Strategy Process Content Context 4th Edition by Bob de Wit – Test Bank

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Strategy Process Content Context 4th Edition by Bob de Wit – Test Bank

 

Sample  Questions

 

Chapter 3: Governance, Ethics & Corporate Social Responsibility in Strategy

 

TRUE/FALSE

 

  1. Awareness of and compliance with the attitudes of society can help an organization avoid problems associated with a bad ethical reputation.

 

ANS:  T                    PTS:   1

 

  1. Organizational stakeholders are the firm’s internal resources, capabilities, and core competencies that are used to accomplish what may at first appear to be unattainable goals in the competitive environment.

 

ANS:  F                    PTS:   1

 

  1. The degree to which the firm is dependent on a stakeholder group gives that stakeholder less influence.

 

ANS:  F                    PTS:   1

 

  1. The needs and desires of organizational stakeholders are inherently contradictory.

 

ANS:  T                    PTS:   1

 

  1. Relative power is the most critical criteria for prioritizing the demands of stakeholders.

 

ANS:  T                    PTS:   1

 

  1. An organization’s willingness to tolerate or encourage unethical behaviour is a reflection of its core values.

 

ANS:  T                    PTS:   1

 

  1. Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of an organization.

 

ANS:  T                    PTS:   1

 

  1. Executive compensation is considered an external corporate governance mechanism because it is determined in part by market forces.

 

ANS:  F                    PTS:   1

 

  1. Both top executives and owners of the firm wish to diversify the firm to reduce risk.

 

ANS:  F                    PTS:   1

 

  1. In general, when governance mechanisms are strong, managers have free rein in their decisions.

 

ANS:  F                    PTS:   1

 

  1. A board comprised primarily of outside directors will have better insights as to the firms intended strategic initiatives, the reasons for the initiatives, and the outcomes expected from them than will inside directors.

 

ANS:  F                    PTS:   1

 

  1. Foreign investors are playing a relatively minor role in the governance of firms in many countries.

 

ANS:  F                    PTS:   1

 

  1. If a stakeholder is dissatisfied with a firm, it will withdraw its support and give it to another firm.

 

ANS:  T                    PTS:   1

 

  1. Corporate governance mechanisms are designed to ensure that top managers make strategic decisions that best serve the interests of the entire group of stakeholders.

 

ANS:  T                    PTS:   1

 

  1. Ethically responsible companies design and use governance mechanisms that serve all stakeholders’ interests.

 

ANS:  T                    PTS:   1

 

  1. Stakeholders are individuals and groups who receive or have the potential to receive direct payments from an organization.

 

ANS:  F                    PTS:   1

 

  1. Ethics are universal.  What is unethical in one country will be viewed as unethical in other countries.

 

ANS:  F                    PTS:   1

 

  1. Overall, governance practices need to fit with the nature of the industry in which firms are competing.  This cautions against prescribing universal “best” practices.

 

ANS:  T                    PTS:   1

 

  1. Convergence advocates argue that a “survival-of-the-fittest” process will force firms globally to accept the best practices exemplified by Anglo-American practices.

 

ANS:  T                    PTS:   1

 

  1. A stakeholder is “any group or individual who can affect or is affected by the achievement of the organization’s objectives.”

 

ANS:  T                    PTS:   1

 

  1. Nearly all CSR advocates argue for a revival of socialism in the world.

 

ANS:  F                    PTS:   1

 

  1. Companies have had their CSR policies certified by MGOs that might otherwise be hostile.

 

ANS:  T                    PTS:   1

 

  1. Firms pursuing a reactive CSR strategy actively participate in policy discussions, build alliances with stakeholder groups, and voluntarily go beyond what the regulations require.

 

ANS:  F                    PTS:   1

 

  1. A key goal for CSR is global sustainability, which is defined as the ability “to meet the needs of the present without compromising the ability of future generations to meet their needs.”

 

ANS:  T                    PTS:   1

 

  1. Suppliers and customers are typically considered primary stakeholders.

 

ANS:  T                    PTS:   1

 

MULTIPLE CHOICE

 

  1. Which of the following is not an element of stakeholder analysis?
a. Identifying stakeholders
b. Financially motivating stakeholders
c. Prioritizing stakeholders
d. Assessing stakeholder needs and collecting ideas from stakeholders

 

 

ANS:  B                    PTS:   1

 

  1. Ethical dilemmas:
a. Are, by definition, completely unrelated to legal issues
b. Only occur in companies that lack codes of ethics
c. Occur when the values of different stakeholders of the organization are in conflict over a particular issue
d. Are rare

 

 

ANS:  C                    PTS:   1

 

  1. Organizations can encourage ethical behavior by:
a. Establishing systems and programs to ensure ethical compliance
b. Having a CEO that reinforces ethical behavior
c. Creating an “integrity program” to communicate and reinforce values
d. All of the above

 

 

ANS:  D                    PTS:   1

 

  1. Which of the following is not a major component of social responsibility?
a. Economic responsibilities c. Political obligations
b. Legal responsibilities d. Moral obligations

 

 

ANS:  C                    PTS:   1

 

  1. Sustainable development can be defined in terms of an organization’s practices with regard to all of the following except:
a. Financial management c. Environmental protection
b. Technology advancement d. Advancement of society

 

 

ANS:  A                    PTS:   1

 

  1. All the following are ethical sources of data for external analysis except:
a. Trade shows c. Competitor’s help wanted advertisements
b. Competitor’s annual reports d. A competitor’s confidential memos

 

 

ANS:  D                    PTS:   1

 

  1. Monitoring by shareholders is usually accomplished through:
a. Management consultants c. The firm’s top managers
b. Government auditors d. The board of directors

 

 

ANS:  D                    PTS:   1

 

  1. Issues such as advertising to children, manufacturing in offshore locations where sweatshops are prevalent, and how “green” a firm should be in its business practices illustrate the:
a. Multidimensional nature of ethics in strategic decision-making
b. Need for business leaders to be wary of fads and fashion when making strategic decisions
c. Differences between tactical and strategic decisions
d. Types of decisions more likely to be encountered by manufacturers than service providers

 

 

ANS:  A                    PTS:   1

 

  1. When strategic management principles are applied in non-profit and governmental organizations there is a need for ________ measures of performance.
a. Human resource-based c. Public accounting
b. Non-financial d. Few, if any

 

 

ANS:  B                    PTS:   1

 

  1. ________ of the world’s largest corporations have no written statement at all that would serve to guide their organizations.
a. Twenty-five percent c. Sixty-seven percent
b. Five percent d. Eighty-five percent

 

 

ANS:  A                    PTS:   1

 

  1. Vision and mission statements help to answer which question(s) for every employee in an organization?
a. What am I expected to be doing today?
b. Why are my co-workers and I expected to act this way?
c. What are the specific responsibilities of my job classification?
d. Both A and B above are questions that vision and mission statements help answer

 

 

ANS:  D                    PTS:   1

 

  1. Which of the following is not one of the critical questions to be considered in the process of generating a compelling vision?
a. What does it mean to work in this organization?
b. What will computer and networking technologies look like in several years?
c. At the core, what are we particularly good at doing?
d. Where should our company be in ten years?

 

 

ANS:  B                    PTS:   1

 

  1. A mission statement that is company-specific has the following characteristic(s).
a. It shows strategic focus
b. It allows employees at all levels to exercise judgment and be confident that their decisions would be the same ones made by managers above them
c. It describes the organization’s unique and enduring purpose
d. All of the above

 

 

ANS:  B                    PTS:   1

 

  1. The intent of a vision or mission statement is made clearer if managers:
a. Ask employees to paraphrase and restate each in their own words
b. Translate the general direction of a vision and mission into specific, short-term objectives
c. Write essays on what the vision and mission statements mean to them
d. Examine the founding conditions surrounding the organization

 

 

ANS:  B                    PTS:   1

 

  1. Ethical imperialism is best expressed by which of the following:
a. “There is only one set of Ethics, and we have it!”
b. “Respect for human dignity and basic rights should be the absolute, minimal ethical threshold for ALL operations around the world.”
c. “The abuse of public power for private benefit.”
d. “Ignore corruption.”

 

 

ANS:  A                    PTS:   1

 

  1. Which of the following make up a governance package?
a. Internal and external mechanisms.
b. Carrots to motivate managers such as stock options.
c. Sticks that may result in CEO and top management team turnover.
d. The market for corporate control.

 

 

ANS:  A                    PTS:   1

 

  1. In regards to global convergence:
a. Advocates argue that globalization will unleash a “survival-of the-fittest” process
b. Advocates claim firms will be forced to adopt globally the best practices
c. Others contend that governance practices will continue to diverge throughout the world
d. All of the above

 

 

ANS:  D                    PTS:   1

 

  1. CSR tends to be the least concerned with improving:
a. Global sustainability. c. Inequity.
b. Shareholder wealth maximization. d. High levels of poverty in some countries.

 

 

ANS:  B                    PTS:   1

 

  1. The CSR debate centres on the question:
a. Why does the firm exist?
b. What laws are needed to control the firm’s behavior?
c. What can be done to prevent unreasonable profits?
d. All of the above.

 

 

ANS:  D                    PTS:   1

 

  1. Free market advocates tend to do all of the following except:
a. Argue that “the social responsibility of business is to increase its profits, which leads to efficient capital and product markets.”
b. Argue that all stakeholders have an equal right to bargain for a “fair deal.”
c. Believe that the first and foremost stakeholder group is shareholders.
d. Argue that if firms attempt to attain social goals, managers will lose their focus on profit maximization.

 

 

ANS:  B                    PTS:   1

 

  1. Those who advocate CSR:
a. Conduct their debate within the constraints of capitalism.
b. Argue that the concepts justice and fairness are simply matters of opinion.
c. Argue that the most important stakeholder is the stockholder.
d. None of the above.

 

 

ANS:  A                    PTS:   1

 

  1. Those who feel that firms that expand into emerging economies are failing their CSR responsibilities are most likely to claim that (it):
a. Potentially hurts corporate profits
b. Fails to provide employment to host countries
c. Reduces the standard of living in host countries
d. Domestic employees and communities pay the price for the overseas expansion

 

 

ANS:  D                    PTS:   1

 

  1. With regards to the link between CSR and economic performance:
a. There is no conclusive evidence of a direct, positive link between CSR and economic performance
b. Some studies report a positive relationship
c. Some studies find a negative relationship or no relationship
d. All of the above

 

 

ANS:  D                    PTS:   1

 

  1. Some CSR advocates who question the motives of firms implementing CSR are pleased that:
a. Firms are embarking on some tangible CSR journey
b. CSR’s legitimacy is rising on the organizational agenda
c. By adopting codes of conduct (even if only for “window dressing” purposes), they create a set of criteria against which they can be judged
d. All of the above

 

 

ANS:  D                    PTS:   1

 

  1. Reactive firms:
a. Actively participate in regional, national, and international policy discussions.
b. Often build alliances with stakeholder groups
c. React negatively to aspects of CSR that may increase costs
d. Engage in voluntary activities that go beyond what the regulations require

 

 

ANS:  C                    PTS:   1

 

SHORT ANSWER

 

  1. What is corporate governance and what are the functions of a board of directors?

 

ANS:

  • Corporate governance is concerned with holding the balance between economic and social goals and between individual and firm goals.
  • It examines the relationships among boards of directors, top managers, and various stakeholder groups, with an emphasis on the stockholders of the corporation.
  • Of particular interest are the responsibilities of each of these groups to each other and how those responsibilities influence behaviour.
  • The board of directors is responsible for hiring, firing, supervising, advising, and compensating top managers within the firm.
  • Boards also typically reserve the right to approve or reject major strategic decisions such as the development of a new line of business, mergers, acquisitions, or entrance into foreign markets.

 

PTS:   1

 

  1. Discuss the components of social responsibility and consider why you would expect a trustworthy firm to have higher profits over the long term?

 

ANS:

  • Social responsibility involves economic responsibilities, legal responsibilities, moral obligations, and discretionary responsibilities.
  • A firm that is socially responsible will be productive, profitable, and meet some of the needs of society. In doing so, the firm will act within the confines of written law.
  • The unwritten codes, norms, and values implicit within society will also influence the firm’s actions, and the firm may assume voluntary or philanthropic responsibilities.
  • If a firm is trustworthy, which is related to being socially responsible, it is more likely to enjoy a good reputation and a more committed effort by internal and external stakeholders.
  • The organization can also avoid negative stakeholder outcomes such as boycotts and walkouts. These factors should lead to higher profitability in the long run.

 

PTS:   1

 

  1. Explain the relationship of the strategic management process to organizational ethics.

 

ANS:

  • Almost all strategic management process decisions have ethical implications because they affect stakeholders.
  • The decisions of the strategic leaders influence the organization’s culture which is based on the organization’s core values (which are also influenced by the strategic leaders).
  • The organization’s culture can be functional or dysfunctional, ethical or unethical. Consequently, the strategic leader’s role has a large impact on whether the organization is a good citizen.

 

PTS:   1

 

  1. What parts do vision, ethics, and leadership play in the strategic management process?

 

ANS:

  • A vision spurs a firm to adopt a long-term perspective in its operations. It bridges the present and the future, identifying how current capabilities might or might not serve the company in its desired, ideal state.
  • There are ethical components to many managerial decisions. Strategic decisions require special attention to their moral aspects because of their widespread impact and long-lasting effects. The rigors of a competitive market may prod managers to consider solutions to problems that, while legal and effective, don’t meet higher ethical standards.
  • Strategic leadership is often associated with the most senior managers of a firm. Those managers, however, are too often far removed from the day-to-day activities that indicate the effectiveness of a firm’s strategy. Thus, every manager has a part to play in the activity of strategic leadership.  Some crucial decisions remain the responsibility of those at the top.  All have a responsibility to share information relevant to those decisions.

 

PTS:   1

 

  1. Briefly compare and contrast mission and vision.

 

ANS:

  • Vision and mission both constitute the glue that binds the collective actions of employees. Organizations are most effective when everyone works with a common purpose.
  • A firm’s mission is oriented to the present. It describes what the firm does in such a way that its market purpose can be distinguished from that of other companies.
  • The statement of a firm’s mission tends to be succinct but with enough detail that employees can use it to guide their judgments and decisions.
  • In contrast with a mission, a vision paints an image of the future rather than the present. It describes – in somewhat less detail than a mission – where the firm’s activities will take it as long as everything goes well.
  • In sum, both visions and missions are intended to guide the everyday efforts of employees. Missions deal with the present and are somewhat detailed, while visions offer a less detailed, idealized state toward which employees work.

 

PTS:   1

 

  1. What are the characteristics of an effective mission statement?

 

ANS:

  • An effective mission statement has five characteristics. They are summarized below.
  • An effective mission statement is short. Short mission statements are more easily recalled.
  • An effective mission statement is simple. It is something that everyone in the organization can learn and understand.
  • An effective mission statement is specific to the company using it. A well-developed mission reflects the company’s strengths and unique competitive position in the market.
  • An effective mission statement is actionable. It guides the decisions that must be made by employees of the organization every day, from setting goals to delighting customers.
  • Finally, an effective mission statement must be measurable. The metrics used to assess performance need not be stated explicitly but the statement should imply unambiguous measures by which the company can track its progress.

 

PTS:   1

 

  1. How can interlocking directorates lead to unfair market advantages and investor exploitation?

 

ANS:

  • If the CEO of Firm A is on the board of Firm B an interlocking directorship exists.
  • It truly becomes interlocking if the top management of Firm A is on the board of Firm B and the top management of Firm B is on the board of Firm A. In such a case, it might be a de facto merger or at least an informal alliance may exist. In such a case, transactions between the companies may be influenced by the interlocking relationship rather than on objective economic rationale.
  • There is the risk that the relationship may result in actions that benefit the directors or some cause that they support more than other stakeholders.

 

PTS:   1

 

  1. What is the potential relationship between concern about a board dominated by insiders and concern about excess executive pay?

 

ANS:

  • It should be obvious that if a board consists of the top boss and his/her subordinates that it may become a mutual benefit society.
  • How likely is it that the subordinates will turn down a request by the boss for increased compensation?
  • The idea of scratching each others’ back applies. As they boost the pay for their boss, the boss is more likely to reciprocate.

 

PTS:   1

 

  1. Identify the Reidenbach and Robin (1995) categorization of company’s ethical/unethical response to ethical concerns.

 

ANS:

  • Amoral companies seek to “win at all costs”; anything is seen as acceptable. The secret lies in not being found out.
  • Legalistic companies obey the law and no more. There is no code of ethics; companies act only when it is essential.
  • Responsive companies accept that being ethical can pay off.
  • Ethically engaged companies actively want to “do the right thing” and to be seen to be doing so. Ethical codes will exist, but ethical behaviour will not necessarily be a planned activity and fully integrated into the culture.
  • Ethical companies such as Body Shop have ethics as a core value, supported by appropriate strategies and actions which permeate the whole organization.

 

PTS:   1

 

  1. The essential role of governance is oversight, identify the five key activities this involves.

 

ANS:

  • To provide overall direction in terms of purpose, including direction (vision), the form and boundaries of the businesses conducted (mission), and how the organization should conduct itself ethically and appropriately (values) on behalf of its key stakeholders.
  • To oversee the formulation and implementation of the organization’s strategic objectives and its strategy.
  • To agree and facilitate policies and guidelines to promote the organization’s key priorities.
  • To understand how the organization works.
  • To be aware of conditions and developments external to the organization that have a bearing on the organization’s purpose and conduct of that purpose.

 

PTS:   1

 

PROBLEM

 

  1. Briefly compare and contrast corporate governance in the U.S., Germany, and Japan, and China.

 

ANS:

  • Corporate governance structures used in Germany and Japan differ from each other and from the ones used in the U.S. Historically, the U.S. governance structure has focused on maximizing shareholder value.
  • Banks have been at the center of the German corporate governance structure, because as lenders, banks become major shareholders in the firms. Shareholders usually allow the banks to vote their ownership positions, so banks have majority positions in many German firms.
  • The German system has other unique features. For example, German firms with more than 2,000 employees are required to have a two-tier board structure, separating the board’s management supervision function from other duties that it would normally perform in the U.S. (e.g., nominating new board members).
  • Historically, German executives have not been dedicated to the maximization of shareholder value, because private shareholders rarely have major ownership in German firms, nor do larger institutional investors play a significant role.
  • Attitudes toward corporate governance in Japan are affected by the concepts of obligation, family, and consensus.
  • Japan continues to follow a bank-based financial and corporate governance structure compared to the market-based financial and corporate governance structure in the United States. In addition, Japanese firms belong to keiretsu, groups of firms tied together by cross-shareholding.
  • In many cases, the main-bank relationship of the firm is part of a keiretsu. However, the influence of banks in monitoring and controlling managerial behavior and firm outcomes is beginning to lessen and a minor market for corporate control is emerging.
  • Chinese corporate governance has become stronger in recent years.
  • There has been a decline in equity held in state-owned enterprises, but the state still dominates the strategies employed by most firms.
  • Firms with higher state ownership tend to have lower market value and more volatility in those values over time. In a broad sense, the Chinese governance system has been moving towards the Western model in recent years.

 

PTS:   1

 

  1. What are the characteristics of an effective vision statement?

 

ANS:

  • An effective vision statement has six characteristics. They are summarized below.
  • It incorporates foresight. A vision is intended to have people think about the best possible future results that might be achieved by the company.
  • It has a time horizon. A vision should not be open-ended or picture a goal that no one believes it possible to reach.
  • It connects with current capabilities. A vision may not depend on resources and capabilities the company does not now have or that the company has little chance of developing given its current strengths.
  • It incorporates enduring core values. A vision must reflect shared beliefs about what is important. For example, a belief in the primacy of efficient operations may be somewhat at odds with a strong emphasis on innovation.  The vision should reconcile any such contradictions.
  • It is short. There is no “magic” length that makes a vision statement effective but a vision must be easily understood.
  • It is memorable. Another advantage of a short vision statement is that it is more memorable. Employees must be able to recall easily the vision if it is to help guide everyday efforts.

 

PTS:   1

Chapter 7: Business-Level Strategy

 

TRUE/FALSE

 

  1. A business-level strategy consists of the competitive approach of a single line-of-business instead of the entire corporation.

 

ANS:  T                    PTS:   1

 

  1. Only one firm at a time can pursue a particular business-level strategy.

 

ANS:  F                    PTS:   1

 

  1. In differentiation strategies, the emphasis is on creating value through uniqueness.

 

ANS:  T                    PTS:   1

 

  1. A best cost strategy combines the elements of low-cost leadership and differentiation.

 

ANS:  T                    PTS:   1

 

  1. The industry life cycle portrays how sales volume for a class of products changes over its lifetime.

 

ANS:  T                    PTS:   1

 

  1. A competitive shakeout usually occurs at the beginning of the growth stage of the product life cycle.

 

ANS:  F                    PTS:   1

 

  1. At the maturity stage of the life cycle, revenue growth accelerates rapidly.

 

ANS:  F                    PTS:   1

 

  1. A business-level strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage in specific product markets.

 

ANS:  T                    PTS:   1

 

  1. Business-level strategy can be thought of as the firm’s core strategy.

 

ANS:  T                    PTS:   1

 

  1. When selecting a business level strategy, the firm determines who will be served, what customer needs will be satisfied, and how those needs will be satisfied.

 

ANS:  T                    PTS:   1

 

  1. In general, firms can be most effective if they develop business-level strategies that will serve the needs of the “average customer.”

 

ANS:  F                    PTS:   1

 

  1. Low-cost leaders usually concentrate on the primary activities of inbound logistics and outbound logistics as a means to reduce costs.

 

ANS:  T                    PTS:   1

 

  1. The differentiation strategy is effective for products that are expensive, luxury consumer goods.  It is not effective for common, inexpensive products such as doughnuts.

 

ANS:  F                    PTS:   1

 

  1. A risk of the differentiation strategy is that the firm’s means of differentiation may eventually not provide value for which customers are willing to pay.

 

ANS:  T                    PTS:   1

 

  1. One of the benefits of the integrated cost leadership/differentiation strategy is that it is less risky than either the cost leadership or differentiation strategies.

 

ANS:  F                    PTS:   1

 

  1. Typically two or three companies in an industry will share the low-cost leadership position, making rivalry among them very intense.

 

ANS:  F                    PTS:   1

 

  1. A low-cost strategy is designed to appeal to only those customers who are the most price-sensitive.

 

ANS:  F                    PTS:   1

 

  1. The choice of market scope by a company refers to whether it will do business just domestically or it will venture outside of its home country.

 

ANS:  F                    PTS:   1

 

  1. A company has chosen a focus strategy when it markets to a narrow customer segment or within a smaller geographic area.

 

ANS:  T                    PTS:   1

 

  1. A company pursuing a differentiation strategy must still achieve parity on costs in those areas where it is undifferentiated from rivals.

 

ANS:  T                    PTS:   1

 

  1. A business-level strategy can best be thought of as the overarching philosophy of value creation within the company.

 

ANS:  T                    PTS:   1

 

  1. A company with a low-cost position generally needs to give little thought to economies of scale or capacity utilization.  These are more important to firms that choose to differentiate.

 

ANS:  F                    PTS:   1

 

  1. Effective differentiation often shields incumbents from competition presented by new entrants and substitutes.

 

ANS:  T                    PTS:   1

 

  1. Companies have little to gain from trying to create psychological or cognitive identification by customers with the company’s products.

 

ANS:  F                    PTS:   1

 

  1. The biggest risk to a focus strategy is that the small market that is being targeted will simply disappear should the environment change.

 

ANS:  F                    PTS:   1

 

MULTIPLE CHOICE

 

  1. Business-level strategy formulation pertains to:
a. Domain direction and navigation c. Domain recognition
b. Domain definition d. Domain precondition

 

 

ANS:  A                    PTS:   1

 

  1. Strategy formulation responsibilities at the business level include all of the following except:
a. Establishment and communication of goals
b. Identification of strengths and weaknesses
c. Identification of opportunities and threats
d. Management of the corporate portfolio

 

 

ANS:  D                    PTS:   1

 

  1. For a differentiation strategy to be considered successful:
a. The organization that is pursuing the differentiation must be highly innovative
b. Customers must be willing to pay more for the uniqueness of a product or service than the firm paid to create that uniqueness
c. Loss of sales cannot reduce the benefits from economies of scale
d. The organization must invest heavily in differentiating its products

 

 

ANS:  B                    PTS:   1

 

  1. A firm that pursues a cost leadership strategy:
a. Seeks cost efficiency in a broad market setting
b. Is too interested in lowering costs to bother with technological advances
c. Always has the lowest price
d. Uses differentiation to attract customers

 

 

ANS:  A                    PTS:   1

 

  1. A strategy that is a combination of low cost leadership and differentiation is:
a. Unlikely to be successful because of limited resources
b. Best cost
c. Cost focus
d. None of the above

 

 

ANS:  B                    PTS:   1

 

  1. Which of the following is an advantage of pursuing cost leadership?
a. Sales always increase with increasing amounts of output
b. Loss of sales does not reduce scale benefits
c. The strategy easily accommodates changes in the market
d. A firm may charge the same price as its competitors but make a higher profit

 

 

ANS:  D                    PTS:   1

 

  1. All of the following are ways that firms pursue a cost leadership strategy except:
a. Giving their product the most desirable and highest quality features
b. Using technology to cut costs
c. Experience effects
d. Economies of scale

 

 

ANS:  A                    PTS:   1

 

  1. The risks associated with pursuing a cost leadership strategy include all of the following except:
a. Preoccupation with costs may lead a firm not to detect required product changes
b. The firm’s products are likely to become targets for imitators
c. Efforts to cut costs could lead to unsafe products
d. Cost cutting could lead to products of very poor quality

 

 

ANS:  B                    PTS:   1

 

  1. A best cost strategy is most like which of the other generic business strategies?
a. Differentiation
b. Cost leadership
c. Cost focus
d. Differentiation combined with cost leadership

 

 

ANS:  D                    PTS:   1

 

  1. A firm that caters to a very specific segment of its market is pursuing which generic strategy?
a. Differentiation c. Cost leadership
b. Focus d. Best cost

 

 

ANS:  B                    PTS:   1

 

  1. A business-level strategy describes:
a. The businesses in which the company intends to compete
b. All policies and procedures used in functional departments
c. The firm’s actions to exploit its competitive advantage over rivals
d. A firm’s resources, intent, and mission

 

 

ANS:  C                    PTS:   1

 

  1. Business-level strategies are concerned specifically with:
a. Creating differences between the firm’s position and its competitors
b. Selecting the industries in which the firm will compete
c. How functional areas will be organized within the firm
d. How a business with multiple physical locations will operate one of those locations

 

 

ANS:  A                    PTS:   1

 

  1. The effectiveness of any of the generic business-level strategies is contingent upon:
a. Customer needs and competitors’ strategies
b. The match between the opportunities and threats in its external market and the strengths of its internal environment
c. The trends in the general consumer base and the robustness of the global and industry economy
d. The firm’s competitive scope and its competitive advantage

 

 

ANS:  B                    PTS:   1

 

  1. When a product’s unique attributes provide value to customers, the firm is implementing:
a. A differentiation strategy
b. A cost leadership strategy
c. An integrated cost leadership/differentiation strategy
d. A single-product strategy

 

 

ANS:  A                    PTS:   1

 

  1. A firm successfully implementing a differentiation strategy would expect:
a. Customers to be sensitive to price increases
b. To charge premium prices
c. Customers to perceive the product as standard
d. To have high levels of power over suppliers

 

 

ANS:  B                    PTS:   1

 

  1. IKEA offers young customers a selection of home furnishings featuring good design, function, and acceptable quality at low prices. IKEA is using which business level strategy?
a. Cost leadership c. Differentiation
b. Focused cost leadership d. Focused differentiation

 

 

ANS:  B                    PTS:   1

 

  1. The focused differentiation strategy differs from the differentiation strategy in that:
a. The focused differentiators have a broader competitive scope
b. The value-creating activities of focused differentiators are more constrained
c. Focused differentiators target a narrower customer market
d. There are fewer risks with the focused differentiation strategy

 

 

ANS:  C                    PTS:   1

 

  1. The integration of a cost leadership and a differentiation strategy:
a. Is challenging because the firm must become competent in more primary and support activities
b. Forces a firm to adapt more slowly to changes in its environment
c. Allows the firm to avoid being “stuck in the middle”
d. Requires such a large customer base that it is most practical for firms in the global marketplace

 

 

ANS:  A                    PTS:   1

 

  1. Business-level strategies are also known as ________ strategies.
a. Value chain c. Executional
b. Divisional d. Generic

 

 

ANS:  C                    PTS:   1

 

  1. A company that simultaneously pursues the two basic competitive approaches but ends up with costs that are too high and a product that does not command a premium price may find itself:
a. With profit margins higher that the industry norm
b. Unable to purge its customer list quickly enough
c. Having to invest in other companies to become more profitable
d. “Stuck in the middle”

 

 

ANS:  D                    PTS:   1

 

  1. The degree to which a company competes broadly or narrowly within geographic or customer segments characterizes its decision about ________.
a. Economies of scale c. The learning curve
b. Market scope d. Switching costs

 

 

ANS:  B                    PTS:   1

 

  1. A crucial condition upon which the success of a business-level strategy rests is:
a. The fact that as customer expectations change the business must be searching for new customers who favour the company’s existing products or services
b. Always bearing in mind that competition evolves; existing competitors change and new ones arise
c. Being able to identify and participate in those industries that are stable
d. Allowing all employees the freedom to adjust the strategy from day-to-day as business conditions change

 

 

ANS:  B                    PTS:   1

 

  1. Which of the following is a driver that permits a low-cost strategy to be successful?
a. When customers tend to expect different features and benefits from products within a category
b. When buyers and suppliers have weak bargaining power, lowering the pressure on the industry’s profit margins
c. When there are high industry entry barriers, diminishing the potential need for incumbents to compete on price
d. When there is a standardization of products or services among industry rivals

 

 

ANS:  D                    PTS:   1

 

  1. Drivers of an effective differentiation strategy include:
a. Product and service features
b. The cost-efficient production of a commodity
c. The relative importance of search goods in the industry
d. Economies of scale

 

 

ANS:  A                    PTS:   1

 

  1. When a company chooses to have another firm perform a business process or service that is part of the company’s value chain this is called:
a. Offshoring c. Outsourcing
b. Disaggregating d. Disintermediation

 

 

ANS:  C                    PTS:   1

 

SHORT ANSWER

 

  1. How can a firm be successful by pursuing a differentiation strategy and what are some of the risks associated with it?

 

ANS:

  • The only way a differentiation strategy will work is if buyers value the attributes that make a product unique enough to pay a higher price for it or choose to buy from that firm preferentially.
  • A firm may charge the same price as competitors, but achieve a much larger share of the market, resulting in higher profits.
  • The difference in value may be one of buyer perception rather than actual product or service attributes.
  • One of the biggest risks associated with differentiation is that customers will sacrifice some of the uniqueness of the product or service for lower cost.
  • A second key risk is that the distinguishing attribute that makes the product or service unique will no longer be perceived by the customer as differentiating; either it has been incorporated into competitors’ products or the customer no longer finds it important.

 

PTS:   1

 

  1. What is a cost leadership strategy?  How might a firm pursue it?  What are some of the risks associated with this strategy?

 

ANS:

  • Firms pursuing cost leadership set out to become the lowest cost providers of a good or service.
  • Firms pursuing a low cost strategy will typically employ one or more of the following factors to create their low cost positions: (1) high capacity utilization, (2) economies of scale, (3) technological advances, or (4) learning/experience effects.
  • There are several risks associated with too strong of a focus on a low cost strategy. First, firms pursuing cost leadership may not detect required product or marketing changes because of a preoccupation with cost reduction.
  • Second, these firms run the risk of making large investments in plants or equipment only to see them become obsolete because of technological breakthroughs by competitors. Their large investments make them reluctant to keep up with changes that are not compatible with their technologies.
  • Third, efforts to seek low costs may just go too far—with important elements of safety, quality, and service undermined.

 

PTS:   1

 

Describe strategic flexibility and how it is pursued.

 

ANS:

  • Firms pursuing strategic flexibility can move their resources out of markets that are less-than-desirable in a minimum of time and with as little loss as possible.
  • One way to remain strategically flexible is to avoid investments that have significant exit barriers.
  • Significant exit barriers are frequently associated with large capital investments, such as construction of factories that have limited uses. Instead, companies subcontract as many of their activities as possible.

 

PTS:   1

 

  1. Define strategy and business-level strategy.  What is the difference between these two concepts?

 

ANS:

  • In general, a strategy consists of the choices an organization makes in an attempt to gain strategic competitiveness and earn above-average returns.
  • The organization’s strategic choices are influenced by threats and opportunities in the external environment and by the nation and quality of its internal resources, capabilities, and core competencies.
  • The strategy reflects the firm’s vision and mission.
  • Business-level strategy is concerned with a particular product market.
  • Business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage in a particular product market. It is the organization’s core strategy.
  • Every firm, no matter how small, will have at least one business-level strategy.
  • A diversified firm will have several types of corporate-level strategies as well as a separate business-level strategy in each product market area in which the company competes.
  • The essence of a firm’s business level strategy is choosing to perform activities differently or to perform different activities than competitors.

 

PTS:   1

 

  1. When a firm chooses a business-level strategy, it must ANS the questions “Who? What? and How?”  What are these questions and why are they important?

 

ANS:

  • The firm must decide (1) who are the customers who will be served, (2) what needs do the target customers have that must be satisfied, and (3) how will those needs be satisfied by the firm.
  • The choice of target customer (who) usually involves segmenting the market to cluster people with similar needs into groups.
  • The target customers’ needs drive “what” benefits and features the firm’s product will have. This involves a choice and balance between cost and differentiation of the product.
  • Firms use their core competencies (how) to implement value-creating strategies and satisfy customers’ needs.

 

PTS:   1

 

  1. Describe the risks of a differentiation strategy.

 

ANS:

  • The risks of a differentiation strategy include the fact that the price differential between the low cost producer and the differentiated firm’s product may be too high for the customer. The differentiated products may exceed the customers’ needs.
  • Differentiation may cease to provide value for which customers are willing to pay. This can occur if rivals imitate the firm’s product and offer it at a lower price.
  • A third risk is that customer learning can narrow the customer’s perception of the value of the firm’s differentiated product. If customers have positive experience with low-cost products, they may decide the additional cost for the differentiated product is too high.
  • Counterfeit products are a risk to a differentiation strategy if these products provide the same differentiated features to customers at significantly reduced prices.

 

PTS:   1

 

  1. Describe the advantages of integrating cost leadership and differentiation strategies.

 

ANS:

  • Customers have increasingly high expectations for products, wanting products that are both low-priced and differentiated.
  • A number of firms are trying to simultaneously follow both a cost leadership and a differentiation strategy. This requires the firm to perform the primary and support activities required of both strategies, which is challenging.
  • Successful integration of strategies allows firms to adapt quickly to environmental changes, and learn new technologies. The firm gains more skills which makes it more flexible.
  • Evidence suggests that successful use of integrated strategies is related to above-average returns. A number of firms such as European-based Zara owe their success to the integrated cost leadership/differentiation strategy.

 

PTS:   1

 

  1. What are the risks of an integrated cost leadership/differentiation strategy?

 

ANS:

  • Integrated strategies present risks that go beyond those that arise from the pursuit of any single strategy by itself. Principal among these risks is that a firm becomes “stuck in the middle.”
  • In such situations a firm fails to implement either the differentiation or the cost leadership strategy effectively.
  • The firm will not be able to earn above-average returns, and without favorable conditions, it will earn below-average returns.
  • Recent research suggests that firms using either cost leadership or differentiation often outperform firms attempting to use a “hybrid” strategy (i.e., integrated cost leadership/differentiation). This research highlights the risks associated with the integrated strategy.

 

PTS:   1

 

  1. What are some of the risks associated with a low-cost strategy?

 

ANS:

  • If a company is not the low-cost leader it risks being out-competed in the market by whichever firm does have the lowest costs. This is especially important in the event of a price war.
  • Companies may give in to the temptation to lower prices as an easy way to increase overall unit sales. However, a “low-price” strategy is not really a strategy at all. Pricing is a tactical decision, easily and quickly changed.  Low prices must be accompanied by low costs.  The two things should not be confused.
  • Customers may not value the benefits that come from a firm’s efforts to lower costs. Even though lower costs may be reflected in lower prices, customers may care more about product or service features and may not be particularly price-sensitive.
  • Many of the things that firms do to lower costs can be imitated by rivals. Or, substitute methods become available that accomplish the same low cost outcomes. Competitive positions evolve, requiring firms to be watchful of rivals or even those outside the industry who may perform some of the same activities.

 

PTS:   1

 

  1. What are the drivers of an effective differentiation strategy?

 

ANS:

  • Drivers of an effective differentiation strategy include product and service features, cognitive benefits, process innovation and internal value chain coordination.
  • Product and service features are probably the first things to come to mind when we think of how one company is different from another. Colours, designs, shapes and other physical characteristics can draw us in or push us away. Less visible characteristics offer differentiation potential, too.  How well one product works with another, safety, durability and reliability, and convenience among other things are areas where a firm can invest and stand apart.
  • We develop relationships with some products. Companies work to have us identify with their products, services and brand – an effort that, if successful, creates a powerful source of differentiation that can be leveraged.
  • As is true for a low-cost approach, value chain activities must be used to support different bases for differentiation.
  • Value chain activities must be coordinated since it would be a rare point of differentiation that depended upon only one activity.

 

PTS:   1

 

PROBLEM

 

  1. What are the factors that can lead to a low-cost position?

 

ANS:

  • A company can realize economies of scale through large production volumes. These are especially important in businesses that have a large investment in fixed costs that needs to be spread over as many units as possible.
  • Capacity utilization is an important cost factor in many industries. It is related to economies of scale in that the best per-unit costs are achieved when the capacity resulting from large investments in fixed assets is fully used. Airlines work very hard to keep capacity utilization as high as possible since an airline seat is a perishable good and the costs of any particular flight are mostly fixed.
  • The experience curve yields lower costs with the cumulative volume of production. These lower costs result from the learning that occurs as the company gains experience with the production of a product or the delivery of a service. Lower costs achieved by way of an experience curve can lead to a durable cost advantage that lasts until a rival catches up to the company’s accumulated volume.
  • An important factor in keeping costs low is the design of the product or service. A company that pays careful attention to simplicity, ease of manufacturing, efficient sourcing of raw materials and inexpensive packaging can create value that goes well beyond that possible when costs are considered only after the design of the product or service has already been set. This calls for an integrated approach to cost containment.
  • Process innovations can contribute to lower costs. Firms can look for new efficiencies in every part of the value chain. One special aspect of process efficiency concerns new product “speed to market.”  Companies that can reduce the time it takes to get something from the drawing board to customers reduce costs while giving customers something of value at the same time.
  • Firms can lower costs through the better coordination of value chain activities. Coordination with suppliers by methods such as the co-location of facilities makes better use of just-in-time tools and lowers inventory and other costs.

 

PTS:   1

 

  1. What are the five generic business-level strategies?  Briefly describe each one.

 

ANS:

  • The five generic strategies are: 1) differentiation, 2) low cost, 3) differentiation focus, 4) low-cost focus, and 5) integrated low-cost/differentiation.
  • Companies using a differentiation strategy market to a broad range of customers, where that range is defined by geographic areas, customer segments or both.
  • Differentiation is often thought of as the property of a product but any value chain activity can be the basis for differentiation.
  • A company that differentiates should be able to charge a premium price that covers the costs of differentiation.
  • A low-cost strategy is one in which the company pays meticulous attention to costs everywhere in its value chain with the aim of generating higher profit margins than those achieved by rivals.
  • A low-cost approach is often associated with lower prices but the ideal for a company is an ability to charge the market price while maintaining lower costs than average for the industry – a recipe for higher profitability.
  • Focus strategies, whether based on low costs or differentiation, target a narrow range of customers. Again, that range is defined as before, either by customer segments or geography or both. The competitive approaches are the same as for the broader-scope strategies.
  • The integrated low-cost/differentiation strategy is a hybrid. Companies using it pay attention to costs but allow some leeway in the pursuit of differentiation.
  • This strategy is thought to be risky in that the firm can wind up with costs above the industry norm while being unable to charge a premium price. Then the company is “stuck in the middle.”

 

PTS:   1