ECON 136 - Midterm 1

The consumer goods companies listed...

"Acer laptops"

Consider the following three companies and their strategies...

"All three companies employ deliberate strategies..."

Provide at least two examples of a company's competitively valuable capabilities.

1. To be sufficiently innovative to thwart the efforts of clever rivals to copy or closely imitate the product offering. Examples cited in Chapter 1 include Apple Inc. (innovative products), Johnson & Johnson (reliability of baby products), BMW (engineering for performance), Rolex (luxury and prestige), and Hyundai (advanced manufacturing processes and unparalleled quality control systems). 2. To make it extremely difficult for rivals to match the low-cost leader's approach to driving costs out of the business. Examples cited in Chapter 1 include Wal-Mart (superior distribution and inventory management capabilities) and Southwest Airlines (superior revenue management and efficient maintenance and turnaround of aircraft).

What are the strategic advantages of a forward vertical integration strategy?

Forward integration can lower costs by increasing efficiency and bargaining power. In addition, it can allow manufacturers to gain better access to end users, improve market visibility, and include the end user's purchasing experience as a differentiating feature. Some producers have opted to integrate forward by selling directly to customers at the company's website. Bypassing regular wholesale and retail channels in favor of direct sales and Internet retailing can have appeal if it reinforces the brand and enhances consumer satisfaction or if it lowers distribution costs, produces a relative cost advantage over certain rivals, and results in lower selling prices to end users.

Weak governance at Volkswagen contributed to the 2015 emissions-cheating scandal, which cost the company billions of dollars and the trust of its stakeholders. Explain.

German corporations operate with two-tier governance structures, a management board, and a separate supervisory board that does not contain any current executives. In addition, German law requires large companies like Volkswagen to have at least 50 percent supervisory board representation from workers. This structure is meant to provide more oversight by independent board members and greater involvement by a wider set of stakeholders. In Volkswagen's case, these objectives were effectively circumvented. The company continued to elevate management to the supervisory board even though they had presided over past scandals. Volkswagen also had a unique ownership structure where a single family, Porsche, controlled more than 50 percent of voting shares. The company lost numerous independent directors during the most recent decade, leaving it with only one nonshareholder, nonlabor representative.

Explain how SunPower used benchmarking to improve its competitive position in the U.S. solar power industry.

In 2008, SunPower—one of the largest solar firms in the United States—used benchmarking to target a 50 percent decrease in its solar LCOE by 2012. This early benchmarking strategy helped the company to defend against new market entrants offering lower prices. But in the ensuing years, between 2009 and 2014, the overall industry solar LCOE fell by 78 percent, leading the company to conclude that an even more aggressive approach was needed to manage downward-pricing pressure. Over the course of 2017, SunPower's quarterly earnings calls highlighted efforts to compete on benchmark prices by simplifying its company structure; divesting from noncore assets; and diversifying beyond the low-cost, large-scale utility solar market and into residential and commercial solar—where it could compete more easily on price.

Choose the best example of a women's fashion retailer

"Bowdon Designs..."

A superior example of a company vision that is short, specific, memorable, clearly articulated, and forward-looking is...

"Google's vision..."

A potato chip manufacturer purchases a potato farm. Which of the following regarding its strategy is true?

"The manufacturer has effectively used vertical integration to increase its bargaining position and reduce transaction costs."

Two friends of yours are considering opening a pizza parlor and delivery service within walking distance of your campus. They have asked you to help them identify the competitive pressures stemming from the threat that new firms will enter the pizza segment of the restaurant industry. What information can you give them?

"Threat of entry is a stronger force when incumbents in the pizza segment of the restaurant industry are unlikely to make retaliatory moves against new entrants and entry barriers are low. Entry barriers that tend to deter startups in the pizza segment of the restaurant industry are high (and threat of entry is low) when: Incumbents have large cost advantages over potential entrants due to: High economies of scale, Significant experience-based cost advantages or learning curve effects, Other cost advantages (e.g., favorable access to inputs, technology, location, or low fixed costs). Customers have strong brand preferences and/or loyalty to incumbent sellers. Patents and other forms of intellectual property protection are in place. There are strong network effects. Capital requirements are high. There is limited new access to distribution channels and shelf space. Government policies are restrictive. There are restrictive trade policies."

An example of a company that does not use blue-ocean market strategy is...

"Walmart's logistics and distribution in the retail industry"

Angela and Jeff are co-owners of five specialty cupcake...

"Which mode of transport does the rival's supplier use?"

A good example of blue-ocean type of offensive strategy is...

"a company like Australian winemaker Casella Wines that created a Yellow Tail brand designed to appeal to a wider market, one that also includes consumers of other alcoholic beverages."

According to the value-price-cost framework, deploying a differentiation strategy involves costs that might well exceed those of the average competitor, but with a successful differentiation strategy, that disadvantage is more than made up for by

"a rise in the perceived value..."

A superior indicator of how W.L. Gore's strategy is and whether or not the strategy signals strong execution is...

"achieving its stated financial and strategic objectives via improvements in its internal processes..."

A search engine giant specializes in all types of search items:...

"allowing users to view ads on previously made related searches."

The Achilles' heel (or biggest disadvantage/pitfall) of relying heavily on alliances and cooperative strategies is...

"becoming dependent on other companies for essential expertise and capabilities."

Which of the following does not qualify as potential driving forces capable of inducing fundamental changes in industry and competitive conditions?

"changes in the economic power..."

The process of benchmarking SunPower's value chain activities...

"constructing a company value chain and identifying..."

Under Armour, a multinational sports apparel company plans entry into a new geographical location, Vietnam, considered an emerging market, with its established and best-selling product line: women's running shorts. How should Under Armour not craft a strategy to enhance future profits in Vietnam?

"create a sales plan that aims to enhance..."

FaberRoad, a respected courier brand, is fast losing its market share...

"developing radio tags that could be attached to packages..."

If you were tasked with identifying the strategic issues..

"drawing up a list of strategic issues and problems..."

The potential advantages of Tesla's backward vertical integration strategy include...

"enhancement of Tesla's differentiation capabilities..."

An approach that is UNLIKELY to help a company's low-cost provider strategy succeed is...

"evolving the capabilities to simultaneously deliver lower cost and higher-quality..."

Trader Joe's biggest vulnerability in employing a best-cost provider strategy is...

"getting squeezed between the strategies of firms employing low-cost provider strategies and high-end differentiation strategies."

If you were a consultant to SunPower, one of the largest solar power companies in the United States, you would not recommend this activity to remedy high internal costs relative to its rivals.

"implementing aggressive strategic..."

The best example of a well-stated, specific financial objective is to...

"increase earnings per share by 15 percent annually."

A competitive environment where there is strong rivalry among sellers, low entry barriers, strong competition from substitute products, and considerable bargaining leverage on the part of both suppliers and customers...

"is competitively unattractive from the standpoint of earning good profits."

An emergent strategy is best exemplified by a(n)

"microbrewer..."

Carlos, the CEO of a local HR recruiting and staffing company, is considering a strategic alliance...

"minimizing the amount of resources that the partners commit to the alliance"

The primary difference between a company's mission statement and the company's strategic vision is that...

"mission statement typically concerns a company's present business scope and purpose..."

A pharmaceutical company selling prescription drugs in France for the past 10 years has had moderate sales...

"modifying marketing communication to increase brand familiarity within key physician segments"

If you were asked to develop a low-cost provider strategy for a startup passenger air carrier business, what would you most likely not recommend?

"offer low prices on long-distance flights and maintain long service times..."

The market opportunities most relevant to a low - cost provider of mobile phones are those that...

"offer the best prospects for growth and profitability in emerging markets."

A deliberate strategy is best exemplified by a(n)...

"popular downtown theater that has been staging..."

Driving-forces analysis has...

"practical value and is basic..."

The hallmarks of Tesla's vertical integration strategy do not include...

"research and development and rapid deployments..."

The principal advantages of strategic alliances over vertical integration or horizontal mergers/acquisitions are

"resource pooling and risk sharing..."

Hilton Hotels has diversified its lodging brands by adding Curio Collection, Tapestry Collection, and Canopy by Hilton, properties that offer stylish, distinctive decors and personalized services that appeal to young professionals seeking distinctive lodging alternatives. Managers can enhance the differentiation of these new brands based on all of these value drivers except...

"seeking out low-quality inputs."

Which of the following driving forces would have the least impact on the attractiveness of the automobile industry?

"shifts in who buys..."

A healthy fast-casual restaurant that offers only vegetarian and vegan meals insists on portraying organic ingredients in its advertisements, charges a higher price for its meals, and has a rigorous quality control process to insure the cleanliness of its facilities. What strategy is the manufacturer using to deliver superior value to customers?

"signaling value by targeting..."

Equifax, a credit-reporting agency, disclosed that it had suffered a massive..."

"strengthen its oversight of the company's strategic direction, evaluate..."

For a backward vertical integration strategy into the business of suppliers to be viable and profitable, a company must possess

"the capability to achieve the same scale economies..."

The homebuilding industry is not affected by such macro-influences as...

"the distinctive competences of incumbent firms."

The three main areas in the value chain where significant differences in the costs of competing firms can occur include...

"the nature and makeup of their own internal operations, the activities..."

Conducting a competitive strength assessment does not involve...

"whether a company should correct..."

Explain the role and responsibility of the CEO in the strategy-making, strategy-executing process. Name several CEOs and their companies that exemplify this role.

A company's senior executives have lead strategy-making roles and responsibilities. The chief executive officer (CEO), as captain of the ship, carries the mantles of chief direction setter, chief objective setter, chief strategy maker, and chief strategy implementer for the total enterprise. Ultimate responsibility for leading the strategy-making, strategy-executing process rests with the CEO. And the CEO is always fully accountable for the results the strategy produces, whether good or bad. In some enterprises, the CEO or owner functions as chief architect of the strategy, personally deciding what the key elements of the company's strategy will be, although he or she may seek the advice of key subordinates and board members. A CEO-centered approach to strategy development is characteristic of small owner-managed companies and some large corporations that were founded by the present CEO or that have a CEO with strong strategic leadership skills. Elon Musk at Tesla Motors and SpaceX, Mark Zuckerberg at Facebook, Jeff Bezos at Amazon, Indra Nooyi at PepsiCo, Jack Ma of Alibaba, Warren Buffett at Berkshire Hathaway, and Marilyn Hewson at Lockheed Martin are highlighted in Chapter 2 as examples of high-profile corporate CEOs who have wielded a heavy hand in shaping their company's strategy.

Which is more important to a company's future financial performance, the achievement of strategic objectives or the achievement of financial objectives? Why?

A good financial performance, by itself, is not enough. Of equal or greater importance is a company's strategic performance—outcomes that indicate whether a company's market position and competitiveness are deteriorating, holding steady, or improving. A stronger market standing and greater competitive vitality—especially when accompanied by competitive advantage—is what enables a company to improve its financial performance.

What is the difference between strategic vision and strategic intent? Provide at least one example of each term to support your answer.

A strategic vision delineates management's aspirations for the business, providing a panoramic view of "where we are going" and a convincing rationale for why this makes good business sense for a particular company. The vision of Google's cofounders Larry Page and Sergey Brin "to organize the world's information and make it universally accessible and useful" provides one good example; Keurig's "Become the world's leading personal beverage systems company" is another example. A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective. Earning a profit is the obvious intent of every commercial enterprise. Mentioned in this regard in Chapter 2 of the text are companies such as Gap Inc., Edward Jones, Honda, The Boston Consulting Group, Citigroup, DreamWorks Animation, and Intuit—all striving to earn a profit for shareholders

Explain how managers can decide to capture the vision of where an organization should head in a catchy or easily remembered slogan. Cite at least three examples of company slogans that capture a company's vision.

Creating a short slogan to illuminate an organization's direction and using it repeatedly as a reminder of "where we are headed and why" helps rally organization members to maintain their focus and hurdle whatever obstacles lie in the company's path. Instagram: "Capture and share the world's moments" Charles Schwab: "Helping investors help themselves" Scotland Yard: "Make London the safest major city in the world"

Identify and explain three actions that top executives can take to help instill a spirit of high achievement into the corporate culture and mobilize organizational energy behind the drive for good strategy execution and operating excellence.

Each company manager has to think through the answer to the question "What needs to be done in my area to execute my piece of the strategic plan, and what actions should I take to get the process under way?" How much internal change is needed depends on how much of the strategy is new, how far internal practices and competencies deviate from what the strategy requires, and how well the present work culture supports good strategy execution. In most situations, managing the strategy execution process includes the following principal aspects: Creating a strategy-supporting structure. Staffing the organization to obtain needed skills and expertise. Developing and strengthening strategy-supporting resources and capabilities. Allocating ample resources to the activities critical to strategic success. Ensuring that policies and procedures facilitate effective strategy execution. Organizing the work effort along the lines of best practice. Installing information and operating systems that enable company personnel to perform essential activities. Motivating people and tying rewards directly to the achievement of performance objectives. Creating a company culture conducive to successful strategy execution. Exerting the internal leadership needed to propel implementation forward.

Identify and briefly discuss at least two examples of faulty oversight by a company's board of directors in corporate governance and/or the strategy-making, strategy-executing process.

Faulty oversight of corporate accounting and financial reporting practices by audit committees and corporate boards during the early 2000s resulted in the federal investigation of more than 20 major corporations between 2000 and 2002, leading to passage of the Sarbanes-Oxley Act in 2002. All too often, boards of directors have done a poor job of ensuring that executive salary increases, bonuses, and stock option awards are tied tightly to performance measures that are truly in the long-term interests of shareholders. As a consequence, the need to overhaul and reform executive compensation has become a hot topic in both public circles and corporate boardrooms, for example, weak governance at Fannie Mae and Freddie Mac allowed opportunistic senior managers to secure exorbitant bonuses, while making decisions that imperiled the futures of the companies they managed. Also, many boards have found that meeting agendas have become consumed by compliance matters, thus little time is left to discuss matters of strategic importance.

Explain why a company's strategy is really a collection of strategies.

Ideally, the pieces of a company's strategy up and down the strategy hierarchy should be cohesive and mutually reinforcing, fitting together like a jigsaw puzzle. It is the responsibility of top executives to achieve this unity by clearly communicating the company's vision, objectives, and major strategy components to down-the-line managers and key personnel. Midlevel and frontline managers cannot craft unified strategic moves without first understanding the company's long-term direction and knowing the major components of the corporate and/or business strategies that their strategy-making efforts are supposed to support and enhance. Anything less than a unified collection of strategies weakens the overall strategy and is likely to impair company performance. Thus, as a general rule, strategy making must start at the top of the organization and then proceed downward from the corporate level to the business level and then from the business level to the associated functional and operating levels. Once strategies up and down the hierarchy have been created, lower-level strategies must be scrutinized for consistency with and support of higher-level strategies. Any strategy conflicts must be addressed and resolved, either by modifying the lower-level strategies with conflicting elements or by adapting the higher-level strategy to accommodate what may be more appealing strategy ideas and initiatives bubbling up from below.

Under what circumstances are mergers with or acquisitions of other companies a better solution than entering into partnerships or alliances with these companies? How do mergers and/or acquisitions contribute to enhancing a company's position?

Merger and acquisition strategies are a better solution than a strategic alliance when it comes to: (1) extending the company's business into new product categories; (2) creating a more cost-efficient operation out of the combined companies; (3) expanding a company's geographic coverage; (4) gaining quick access to new technologies or complementary resources and capabilities; and (5) leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities. Strategic alliances commonly stop short of formal ownership ties between the partners (although there are a few strategic alliances where one or more allies have minority ownership in certain of the other alliance members). The main benefits of these collaborative relationships is to expedite the development of promising new technologies or products, to overcome deficits in their own technical and manufacturing expertise, to bring together the personnel and expertise needed to create desirable new skill sets and capabilities, to improve supply chain efficiency, to gain economies of scale in production and/or marketing, and to acquire or improve market access through joint marketing agreements. However, strategic alliances are only temporary in nature, and all too often partners in those collaborations go their separate ways, while mergers and acquisitions are permanent.

What are the merits of outsourcing the performance of certain value chain activities as opposed to performing them in-house? Under what circumstances does outsourcing make good strategic sense?

Outsourcing strategies narrow the scope of a business's operations, in terms of what activities are performed internally. A company can improve its cost position and competitiveness by performing a broader range of industry value chain activities in-house rather than having such activities performed by outside suppliers. When there are few suppliers and when the item being supplied is a major component, vertical integration can lower costs by limiting supplier power. Vertical integration can also lower costs by facilitating the coordination of production flows and avoiding bottleneck problems. Furthermore, when a company has proprietary know-how that it wants to keep from rivals, then in-house performance of value-adding activities related to this know-how is beneficial even if such activities could otherwise be performed by outsiders.Outsourcing certain value chain activities makes strategic sense whenever: An activity can be performed better or more cheaply by outside specialists. The activity is not crucial to the firm's ability to achieve sustainable competitive advantage. The outsourcing improves organizational flexibility and speeds time to market. It reduces the company's risk exposure to changing technology and buyer preferences. It allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

Imagine that you are the manager of a housekeeping service. Specifically describe how you would use the concepts of (1) scope of the firm, (2) horizontal integration, and (3) vertical integration to build and achieve a competitive advantage over rival housekeeping services.

Scope of the firm refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses. Scope decisions concern those segments of the housekeeping market that you will serve—for example, residential homes, businesses and other commercial establishments, routine cleaning vs. post-disaster remediation—decisions that can also include geographic market segments in addition to the aforementioned product and service segments. Horizontal scope is the range of product and service segments that a firm serves within its focal market. Horizontal mergers and acquisitions, which involve combining the operations of other housekeeping firms or closely related businesses within the same product or service market, provide an effective means for firms to rapidly increase the scale and horizontal scope of their core business. Unrelated diversification into services such as landscaping, security, or disaster remediation might also be feasible. Vertical scope is the extent to which a firm's internal activities encompass the range of activities that comprise an industry's entire value chain system, from raw material production to final sales and service activities. A housekeeping business might increase its vertical scope via backward integration—establishing strategic partnerships and alliances with (or possibly even creating and licensing cleaning products) manufacturers of cleaning products, or performing certain human resources functions such as recruiting, training, payroll, etc. Alternatively, a housekeeping service could integrate forward into ownership and rental of vacation homes, Airbnb establishments, etc.

Compare and contrast cost drivers and uniqueness drivers in a company's value chain. Explain how these drivers might support a firm's generic strategy.

See Figure 5.3.A cost driver is a factor having a strong effect on the cost of a company's value chain activities and ability to become a low-cost provider, whereas a uniqueness driver is a value chain activity or factor that can have a strong impact on customer value and creating differentiation.Cost drivers include: (1) striving to capture all available economies of scale; (2) taking full advantage of experience and learning curve effects; (3) trying to operate facilities at full capacity; (4) substituting lower-cost inputs whenever there's little or no sacrifice in product quality or product performance; (5) employing advanced production technology and process design to improve overall efficiency; (6) using communication systems and information technology to achieve operating efficiencies; (7) using the company's bargaining power vis-à-vis suppliers to gain concessions; (8) being alert to the cost advantages of outsourcing and vertical integration; and (9) pursuing ways to boost labor productivity and lower overall compensation costs.Uniqueness drivers, on the other hand, include: (1) high-quality inputs; (2) innovation and technological advances; (3) superior product features; (4) production-related R&D investments; (5) continuous quality improvement; (6) improving skills of personnel, marketing, and brand-building; and (7) enhanced customer service.

Strategic offensives should, as a general rule, be grounded in a company's strategic assets and employ a company's strengths to attack rivals. Define and discuss the term strategic assets and its significance in gaining a competitive advantage.

Strategic assets are a company's most valuable resources and capabilities such as a better-known brand name, a more efficient production or distribution system, greater technological capability, or a superior reputation for quality. Ignoring the need to tie a strategic offensive to a company's competitive strengths and what it does best is like going to war with a popgun—the prospects for success are dim. For instance, it is foolish for a company with relatively high costs to employ a price-cutting offensive. Likewise, it is ill advised to pursue a product innovation offensive without having proven expertise in R&D and new product development.

Explain why some companies get to the top of industry rankings and stay there, while others do not.

The better conceived a company's strategy and the more competently it is executed, the more likely that the company will be a standout performer in the marketplace. In stark contrast, a company that lacks clear-cut direction, has a flawed strategy, or cannot execute its strategy competently is a company whose financial performance is probably suffering, whose business is at long-term risk, and whose management is sorely lacking; that is, how well a company performs is directly attributable to the caliber of its strategy and the proficiency with which the strategy is executed.

A data storage company realizes that its facilities are used most by financial institutions. It capitalizes on the opportunity and starts storing specific financial information only and is now one of the most sought-after financial databases. What strategy has the company employed?

The company has used an emergent strategy in response to unexpected shifts in customer requirements and newly appearing market opportunities. Inevitably, there will be occasions when market and competitive conditions take an unexpected turn that calls for some kind of strategic reaction. Hence, a portion of a company's strategy is always developed on the fly.

What are the merits of strategic alliances and collaborative partnerships for companies racing to seize opportunities in an industry of the future? Under what circumstances do they make sense? How do they contribute to competitive advantage?

The merits of strategic alliances and collaborative partnerships are: picking a good partner; being sensitive to cultural differences; recognizing that the alliance must benefit both sides; ensuring that both parties live up to their commitments; structuring the decision-making process so that actions can be taken swiftly when needed; managing the learning process and then adjusting the alliance agreement over time to fit new circumstances. Strategic cooperation is a much-favored approach in industries where new technological developments are occurring at a furious pace along many different paths and where advances in one technology spill over to affect others (often blurring industry boundaries). Whenever industries are experiencing high-velocity technological advances in many areas simultaneously, firms find it virtually essential to have cooperative relationships with other enterprises to stay on the leading edge of technology, even in their own area of specialization. In industries like these, alliances are all about fast cycles of learning, gaining quick access to the latest round of technological know-how, and developing dynamic capabilities. In bringing together firms with different skills and knowledge bases, alliances open up learning opportunities that help partner firms better leverage their own resources and capabilities.

A mobile phone manufacturing and marketing company acquires an overseas display manufacturing company to gain a strong market position. Which of the five generic strategies has the mobile phone manufacturer used to gain competitive advantage?

The mobile phone manufacturing company has employed a backward integration strategy to gain more market share and also to manufacture a key component of its products at a lower cost. It has employed a low-cost provider strategy that allows it to achieve a cost-based advantage over rivals. The chapter describes how Wal-Mart and Southwest Airlines earned strong market positions because of the low-cost advantages they have achieved over their rivals. Low-cost provider strategies can produce a durable competitive edge when rivals find it hard to match the low-cost leader's approach to driving costs out of the business.

An established manufacturer and marketer of apparel and equipment for competitive sports is fast losing market share to companies that not only offer similar products, but also are upgrading their research and development capabilities to produce better products. List a few general actions and approaches that would help the established company revive its position.

The organization might employ various approaches to revive its positions: actions to, strengthen market standing and competitiveness by acquiring or merging with other companies; actions, to strengthen competitiveness via strategic alliances and collaborative partnerships; actions, to upgrade, build, or acquire competitively important resources and capabilities; actions to gain sales and market share via more performance features, more appealing design, better quality or customer service, wider product selection; or other such actions.

One of the big dangers in crafting a competitive strategy is that managers, torn between the pros and cons of the various generic strategies, will opt for "stuck in the middle" strategies that represent compromises between lower costs and great differentiation and between broad and narrow market appeal. True or false? Explain your answer.

The statement is false. That managers would go for a mix of the various generic strategies is not to be seen as a danger at all. With changing markets, it is important for companies to change their strategies and this may involve a hybrid of two or more strategies. The wise approach would be to respond to the market and the opportunities present in it rather than to be straitjacketed by "pure" strategies.

If you were advising Hilton Hotels, what three main approaches would you suggest to rectify any weaknesses in this company's customer value proposition?

The three moves to achieve improved cost competitiveness in the forward portion of the hotel industry value chain are as follows: 1. Pressure distributors, dealers, and other supply chain partners to reduce their costs and markups. 2. Collaborate with these partners to identify win-win opportunities that derive higher added value (such as entry into the boutique hotel segment) to reduce costs. 3. Change to a more economical reservations and customer loyalty system. Rectifying a weakness in a company's customer value proposition can include one or more of the following three approaches: (1) implement the use of best practices throughout the company, particularly for activities that are important for creating customer value—product design, product quality, or customer service; (2) adopt best practices for marketing, brand management, and customer relationship management to improve brand image and customer loyalty; and (3) reallocate resources to activities having a significant impact on value delivered to customers—larger R&D budgets, new state-of-the-art boutique hotel facilities, new in-hotel dining experiences, modernized front desk and reservations systems, or enhanced budgets for marketing campaigns.

Six years after its founding, in 2009, at 25, Elizabeth Holmes, founder and CEO of Theranos, a company based in Palo Alto, California, that manufactured and marketed medical devices for testing blood, told a small group at Stanford University that her ticket to success was "conviction" that you could "make something work, no matter what." On June 15, 2018, Holmes and Theranos's former president Ramesh "Sunny" Balwani were indicted on multiple counts of wire fraud and conspiracy to commit wire fraud. According to the indictment, investors and doctors and patients were defrauded. Holmes herself had falsely claimed in 2014 that the company had annual revenues of $100 million, a thousand times more than the actual figure of $100,000. Prosecutors claimed they had engaged in an "elaborate, years-long fraud" wherein they "deceived investors into believing that its key product—a portable blood analyzer—could conduct comprehensive blood tests from finger drops of blood." It was alleged the defendants were aware of the unreliability and inaccuracy of their products, but concealed that information. If convicted, they each face a maximum fine of $250,000 and 20 years in prison. Normatively speaking, which actions should Theranos's board of directors have taken to provide good governance oversight and prevent this fraud from occurring?

Theranos's board of directors failed to fulfill at least some of the following four important obligations: 1. Overseeing the company's financial accounting and financial reporting practices. 2. Critically appraising the company's direction, strategy, and business approaches. 3. Evaluating the caliber of senior executives' strategic leadership skills. 4. Instituting a compensation plan for top executives that rewards them for actions and results that serve shareholder interests.

The task of crafting a company's strategy is typically a job for the company's whole management team, not just a small group of senior executives. True or false? Explain and support your answer.

True. The more a company's operations cut across different products, industries, and geographic areas, the more that headquarters executives have little option but to delegate considerable strategy-making authority to down-the-line managers in charge of particular subsidiaries, divisions, product lines, geographic sales offices, distribution centers, and plants. On-the-scene managers who oversee specific operating units can be reliably counted on to have more detailed command of the strategic issues and choices for the particular operating unit under their supervision—knowing the prevailing market and competitive conditions, customer requirements and expectations, and all the other relevant aspects affecting the several strategic options available. Managers with day-to-day familiarity of, and authority over, a specific operating unit thus have a big edge over headquarters executives in making wise strategic choices for their operating unit. The result is that, in most of today's companies, crafting and executing strategy is a collaborative team effort in which every company manager plays a strategy-making role—ranging from minor to major—for the area he or she heads.

What are the advantages of strategic alliances and collaborative partnerships with key suppliers?

Typically, strategic alliances involve shared financial responsibility, joint contribution of resources and capabilities, shared risk, shared control, and mutual dependence.Advantages of a strategic alliance are: 1. It facilitates achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability). 2. It helps build, strengthen, or sustain a core competence or competitive advantage. 3. It helps remedy an important resource deficiency or competitive weakness. 4. It helps defend against a competitive threat, or mitigates a significant risk to a company's business. 5. It increases bargaining power over suppliers or buyers. 6. It helps open up important new market opportunities. 7. It speeds the development of new technologies and/or product innovations.

You have been asked to defend why your strategic analysis of StitchFix solely consists of an assessment of the company's external environment but not an evaluation of its internal resources and competitive position. How would you respond?

Your assessment was indeed incomplete, because managers need to draw on the results of both industry analysis and the evaluations of the company's internal situation. The task here is to get a clear fix on exactly what strategic and competitive challenges confront the company, which of the company's competitive shortcomings need fixing, and what specific problems merit company managers' front-burner attention. Pinpointing the precise things that management needs to worry about sets the agenda for deciding what actions to take next to improve the company's performance and business outlook.