategic objective C. vision statement D. mission statement Answer: B. financial strategic objective Rationale: Strategic objectives are used to operationalize the mission statement. This is an example of a financial strategic objective. 71. We want to be the top-ranked supplier to our customers. (PPG) This is an example of a: A. nonfinancial strategic objective B. financial strategic objective. C. vision statement D. mission statement Answer: A. nonfinancial strategic objective Rationale: Strategic objectives are used to operationalize the mission statement. This is an example of a nonfinancial strategic objective. 72. In large organizations, conflicts can arise between functional areas. In order to resolve these conflicts, strategic objectives: A. put financial objectives above human considerations B. align departments toward departmental goals C. help resolve conflicts through their common purpose D. cause debate and increase conflict Answer: C. help resolve conflicts through their common purpose Rationale: There is always the potential for different parts of an organization to pursue their own goals rather than overall company goals. Although well intentioned, these may work at cross-purposes to the organization as a whole. Meaningful objectives thus help to resolve conflicts when they arise. Essay Questions 73. The strategic management process includes strategy analysis, strategy formulation, and strategy implementation. Discuss each of these steps. Answer: The strategic management process involves three key steps: 1. Strategy Analysis: This involves assessing the internal and external environments of the organization to identify strengths, weaknesses, opportunities, and threats (SWOT analysis). 2. Strategy Formulation: This step involves developing strategies based on the analysis to achieve organizational goals, which may include corporate-level, business-level, and functional-level strategies. 3. Strategy Implementation: This involves putting the formulated strategies into action by allocating resources, establishing structures, and managing operations to achieve strategic objectives. 74. Discuss the key elements of corporate governance. Answer: The key elements of corporate governance include: 1. Board of Directors: A group of individuals elected to represent shareholders and ensure the company's management acts in the best interests of stakeholders. 2. Executive Management: Responsible for the day-to-day operations and implementing the board's strategic decisions. 3. Shareholder Rights: Ensuring that shareholders' interests are protected and they have a say in major decisions. 4. Transparency and Accountability: Providing clear, accurate, and timely information to stakeholders and holding management accountable for their actions. 75. A firm has a variety of stakeholders. Identify several possible stakeholders a firm may have and discuss how the firm may achieve stakeholder symbiosis. Answer: A firm may have stakeholders including employees, customers, suppliers, shareholders, and the community. Achieving stakeholder symbiosis involves: 1. Transparent Communication: Keeping all stakeholders informed and engaged. 2. Aligning Interests: Ensuring that the goals and objectives of different stakeholders are aligned. 3. Fostering Collaboration: Encouraging partnerships and teamwork among stakeholders. 4. Balancing Competing Needs: Making decisions that consider and respect the needs and concerns of all stakeholders to ensure mutual benefit and long-term success. 76. Leadership is a topic that is often discussed in the management literature. The text suggests that leaders should be at all levels in an organization. Discuss why it is important to have leaders throughout an organization. Answer: Having leaders throughout an organization is important because it promotes a culture of empowerment, where employees feel motivated and capable of making decisions. This leads to increased innovation and responsiveness to changes. Distributed leadership also ensures continuity, as leadership capabilities are developed at all levels, creating a resilient organization. Moreover, it enhances communication and collaboration, aligning the entire organization towards common goals. 77. According to the text, vision statements should be massively inspiring, overarching, and long term. Provide several examples of potential vision statements for various organizations and discuss how such vision statements would inspire employees around a cause. Answer: Creating inspiring vision statements involves articulating ambitious long-term goals that motivate and align employees towards a common purpose. Examples include: 1. Google: "To organize the world's information and make it universally accessible and useful." This vision statement inspires employees to innovate and improve global access to information. 2. Tesla: "To accelerate the world's transition to sustainable energy." This vision statement drives employees to develop cutting-edge technologies and solutions for a cleaner future. 3. Amazon: "To be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online." This vision encourages a relentless focus on customer satisfaction and innovation in e-commerce. Such vision statements inspire by setting a lofty goal that employees can rally around, fostering innovation, commitment, and a sense of purpose within the organization. 78. A mission statement encompasses the purpose of the company as well as the basis of competition and competitive advantage. Compare the purpose of a mission statement to that of a vision statement and a strategic objective. Answer: A mission statement defines the core purpose of a company, its primary objectives, and its approach to achieving them. It focuses on the present state and outlines what the organization does, who it serves, and how it operates competitively. In contrast, a vision statement outlines the aspirational goals and long-term objectives of the organization. It paints a picture of what the company aims to achieve in the future, inspiring and guiding strategic decisions. Strategic objectives, on the other hand, are specific, measurable goals that support the organization's mission and vision. They provide clear targets for achieving strategic initiatives and are typically time-bound and actionable, driving the organization towards its long-term vision. 79. Organizations must focus on financial and nonfinancial objectives. Select an organization and discuss possible financial and nonfinancial objectives the organization may have. Answer: Financial Objectives: 1. Revenue Growth: Increase annual revenue through product sales and services, aiming for sustainable growth in key markets. 2. Profitability: Maintain high-profit margins by optimizing product pricing strategies and cost efficiencies. 3. Return on Investment (ROI): Achieve attractive returns for shareholders through effective capital allocation and investment in innovation. Nonfinancial Objectives: 4. Customer Satisfaction: Enhance customer experience and loyalty through innovative product design, superior service, and ecosystem integration. 5. Environmental Sustainability: Reduce environmental footprint by investing in renewable energy, recycling programs, and sustainable product design. These objectives align Apple's financial goals with broader commitments to customer satisfaction and environmental responsibility, ensuring holistic organizational success and stakeholder value. 80. The text discusses several characteristics of effective strategic objectives. List several of these and discuss why the strategic objectives of a firm should meet these criteria. Answer: Several characteristics of effective strategic objectives include: 1. Specificity: Clearly defining what needs to be achieved. 2. Measurability: Establishing metrics to track progress and success. 3. Achievability: Setting goals that are realistic and attainable within the organization's capabilities. 4. Relevance: Aligning objectives with the organization's mission, vision, and overall strategic direction. 5. Time-bound: Establishing deadlines or timeframes for achieving objectives. Meeting these criteria ensures that strategic objectives are actionable, accountable, and contribute directly to the organization's success. Clear objectives provide focus and direction, facilitate alignment across teams, and enable effective resource allocation and performance evaluation. Chapter 02 Analyzing the External Environment of the Firm True/False Questions 1. Environmental scanning and competitor intelligence provide important inputs for forecasting activities. Answer: True Rationale: Three important processes (scanning, monitoring, and gathering competitive intelligence) are used to develop forecasts. 2. A hard trend is something that might happen and for which the probability that it might happen can be estimated. Answer: False Rationale: A soft trend is something that might happen and for which the probability that it might happen can be estimated. 3. A soft trend is a projection based on measureable facts, events, or objects. It is something that will happen. Answer: False Rationale: A hard trend is a projection based on measureable facts, events, or objects. It is something that will happen. 4. The aging of the population is a hard trend. Answer: True Rationale: A hard trend is a projection based on measureable facts, events, or objects. It is something that will happen. 5. A number of choices government officials make are based on projections about future interest rates. The projections are soft trends. Answer: True Rationale: A soft trend is something that might happen and for which the probability that it might happen can be estimated. 6. Environmental monitoring deals with tracking changes in environmental trends that are often uncovered during the environmental scanning process. Answer: True Rationale: Environmental monitoring tracks the evolution of environmental trends, sequences of events, or streams of activities. 7. Competitor Intelligence (CI) is a tool that can provide management with early warnings about both threats and opportunities. Answer: True Rationale: Competitive intelligence (CI) helps firms define and understand their industry and identify strengths and weaknesses of rivals. Done properly, competitive intelligence helps a company avoid surprises by anticipating competitor moves and decreasing response time. 8. Competitive intelligence generally does not benefit very much from gathering information on competitors from sources in the public domain. Answer: False Rationale: Competitive intelligence is frequently done effectively through public sources of information. Examples are evident in daily newspapers and periodicals such as The Wall Street Journal, BusinessWeek, and Fortune. For example, banks continually track home loan, auto loan, and certificate of deposit (CD) interest rates charged by rivals. Major airlines change hundreds of fares daily in response to competitor tactics. 9. Even with all of the advances in recent years, forecasting is typically considered more of an art than a science and it is of little use in generating accurate predictions. Answer: False Rationale: Environmental forecasting involves the development of plausible projections about the direction, scope, speed, and intensity of environmental change. Its purpose is to predict change. 10. Scenario planning is usually concerned with short-term forecasts. Answer: False Rationale: Scenario analysis is an in-depth approach to environmental forecasting that involves detailed assessments by experts of societal trends, economics, politics, technology, or other dimensions of the external environment. 11. The strengths and weaknesses of a SWOT analysis refer to the external conditions of the firm. Answer: False Rationale: The Strengths and Weaknesses refer to the internal conditions of the firm in which a firm excels (strengths) and where it may be lacking relative to competitors (weaknesses). 12. The opportunities and threats of a SWOT analysis refer to the internal conditions of the firm. Answer: False Rationale: The Opportunities and Threats are environmental conditions external to the firm. These could be factors either in the general or competitive environment. In the general environment, one might experience developments beneficial for most companies such as improving economic conditions, that lower borrowing costs or trends that benefit some companies and harm others. 13. To understand the business environment of a particular firm, you need to analyze both the general environment and the firm industry and competitive environment. Answer: True Rationale: Generally, firms compete with other firms in the same industry. An industry is composed of a set of firms that produce similar products or services, sell to similar customers, and use similar methods of production. Gathering industry information and understanding competitive dynamics among the different companies in your industry is key to successful strategic management. To understand the business environment of a particular firm, you need to analyze both the general environment and the firm industry and competitive environment. 14. Although changes in the general environment may often adversely or favorably impact a firm, they seldom alter an entire industry. Answer: False Rationale: The general environment is composed of factors that can have dramatic effects on firm strategy. 15. The impact of a demographic trend varies across industries. Answer: True Rationale: The impact of a demographic trend, like all segments of the general environment, varies across industries. Rising levels of affluence in many developed countries bode well for brokerage services as well as for upscale pets and supplies. However, this trend may adversely affect fast-food restaurants because people can afford to dine at higher-priced restaurants. 16. A major sociocultural trend in the United States is the increased educational attainment by women. Answer: True Rationale: Increased educational attainment by women in the workplace has led to more women in upper management positions. Given such educational attainment, it is hardly surprising that companies owned by women have been one of the driving forces of the U.S. economy. 17. Technological innovations can create entirely new industries and alter the boundaries of industries. Answer: True Rationale: Developments in technology lead to new products and services and improve how they are produced and delivered to the end user. Innovations can create entirely new industries and alter the boundaries of existing industries. 18. There is generally a weak relationship between equity markets (e.g., New York Stock Exchange) and economic indicators. Answer: False Rationale: Economic indicators are associated with equity markets. When stock market indexes increase, consumer discretionary income rises and there is often an increased demand for luxury items such as jewelry and automobiles. 19. The Internet is a leading component in the rising emergence of digital technology. Answer: True Rationale: The Internet has been a leading and highly visible component of a broader technological phenomenon—the emergence of digital technology. These technologies are altering the way business is conducted and are having an effect on nearly every business domain. 20. Crowdsourcing is used by companies to develop products. Answer: True Rationale: In June 2006, Wired magazine defined crowdsourcing as the tapping of the latent talent of the (online) crowd. It has become the term of choice for a process that is infiltrating many aspects of business life and has claimed some well-known successes, particularly on the product development front. 21. The Porter Five-Forces model is designed to help us understand how social attitudes and cultural values impact U.S. businesses. Answer: False Rationale: The five-forces model developed by Michael E. Porter has been the most commonly used analytical tool for examining the competitive environment. It describes the competitive environment in terms of five basic competitive forces. 22. The five-forces model helps to determine both the nature of competition in an industry and the profit potential for the industry. Answer: True Rationale: The five-forces model developed by Michael E. Porter describes the competitive environment in terms of five basic competitive forces that affect the ability of a firm to compete in a given market. Together, they determine the profit potential for a particular industry. 23. In some industries, high switching costs can act as an important barrier to entry. Answer: True Rationale: A barrier to entry is created by the existence of one-time costs that the buyer faces when switching from one supplier's product or service to another. 24. Industries characterized by high economies of scale typically attract fewer new entrants. Answer: True Rationale: Economies of scale refers to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the absolute volume per period increases. This deters entry by forcing the entrant to come in at a large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage. Both are undesirable options. 25. The power of a buyer group is increased if the buyer group has less concentration than the supplier group. Answer: False Rationale: A buyer group is powerful when it is concentrated or purchases large volumes relative to seller sales. If a large percentage of a supplier sales are purchased by a single buyer, the importance of the buyer business to the supplier increases. 26. Buyer power tends to be higher if suppliers provide undifferentiated or standard products. Answer: True Rationale: A buyer group is powerful when the products it purchases from the industry are standard or undifferentiated. Confident they can always find alternative suppliers, buyers play one company against the other. 27. Supplier power tends to be highest in industries where products are vital to buyers, where switching from one supplier to another is very costly, and where there are many suppliers. Answer: False Rationale: A supplier group will be powerful when the supplier group is dominated by a few companies, the supplier product is an important input to the buyer business, or the supplier has built up switching costs for the buyer. 28. The power of suppliers will be enhanced if they are able to maintain a credible threat of forward integration. Answer: True Rationale: A supplier group will be powerful when the supplier group poses a credible threat of forward integration. This provides a check against the industry ability to improve the terms by which it purchases. 29. The more attractive the price/performance ratio of substitute products, the tighter it constrains the ability of an industry to charge high prices. Answer: True Rationale: Substitutes limit the potential returns of an industry by placing a ceiling on the prices that firms in that industry can charge profitably. The more attractive the price/performance ratio of substitute products, the tighter the lid will be on the profits of that industry. 30. Rivalry is most intense when there are high exit barriers and high industry growth. Answer: False Rationale: Intense rivalry is the result of several interacting factors including: numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, and high exit barriers. 31. Rivalry will be most intense when there is a lack of differentiation or switching costs. Answer: True Rationale: Where the product or service is perceived as a commodity or near commodity, the buyer's choice is typically based on price and service, resulting in pressures for intense price and service competition. Lack of switching costs has the same effect. 32. In most industries, new entrants will be a bigger threat because the Internet lowers entry barriers. Answer: True Rationale: In most industries, the threat of new entrants has increased because digital and Internet-based technologies lower barriers to entry. For example, businesses that reach customers primarily through the Internet may enjoy savings on other traditional expenses such as office rent, sales-force salaries, printing, and postage. This may encourage more entrants who, because of the lower start-up expenses, see an opportunity to capture market share by offering a product or performing a service more efficiently than existing competitors. Thus, a new cyber entrant can use the savings provided by the Internet to charge lower prices and compete on price despite the incumbent's scale advantages. 33. The Internet and digital technologies suppress the bargaining power of buyers by providing them with more information to make buying decisions. Answer: False Rationale: The Internet and wireless technologies may increase buyer power by providing consumers with more information to make buying decisions and by lowering switching costs. 34. Switching costs for an end user are likely to be much higher because of the Internet. Answer: False Rationale: Switching costs for an end user are also potentially much lower because of the Internet. Switching may involve only a few clicks of the mouse to find and view a competing product or service online. 35. Because of the Internet and digital technologies, it is very difficult for suppliers to create purchasing techniques that lower switching costs. Answer: False Rationale: Suppliers may be able to create Web-based purchasing arrangements that make purchasing easier and discourage their customers from switching. 36. Reintermediation is responsible for an overall reduction in business opportunities. Answer: False Rationale: Just as the Internet is eliminating some business functions, it is creating an opening for new functions. These new activities are entering the value chain by a process known as reintermediation. 37. The Internet heightens the threat of substitutes because it creates new ways to accomplish the same task. Answer: True Rationale: Along with traditional marketplaces, the Internet has created a new marketplace and channel. In general, the threat of substitutes is heightened, because the Internet introduces new ways to accomplish the same tasks. 38. Five-Forces analysis implicitly assumes a zero-sum game, a perspective that can be short-sighted. Answer: True Rationale: Five-forces analysis implicitly assumes a zero-sum game, determining how a firm can enhance its position relative to the forces. Yet such an approach can often be short-sighted. It can overlook the many potential benefits of developing constructive win-win relationships with suppliers and customers. 39. Michael Porter's Five-Forces Analysis is a dynamic tool for analyzing industry attractiveness. Answer: False Rationale: The five-forces analysis also has been criticized for being essentially a static analysis. External forces as well as strategies of individual firms are continually changing the structure of all industries. 40. Complement products typically have no impact on the value of products and services of the firm. Answer: False Rationale: Complements typically are products or services that have a potential impact on the value of products or services of the firm. Powerful hardware is of no value to a user, unless there is software that runs on it. 41. Competition tends to be more intense among firms within a strategic group than between strategic groups. Answer: True Rationale: Strategic groups are clusters of firms that share similar strategies. Rivalry tends to be greater among firms that are alike. 42. The same environmental trend or event may have a very different impact on different strategic groups within the same industry. Answer: True Rationale: Strategic groups are helpful in thinking through the implications of each industry trend for the strategic group as a whole. Such analysis can help in making predictions about industry evolution. A sharp increase in interest rates, for example, tends to have less impact on providers of higher-priced goods (e.g., Porsches) than on providers of lower-priced goods (e.g., Chevrolet Cobalt) whose customer base is much more price sensitive. 43. The use of the strategic group concept is generally not helpful in charting the future directions of the strategies of a firm. Answer: False Rationale: Strategic groupings help chart the future directions of the strategies of a firm. Arrows emanating from each strategic group can represent the direction in which the group (or a firm within the group) seems to be moving. If all strategic groups are moving in a similar direction, this could indicate a high degree of future volatility and intensity of competition. 44. The strategic groups in the worldwide automobile industry have been very stable and unchanging in recent years. Answer: False Rationale: The auto market has been very dynamic and competition has intensified in recent years. Many firms in different strategic groups compete in the same product markets. Multiple Choice Questions 45. Two of the key inputs to developing forecasts discussed in the text are: A. environmental scanning and stakeholder identification. B. environmental scanning and competitor intelligence. C. assessing internal strengths and environmental scanning. D. environmental scanning and a SWOT analysis. Answer: B. environmental scanning and competitor intelligence. Rationale: Three important processes (scanning, monitoring, and gathering competitive intelligence) are used to develop forecasts. 46. _____________ tracks the evolution of environmental trends, sequences of events, or streams of activities. A. Environmental scanning B. Environmental monitoring C. Environmental surveying D. Competitive intelligence Answer: B. Environmental monitoring Rationale: Environmental monitoring tracks the evolution of environmental trends, sequences of events, or streams of activities. Monitoring enables firms to evaluate how dramatically environmental trends are changing the competitive landscape. 47. Taking advantage of the increasing penetration of personal computers in American homes, the Mayo Clinic transformed itself as a provider of health-related knowledge and expertise. It took advantage of the ________ trends of the _________ in the prices of PCs and the ____________ presence of PCs in virtually every home in the U.S. A. soft; increase; increasing B. soft; decrease; decreasing C. hard; decrease; decreasing D. hard; decrease; increasing Answer: D. hard; decrease; increasing Rationale: A hard trend is a projection based on measurable facts, events, or objects. It is something that will happen. The aging of the population is a hard trend. So is the increasing speed and decreasing cost of computers. 48. Scanning the general environment would identify information on _______________. A. substitute goods B. the aging population and ethnic shifts C. customer and firm bargaining power D. competitive rivalry Answer: B. the aging population and ethnic shifts Rationale: Environmental scanning involves surveillance of the external environment of a firm to predict environmental changes and detect changes already under way. This alerts the organization to critical trends and events before changes develop a discernible pattern and before competitors recognize them. 49. Which of the following is not an example of corporate competitive analysis? A. Banks tracking home loans B. Airlines changing hundreds of fares daily in response to competitor tactics C. Car manufacturers offering sales incentives based on rival offers D. Consumers comparing product offers online Answer: D. Consumers comparing product offers online Rationale: Corporate competitive intelligence is the activity of collecting and interpreting data on competitors, defining and understanding the industry, and identifying competitor strengths and weaknesses in order to avoid surprises by anticipating competitor moves and decreasing response time. 50. Gathering competitive intelligence ___________. A. is good business practice B. is illegal C. is considered unethical D. minimizes the need to obtain information in the public domain Answer: A. is good business practice Rationale: Competitive intelligence (CI) helps firms define and understand their industry and identify strengths and weaknesses of rivals. This includes the intelligence gathering associated with collecting data on competitors and interpreting such data. 51. Environmental forecasting does not involve plausible projections about the ________ of environmental change. A. direction B. scope C. speed D. lack of intensity Answer: D. lack of intensity Rationale: Environmental forecasting involves the development of plausible projections about the direction, scope, speed, and intensity of environmental change. Its purpose is to predict change. 52. A danger of forecasting discussed in the text is that _____________. A. in most cases, the expense of collecting the necessary data exceeds the benefit B. the retrospective nature of forecasting provides little information about the future C. managers may view uncertainty as black and white while ignoring important gray areas D. it can create legal problems for the firm if regulators discover the company is making forecasts Answer: C. managers may view uncertainty as black and white while ignoring important gray areas Rationale: A danger of forecasting is that managers may view uncertainty as black and white and ignore important gray areas. The problem is that underestimating uncertainty can lead to strategies that neither defend against threats nor take advantage of opportunities. 53. PPG Industries, the Pittsburgh-based manufacturer of paints, coatings, optical products, specialty materials, chemicals, glass, and fiber glass suffered serious failures in 1986 and 1987 when it attempted to diversify its offers. It used a technique to help it identify possible future strategies. What was it? A. crowdsourcing B. scenario analysis C. competitive intelligence D. monitoring Answer: B. scenario analysis Rationale: Scenario analysis is a more in-depth approach to forecasting. It draws on a range of disciplines and interests, among them economics, psychology, sociology, and demographics. It usually begins with a discussion of participant thoughts on ways in which societal trends, economics, politics, and technology may affect an issue. Developing strategies based on possible future scenarios seems to be paying off for PPG Industries. The company currently boasts a return on equity of 19.1 percent and its stock has had a total return of over 43 percent over the most recent 52-week period. 54. SWOT analysis is a framework for analyzing the internal and external environment of a company. It consists of strengths, weaknesses, opportunities, and threats. According to a SWOT analysis, which of the following is not an aspect that the strategy of the firm must follow? A. build on its weaknesses B. remedy the weaknesses or work around them C. take advantage of the opportunities presented by the environment D. protect the firm from the threats Answer: A. build on its weaknesses Rationale: The general idea of SWOT analysis is that a firm's strategy must build on its strengths, remedy its weaknesses or work around them, take advantage of the opportunities presented by the environment, and protect the firm from the threats. Despite its apparent simplicity, the SWOT approach has been very popular. First, it forces managers to consider both internal and external factors simultaneously. Second, its emphasis on identifying opportunities and threats makes firms act proactively rather than reactively. Third, it raises awareness about the role of strategy in creating a match between the environmental conditions and the firm's internal strengths and weaknesses. Finally, its conceptual simplicity is achieved without sacrificing analytical rigor. 55. The aging of the population, changes in ethnic composition, and effects of the baby boom are _______. A. macroeconomic changes B. demographic changes C. global changes D. sociocultural changes Answer: B. demographic changes Rationale: Demographics are genetic and observable characteristics of a population, including elements such as the aging population, rising or declining affluence, changes in ethnic composition, geographic distribution of the population, and disparities in income level. 56. Larger numbers of women entering the work force since the early 1970s is an example of ________. A. demographic changes B. political and legal environmental changes C. sociocultural changes D. technological developments Answer: C. sociocultural changes Rationale: Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples include a higher percentage of women in the workforce. 57. Emerging sociocultural changes in the environment include ____________. A. changes in the ethnic composition B. the increasing educational attainment of women in the past decade C. progressively less disposable income by consumers D. changes in the geographic distribution of the population Answer: B. the increasing educational attainment of women in the past decade Rationale: Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples include an increased educational attainment by women in the workplace. 58. All of the following are important elements of the political/legal segment of the general environment EXCEPT: A. the deregulation of utilities B. the Americans with Disabilities Act (ADA) C. the increased use of Internet technology D. increases in the federally mandated minimum wage Answer: C. the increased use of Internet technology Rationale: Political processes and legislation influence environmental regulations with which industries must comply. Some elements of the political/legal arena include the Americans with Disabilities Act (ADA) of 1990, deregulation of utilities, and increases in the federally mandated minimum wage. 59. Which of the following would be considered part of a firm's general environment? A. decreased entry barriers B. higher unemployment rates C. increased bargaining power of the firm's suppliers D. increased competitive intensity Answer: B. higher unemployment rates Rationale: The general environment is divided into six segments: demographic, sociocultural, political/legal, technological, economic, and global. 60. Interest-rate increases have a __________ impact on the residential home construction industry and a __________ effect on industries that produce consumer necessities such as prescription drugs or basic grocery items. A. positive; negligible B. negative; negligible C. negative; positive D. positive; negative Answer: B. negative; negligible Rationale: Interest-rate increases have a negative impact on the residential home construction industry but a negligible (or neutral) effect on industries that produce consumer necessities such as prescription drugs or common grocery items. 61. In the general environment, many relationships exist among the various elements. General environmental trends can have positive and negative impacts on various industries. For example, the aging population might have a ______ impact on the health care industry and a ______ impact on the baby product industry. These are called _____________ impacts. A. negative; positive; demographic B. positive; negative; technological C. negative; positive; sociocultural D. positive; negative; demographic Answer: B. positive; negative; technological Rationale: The general environment is divided into six segments: demographic, sociocultural, political/legal, technological, economic, and global. The aging population is a demographic trend that could positively affect the health care industry and negatively affect the baby product industry. 62. Which is considered a force in the Five-Forces model? A. increased deregulation in an industry B. the threat of government intervention C. rivalry among competing firms D. recent technological innovation Answer: C. rivalry among competing firms Rationale: The five-forces model describes the competitive environment in terms of five basic competitive forces: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in an industry. 63. Which of the following firms would likely pose the least competitive threat? A. a firm in the same industry and in the same strategic group B. a firm that produces substitute goods to your product line C. a competitor to your product where a high switching cost exists D. a firm in the same industry and in the nearest strategic group looking to join your group Answer: C. a competitor to your product where a high switching cost exists Rationale: The competitive threat of intense rivalry can result from lack of differentiation or switching costs. When switching costs are high, this threat is lowered. 64. The threat of new entrants is high when there are _________. A. low economies of scale B. high capital requirements C. high switching costs D. high differentiation among competitors products and services Answer: A. low economies of scale Rationale: High entry barriers discourage new competitors. Among the major sources of entry barriers are economies of scale, product differentiation, capital requirements, and switching costs. 65. Product differentiation by incumbents act as an entry barrier because __________. A. new entrants cannot differentiate their products B. incumbents will take legal action if new entrants do not differentiate their products C. new entrants will have to spend heavily to overcome existing customer loyalties D. it helps a firm to derive greater economies of scale Answer: C. new entrants will have to spend heavily to overcome existing customer loyalties Rationale: When existing competitors have strong brand identification and customer loyalty, differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome existing customer loyalties. 66. Which of the following would be an entry barrier? A. large economies of scale B. low switching costs C. easy access to raw materials D. low capital requirements Answer: A. large economies of scale Rationale: Among the major sources of entry barriers are economies of scale, product differentiation, capital requirements, switching costs, and access to raw materials and distribution channels. 67. An automobile manufacturer acquires a rental car company. This is an example of _____. A. backward integration B. economies of scale C. forward integration D. product differentiation Answer: C. forward integration Rationale: An example of forward integration in the text is an automobile manufacturer acquiring a rental car company. In this case, the automobile manufacturer is a potential competitor who is using forward integration to increase marketplace power. 68. The bargaining power of the buyer is greater than that of the supplier when __________. A. volume of purchase is low B. threat of backward integration by buyers is low C. cost savings from the supplier's product are minimal D. the buyer's profit margin is low Answer: D. the buyer's profit margin is low Rationale: A buyer group is powerful when it is concentrated or purchases large volumes relative to seller sales, it earns low profits, or the buyers pose a credible threat of backward integration. 69. Buyer power will be greater when _______. A. the products purchased are highly differentiated B. there are high switching costs C. the industry product is very important to the quality of the buyer end products or services D. it is concentrated or when a buyer group purchases large volumes relative to seller sales Answer: D. it is concentrated or when a buyer group purchases large volumes relative to seller sales Rationale: A buyer group is powerful when it is concentrated or purchases large volumes relative to seller sales, the products it purchases from the industry are standard or undifferentiated, the buyer faces few switching costs, or the industry product is unimportant to the quality of the buyer products or services. 70. The bargaining power of suppliers increases as ____________. A. more suppliers enter the market B. importance of buyers to supplier group increases C. switching costs for buyers decrease D. threat of forward integration by suppliers increases Answer: D. threat of forward integration by suppliers increases Rationale: A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the industry is not an important customer of the supplier group; the supplier group's products are differentiated or it has built up switching costs for the buyer; or the supplier group poses a credible threat of forward integration. 71. New communication technology can impact seemingly unrelated industries such as the airline industry. This would be an example of a ______________. A. threat of entry B. backward integration C. forward integration D. threat of substitute products Answer: D. threat of substitute products Rationale: Identifying substitute products involves searching for other products or services that can perform the same function as the industry's offerings. This may lead a manager into businesses seemingly far removed from the industry. For example, the airline industry might not consider video cameras much of a threat. But as digital technology has improved and wireless and other forms of telecommunication have become more efficient, teleconferencing has become a viable substitute for business travel. 72. The bargaining power of suppliers is enhanced under the following market condition: A. no threat of forward integration B. low differentiation of the supplier products C. greater availability of substitute products D. dominance by a few suppliers Answer: D. dominance by a few suppliers Rationale: A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the supplier group is not obliged to contend with substitute products for sale to the industry; the supplier group's products are differentiated or it has built up switching costs for the buyer; or the supplier group poses a credible threat of forward integration. 73. In the Five-Forces model, conditions under which a supplier group can be powerful include all the following EXCEPT: A. lack of importance of the buyer to the supplier group B. high differentiation by the supplier C. dominance by a few suppliers D. readily available substitute products Answer: D. readily available substitute products Rationale: A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the supplier group is not obliged to contend with substitute products for sale to the industry; the supplier group's products are differentiated or it has built up switching costs for the buyer; or the industry is not an important customer of the supplier group. 74. A supplier group would be most powerful when _________. A. there are many suppliers B. there are few substitute products C. there is a low differentiation of products supplied D. there is a high threat of backward integration by the buyers Answer: B. there are few substitute products Rationale: A supplier group will be powerful when the supplier group is dominated by a few companies and is more concentrated (few firms dominate the industry) than the industry it sells to; the supplier group is not obliged to contend with substitute products for sale to the industry; the supplier group products are differentiated or it has built up switching costs for the buyer; or the supplier group poses a credible threat of forward integration. 75. Threat of substitute products comes from ____________. A. other companies in the same industry B. foreign companies which can use cheap labor in their countries C. firms in other industries that produce products or services that satisfy the same customer need D. new companies in the same industry Answer: C. firms in other industries that produce products or services that satisfy the same customer need Rationale: Substitute products are those products or services that can perform the same function as the industry offerings. They may be offered by businesses seemingly far removed from the industry. 76. Firms would be most likely to face intense rivalry with competitors when they _________. A. are in a high growth industry with low fixed costs B. are in a protected market C. have high fixed costs D. have low exit barriers for easy transition to another industry Answer: C. have high fixed costs Rationale: Intense rivalry is the result of several interacting factors, including the following: numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, or high exit barriers. 77. The most intense rivalry results from _____________. A. numerous equally balanced competitors, slow industry growth, high fixed or storage costs B. few competitors, slow industry growth, lack of differentiation, high fixed or storage costs C. numerous equally balanced competitors, manufacturing capacity increases only in large increments, low exit barriers D. a high level of differentiation Answer: A. numerous equally balanced competitors, slow industry growth, high fixed or storage costs Rationale: Intense rivalry is the result of several interacting factors, including the following: numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, or high exit barriers. 78. Exit barriers do not arise from ________. A. specialized assets with no alternative use B. governmental and social pressures C. strategic interrelationships with other business units within the same company D. flexible costs of exit Answer: D. flexible costs of exit Rationale: Exit barriers are economic, strategic, and emotional factors that keep firms competing even though they may be earning low or negative returns on their investments. Some exit barriers are specialized assets, fixed costs of exit, strategic interrelationships (e.g., relationships between the business units and others within a company in terms of image, marketing, shared facilities, and so on), emotional barriers, and government and social pressures (e.g., governmental discouragement of exit out of concern for job loss). 79. Because the Internet lowers barriers to entry in most industries, it ________. A. decreases the threat of new entrants B. increases the threat of new entrants C. makes it easier to build customer loyalty D. increases supplier power Answer: B. increases the threat of new entrants Rationale: In most industries, the threat of new entrants has increased because digital and Internet-based technologies lower barriers to entry. Internet businesses may enjoy savings on traditional expenses which may encourage more entrants who see an opportunity to capture market share by offering a product or performing a service more efficiently than existing competitors. 80. End users are not ____________. A. the final consumers in a distribution channel B. usually the C in B2C C. likely to have greater bargaining power because of the Internet D. the first customers in a distribution channel Answer: D. the first customers in a distribution channel Rationale: End users are the final customers in a distribution channel. Sales activity that is labeled B2C is concerned with end users. The Internet is likely to increase the power of these buyers, in part because the Internet provides large amounts of consumer information. 81. Incumbent firms may enjoy increased bargaining power because the Internet ___________. A. focuses marketing efforts on end users B. diminishes the power of many distribution channel intermediaries C. increases channel conflict D. has reduced the number of wholesalers and distributors Answer: B. diminishes the power of many distribution channel intermediaries Rationale: In some industries, buyer channel intermediaries are dominated by powerful players that control who gains access to the latest goods or the best merchandise. The Internet and wireless communications, however, make it much easier and less expensive for businesses to reach customers directly. Thus, the Internet may increase the power of incumbent firms relative to that of traditional buyer channels. 82. Supplier power has increased because of the Internet for all of the following reasons EXCEPT: A. the growth of new Web-based businesses has created more outlets for suppliers to sell to B. some suppliers have created Web-based purchasing systems that encourage switching C. the process of disintermediation makes it possible for some suppliers to reach end users directly D. software that links buyers to a supplier's website has created rapid, low-cost order capabilities Answer: B. some suppliers have created Web-based purchasing systems that encourage switching Rationale: Several factors contribute to stronger supplier power. First, Web-based business may create more downstream outlets for suppliers to sell to. Second, Web-based purchasing arrangements make purchasing easier and discourage customers from switching. Online procurement systems directly link suppliers and customers, reducing transaction costs and paperwork. Third, the use of proprietary software that links buyers to a supplier website may create a rapid, low-cost ordering capability that discourages the buyer from seeking other sources of supply. Finally, suppliers will have greater power to the extent that they can reach end users directly without intermediaries. 83. In general, the threat of substitutes is heightened because the Internet ____________. A. introduces new ways to accomplish the same task B. lowers switching costs C. lowers barriers to entry D. increases output per unit of cost Answer: A. introduces new ways to accomplish the same task Rationale: Along with traditional marketplaces, the Internet has created a new marketplace and a new channel. In general, therefore, the threat of substitutes is heightened because the Internet introduces new ways to accomplish the same tasks. 84. How do infomediaries and consumer information websites increase the intensity of competitive rivalry? A. by shifting customers away from issues of price B. by making competitors in cyberspace seem less equally balanced C. by consolidating the marketing message that consumers use to make a purchase decision to a few key pieces of information that the selling company has little control over D. by highlighting unique selling advantages of a firm Answer: C. by consolidating the marketing message that consumers use to make a purchase decision to a few key pieces of information that the selling company has little control over Rationale: Some shopping infomediaries, such as CNET, not only search for the lowest prices on many different products but also rank the customer service quality of different sites that sell similarly priced items. They increase rivalry by consolidating the marketing message that consumers use to make a purchase decision into a few key pieces of information over which the selling company has little control. 85. The value net is a game-theoretic approach that _____________. A. extends the value chain analysis B. is a way to analyze all the players in a game and analyze how their interactions affect the ability of a firm to generate and appropriate value C. helps us to understand the evolution of the five forces over time D. uses network analysis to understand the relationships among different companies Answer: B. is a way to analyze all the players in a game and analyze how their interactions affect the ability of a firm to generate and appropriate value Rationale: Based on game-theoretic considerations, Brandenburger and Nalebuff recently introduced the concept of the value net, which in many ways is an extension of the five-forces analysis. The value net represents all the players in the game and analyzes how their interactions affect a firm's ability to generate and appropriate value. 86. In the value net analysis, complementors are _________________. A. firms that produce substitute products B. customers who compliment the company for their good products and services C. firms that produce products or services that have a positive impact on the value of firm products or services D. firms that supply critical inputs to a company Answer: C. firms that produce products or services that have a positive impact on the value of firm products or services Rationale: Complements typically are products or services that have a potential impact on the value of firm's own products or services. Those who produce complements are usually referred to as complementors. Powerful hardware is of no value to a user unless there is software that runs on it. 87. Strategic groups consist of ________________. A. a group of top executives that makes strategies for a company B. a group of firms within an industry that follows similar strategies C. a group of executives drawn from different companies within an industry that makes decisions on industry standards D. a group of firms within an industry that decides to collude rather than compete with each other so that they can increase their profits Answer: B. a group of firms within an industry that follows similar strategies Rationale: Strategic groups are clusters of firms that share similar strategies. Rivalry tends to be greater among firms that are alike. 88. Which of the following statements about strategic groups is FALSE? A. Two assumptions are made: (1) no two firms are totally different, (2) no two firms are exactly the same. B. Strategic groupings are of little help to a firm in assessing mobility barriers that protect a group from attacks by other groups. C. Strategic groups help chart the future directions of firm strategies. D. Strategic groups are helpful in thinking through the implications of each industry trend for the group as a whole. Answer: B. Strategic groupings are of little help to a firm in assessing mobility barriers that protect a group from attacks by other groups. Rationale: In an industry analysis, two assumptions are unassailable: (1) no two firms are totally different, and (2) no two firms are exactly the same. What value is the strategic group concept as an analytical tool? First, strategic groupings help a firm identify barriers to mobility that protect a group from attacks by other groups. They also help chart the future directions of firm strategies and are helpful in thinking through the implications of each industry trend for the strategic group as a whole. Essay Questions 89. Explain how competitor intelligence can be improved by gathering information about competitors in the public domain. Provide examples. Answer: Competitor intelligence can be improved by analyzing publicly available information, such as competitors' websites, press releases, social media, and financial reports. For example, examining product announcements can reveal strategic priorities, while social media activity can provide insights into customer feedback and engagement strategies. Additionally, analyzing patent filings can uncover technological advancements and future plans. Public financial reports offer a window into a competitor’s financial health and investment areas. This comprehensive approach enables informed strategic decisions. 90. Discuss some of the limitations of forecasting. Answer: Forecasting has several limitations, including the unpredictability of future events, which can lead to inaccurate predictions. It often relies on historical data, which may not account for sudden market changes or innovations. Forecasting models can be biased by assumptions and subjective judgments. External factors like economic shifts, political changes, or natural disasters can also disrupt forecasts. Additionally, the complexity of accurately modeling human behavior and market dynamics poses a significant challenge. 91. Discuss the six segments of the general environment. Provide examples of how they might be related. Answer: The six segments of the general environment are political, economic, sociocultural, technological, environmental, and legal. For example, technological advancements (technological) can drive new regulations (legal) to ensure safety, which in turn affects market conditions (economic). Sociocultural shifts, such as increased environmental awareness, can lead to new environmental regulations and political actions. Economic downturns can influence sociocultural trends, such as reduced consumer spending, which affects market demand and innovation. These interconnected segments create a dynamic environment for businesses. 92. Explain the important barriers to entry in an industry. Provide examples. Answer: Important barriers to entry in an industry include high capital requirements, such as the significant investment needed to build manufacturing facilities (e.g., automobile industry). Economies of scale make it difficult for new entrants to compete with established firms that produce at lower costs (e.g., retail giants like Walmart). Strong brand identity and customer loyalty, seen in companies like Apple, create challenges for new competitors. Regulatory requirements, such as stringent safety and environmental standards in the pharmaceutical industry, can also deter new entrants. Access to distribution channels can be limited, favoring established companies. 93. Discuss and provide examples of factors that would lead to greater buyer power. Answer: Factors leading to greater buyer power include the availability of alternative suppliers, allowing buyers to switch easily (e.g., in the commodity markets). High product standardization reduces dependency on specific suppliers (e.g., generic pharmaceuticals). Large purchase volumes can give buyers more negotiating leverage (e.g., large retailers like Costco). Access to information about market prices and supplier costs empowers buyers (e.g., through online price comparison tools). When buyers can integrate backward and produce the product themselves, it increases their power over suppliers (e.g., automotive companies manufacturing their own components). 94. What are some of the factors that would cause a supplier group to become powerful? Illustrate. Answer: Factors that increase supplier power include a limited number of suppliers, which reduces buyer options (e.g., diamond suppliers like De Beers). When suppliers provide unique or differentiated products that are essential to the buyer's business, it strengthens their position (e.g., high-end semiconductor manufacturers). High switching costs for buyers discourage changing suppliers (e.g., enterprise software providers like SAP). Suppliers gaining power can also occur when they can integrate forward and sell directly to consumers (e.g., Apple opening its own retail stores). Lastly, if suppliers serve multiple industries, they can reduce dependency on any single industry (e.g., chemical suppliers). 95. Several factors usually interact which result in intense rivalry among competitors. Explain. Answer: Intense rivalry among competitors arises from factors such as numerous or equally balanced competitors, leading to constant competition (e.g., the airline industry). Slow industry growth forces firms to fight for market share (e.g., traditional retail). High fixed or storage costs drive companies to cut prices to maintain volume (e.g., hotel industry). Lack of differentiation makes it easy for customers to switch between competitors (e.g., fast food chains). Additionally, high exit barriers prevent companies from leaving the market, sustaining competition (e.g., steel manufacturing). 96. Address how Internet and digital technologies affect the Porter five forces. Answer: Internet and digital technologies impact Porter's Five Forces by increasing buyer power through easy access to information and alternatives (e.g., online price comparisons). They lower barriers to entry by reducing startup costs and providing online platforms (e.g., e-commerce). Supplier power can decrease as digital marketplaces broaden sourcing options (e.g., Alibaba). They enhance competitive rivalry by expanding the market reach and enabling rapid innovation (e.g., tech startups). Additionally, the threat of substitutes rises as digital solutions offer new ways to meet consumer needs (e.g., streaming services replacing cable TV). 97. Explain how the value net analysis adds to the five-forces analysis. Be sure to include examples from at least two industries. Answer: Value net analysis complements the five-forces analysis by focusing on cooperative relationships that can create mutual value, not just competition. For example, in the technology industry, companies like Apple and Intel collaborate to integrate advanced processors into Apple's products, enhancing both firms' value. In the automotive industry, car manufacturers and parts suppliers, such as Ford and Bosch, work together to innovate and improve vehicle components, benefiting both parties. This approach highlights opportunities for strategic alliances and partnerships that drive growth and competitive advantage. 98. What value is the strategic group concept as a tool in analyzing an industry? Answer: The strategic group concept is valuable for analyzing industry dynamics by categorizing firms with similar strategies, resources, and market positions. It helps identify direct competitors, enabling more precise competitive analysis (e.g., in the automotive industry, luxury brands like BMW and Mercedes-Benz form a strategic group). It reveals mobility barriers that protect certain groups from new entrants. This tool also highlights strategic opportunities and threats by comparing performance across groups, informing strategic decisions. Additionally, it helps anticipate competitive behavior within and across groups. 99. SWOT analysis is a basic technique for analyzing firm and industry conditions. Explain the relationship between the SWOT approach to evaluating the general environment, the industry of the firm, and the competitive environment. Answer: SWOT analysis evaluates a firm's internal Strengths and Weaknesses and external Opportunities and Threats. It assesses the general environment by examining external factors like economic trends (Opportunities), legal regulations (Threats), and technological advancements (Opportunities). In analyzing the industry, SWOT considers competitive dynamics such as rival firms' strengths (Threats) and emerging market niches (Opportunities). Assessing the competitive environment involves identifying competitors' weaknesses (Opportunities) and their strategic advantages (Threats), which informs strategic positioning and decision-making. Test Bank for Strategic Management: Text and Cases Gregory Dess, G.T. (Tom) Lumpkin, Alan Eisner, Gerry Mcnamara 9780077862527, 9781259278211, 9781259813955
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