Chapter 7 - Strategy & Strategic Management
Which is the best question to ask to start the strategic management process? (a) "What is our mission?" (b) "How well are we currently doing?" (c) "How can we get where we want to be?" (d) "Why aren't we doing better?"
a
General Electric is a complex conglomerate that owns many firms operating in very different industries. The strategies pursued for each individual firm within GE umbrella would best be called __________level strategies. (a) corporate (b) business (c) functional (d) transnational
b
The recommendation of the BCG matrix on question marks is retrenchment or ________.
invest in a targeted manner
What is the best strategy for products that the Boston Consulting Group would identify as dogs?
retrenchment
Porter suggests that industry attractiveness is a function of five forces, including:
rivalry, new entrant threat, supplier power, buyer power, threat of substitutes
Which of the following is not a part of a SWOT analysis?
standards
During the time of the great depression, Herbert Hoover promised the voters "a chicken in every pot and a car in every garage." This could be considered a statement of __________.
strategic intent
The ability of a business firm to consistently outperform its rivals is called ___________. (a) vertical integration (b) competitive advantage (c) strategic intent (d) core competency
b
When Coke and Pepsi spend millions on ads trying to convince customers that their products are unique, they are pursuing what Porter calls a ______________strategy. (a) transnational (b) concentration (c) diversification (d) differentiation
d
A strategy that focuses on offering products that are unique with respect to competitor's products is called a _____________ strategy.
differentiation
The levels of strategy used in organizations are corporate, business and ________.
legal
Which of the following is not a retrenchment strategy?
Diversification
A strategic leader has to:
create a sense of urgency.
List the responsibilities of a strategic leader.
• A strategic leader has to be the guardian of trade-off s. It is the leader's job to make sure that the organization's resources are allocated in ways consistent with the strategy. Th is requires the discipline to sort through many competing ideas and alternatives to stay on course and not get sidetracked. • A strategic leader needs to create a sense of urgency. Th e leader must not allow the organization and its members to grow slow and complacent. Even when doing well, the leader keeps the focus on getting better and being alert to conditions that require adjustments to the strategy. • A strategic leader must make sure that everyone understands the strategy. Unless strategies are understood, the daily tasks and contributions of people lose context and purpose. Everyone might work very hard, but unless efforts are aligned with strategy, the impact is dispersed and fails to advance common goals. • A strategic leader must be a teacher. It is the leader's job to teach the strategy and make it a "cause," says Porter. In order for strategy to work, it must become an ever-present commitment throughout the organization. Th is means that a strategic leader must be a great communicator. Everyone must understand the strategy and how it makes the organization different from others.
Define and explore how a SWOT analysis is used to examine an organization's strengths and weaknesses as a basis for developing strategies.
A SWOT analysis involves a detailed examination of organizational strengths and weaknesses as well as environmental opportunities and threats. SWOT invloves reviewing core competencies as well as organizational weaknesses and opportunities.
What is the difference between corporate strategy and functional strategy?
A corporate strategy sets long-term direction for an enterprise as a whole. Functional strategies set directions so that business functions such as marketing and manufacturing support the overall corporate strategy. A corporate strategy sets long-term direction for an enterprise as a whole. Functional strategies set directions so that business functions such as marketing and manufacturing support the overall corporate strategy.
What strategy should be pursued for a "question mark" in the BCG Matrix, and why?
A question mark in the BCG matrix has a low market share in a high-growth industry. This means that there is a lot of upside potential, but for now it is uncertain whether or not you will be able to capitalize on it. Thus, hard thinking is required. If you are confident, the recommended strategy is growth; if you aren't, it would be retrenchment, to allow resources to be deployed into more promising opportunities.
Explain strategies organizations employ when they run into performance difficulties.
A retrenchment strategy seeks to correct weaknesses by making radical changes to current ways of operating. The most extreme form of retrenchment is liquidation, where a business closes down and sells its assets to pay creditors. A less extreme and more common form of retrenchment is restructuring. This involves making major changes to cut costs, gain short-term efficiencies, and buy time to try new strategies to improve future success. When a firm is in desperate financial condition and unable to pay its bills, restructuring by Chapter 11 bankruptcy is an option under U.S. law. This protects the firm from creditors while management reorganizes things in an attempt to restore solvency. The goal is to emerge from bankruptcy as a stronger and profitable business. Downsizing is a restructuring approach that often makes the news. It cuts the size of operations and reduces the workforce. When you learn of organizations downsizing by across-the-board cuts, however, you might be a bit skeptical. Research shows that downsizing is most successful when cutbacks are done selectively and focused on key performance objectives. Finally, restructuring by divestiture involves selling parts of the organization to refocus on core competencies, cut costs, and improve operating efficiency.
Define and explain strategy as a comprehensive plan to achieve competitive advantage.
A strategy is a comprehensive action plan that identifies long-term direction for an organization and guides resource utilization to accomplish its goals. Strategy focuses leadership attention on the competitive environment. It represents a "best guess" about what to do to be successful in the face of rivalry and changing conditions. A good strategy provides leaders with a plan for allocating and using resources with consistent strategic intent.
Distinguish between web-based business models.
Advertising model: Provide free information or services and then generate revenues from paid advertising to viewers (e.g., Yahoo!, Google) Brokerage model: Bring buyers and sellers together for online business transactions and take a percentage from the sales (e.g., eBay, Priceline) Community model: Provide a meeting point sold by subscription or supported by advertising (e.g., eHarmony, Facebook) Freemium model: Offer a free service and encourage users to buy extras (e.g., Skype, Zynga) Infomediary model: Provide a free service while collecting information on users and selling it to other businesses (e.g., Epinions, Yelp) Merchant model: Sell products direct to customers through the Web—e-tailing (e.g., Amazon, Apple iTunes Store) Referral model: Provide free listings and get referral fees from online merchants after directing customers to them (e.g., Shopzilla, PriceGrabber) Subscription model: Sell access to high-value content through a subscription Web site (e.g., Netflix, Wall Street Journal Interactive)
Categorize and explain corporate, business, and functional strategies used within organizations.
At the top level, corporate strategy provides direction and guides resource allocation for the organization as a whole. The strategic question at the corporate strategy level is: In what industries and markets should we compete? Business strategy focuses on the strategic intent for a single business unit or product line. The strategic question at the business strategy level is: How are we going to compete for customers within this industry and in this market? Functional strategy guides activities to implement higher-level business and corporate strategies. This level of strategy unfolds within a specific functional area such as marketing, manufacturing, finance, and human resources. The strategic question for functional strategies is: How can we best utilize resources within the function to support implementation of the business strategy?
A _________ strategy uses information technology and the internet to link organizations vertically in supply chains.
B2B
Explain how companies use the internet or e-business strategies for competitive advantage.
B2B business strategies are business-to-business. They use the Web to vertically link organizations with embers of their supply chains. B2C business strategies are business-to-customer. They use the Web to link businesses with customers. Crowdsourcing is a special type of social media strategy. It uses the Internet to engage customers and potential customers to make suggestions and express opinions on products and their designs.
Explain the importance of global growth opportunities and ways organizations can pursue globalization strategies for further growth.
Firms pursuing a globalization strategy tend to view the world as one large market. They try to advertise and sell standard products for use everywhere. Firms pursuing a multidomestic strategy customize products and advertising to fit local cultures and needs. Firms using a transnational strategy try to fully utilize business resources and tap customer markets worldwide.
Discuss Michael Porter's models as useful tools in understanding the competitive position of a company and the challenges within an industry.
Good Strategies are key. Force 1: Competitors—intensity of rivalry among firms in the industry Force 2: New entrants—threats of new competitors entering the market Force 3: Suppliers—bargaining power of suppliers Force 4: Customers—bargaining power of buyers Force 5: Substitutes—threats of substitute products or services
Why is a cost leadership strategy so important when one wants to sell products at lower prices than competitors?
If you want to sell at lower prices than competitors and still make a profit, you have to have lower operating costs (profit 5 revenues 2 costs). Also, you have to be able to operate at lower costs in ways that are hard for your competitors to copy. This is the point of a cost leadership strategy—always seeking ways to lower costs and operate with greater efficiency than anyone else.
An example of a strategic question at the corporate level is:
In what industries and markets should we compete?
Explain Porter's competitive strategies model.
Once industry forces are understood, attention shifts to how a business or its products can be strategically positioned relative to competitors. Porter believes that competitive strategies can be built around differentiation, cost leadership, and focus. A differentiation strategy seeks competitive advantage through uniqueness. A cost leadership strategy seeks competitive advantage by operating with lower costs than competitors. The focused differentiation strategy offers a unique product to customers in a special market segment. The focused cost leadership strategy tries to be the low-cost provider for a special market segment.
What is strategic leadership?
Strategic leadership is the ability to enthuse people to participate in continuous change, performance enhancement, and the implementation of organizational strategies. The special qualities of the successful strategic leader include the ability to make trade-off s, create a sense of urgency, communicate the strategy, and engage others in continuous learning about the strategy and its performance responsibilities.
Explain how cooperative strategies and further cooperation among organizations create new areas of mutual interest.
Th e trend today is toward more cooperation among organizations, often in strategic alliances, where two or more organizations join together in partnership to pursue an area of mutual interest. A common form involves outsourcing alliances, contracting to purchase specialized services from another organization. Many organizations today, for example, are outsourcing their IT function to firms such as Infosys and IBM. Th e belief is that these services are better provided by a firm with special expertise in this area.Cooperation in the supply chain also takes the form of supplier alliances, which guarantee a smooth and timely flow of quality supplies among alliance partners. We also see cooperation in distribution alliances where firms join together to accomplish product or services sales and distribution. Some cooperation strategies even involve strategic alliances with competitors. Known as co-opetition, it has been called a "revolution mindset" that business competitors can be co-operating partners. United and Lufthansa are international competitors, but they cooperate in the Star Alliance network that allows customers to book each other's flights and share frequent flyer programs. Likewise, luxury car competitors Daimler and BMW are cooperating to co- develop new motors and components for hybrid cars.
Explain the Boston Consulting Group or BCG Matrix.
The BCG Matrix analyzes business opportunities according to market growth rate and market share. Stars in the BCG Matrix have high market shares in high-growth markets. They produce large profits through substantial penetration of expanding markets. The preferred strategy for stars is growth. Cash cows have high market shares in low-growth markets. They produce large profits and a strong cash flow, but with little upside potential. Question marks have low market shares in high-growth markets. Although they may not generate much profit at the moment, the upside potential is there because of the growing markets. Dogs have low market shares in low-growth markets. They produce little if any profit, and they have low potential for future improvement.
Explain how an organization's mission and objectives becomes a basis for its strategy formulation.
When mission and objectives are clear, a strategic planning baseline is established. Th e best organizations have clear missions that communicate a sense of direction and motivate members to work hard in their behalf.
If Google's top management were to announce that the firm was going to buy Federal Express, this would be a strategy of growth by ____________. (a) diversification (b) concentration (c) horizontal integration (d) vertical integration
a
When you buy music downloads online, the firm selling them to you is engaging in which type of e-business strategy? (a) B2C (b) B2B (c) infomediary (d) crowdsourcing
a
___________are special strengths that an organization has or does exceptionally well and that help it outperform competitors. (a) Core competencies (b) Strategies (c) Alliances (d) Operating objectives
a
A ________in the BCG Matrix would have a high market share in a low-growth market. (a) dog (b) cash cow (c) question mark (d) star
b
In addition to focusing on strategy implementation and strategic control, the responsibility for strategic leadership of an organization involves success with _______________. (a) motivating a disposable workforce (b) the process of continuous change (c) Chapter 11 bankruptcy (d) growth by liquidation
b
The two questions Porter asks to identify the correct competitive strategy for a business or product line are: 1—What is the market scope? 2—What is the __________? (a) market share (b) source of competitive advantage (c) core competency (d) industry attractiveness
b
A firm that wants to compete with rivals by selling a very-low-priced product in a broad market would need to successfully implement a ___________ strategy. (a) retrenchment (b) differentiation (c) cost leadership (d) diversification
c
An organization that is downsizing by cutting staff to reduce costs can be described as pursuing a _________strategy. (a) liquidation (b) divestiture (c) retrenchment (d) stability
c
In Porter's five forces model, which of the following conditions is most favorable from the standpoint of industry attractiveness? (a) Many competitive rivals (b) Many substitute products (c) Low bargaining power of suppliers (d) Few barriers to entry
c
The alliances that link firms in supply chain management relationships are examples of how businesses can use ____________strategies. (a) B2C (b) growth (c) cooperation (d) concentration
c
Among the global strategies that international businesses might pursue, the _________strategy most directly tries to customize products to fit local needs and cultures in different countries. (a) concentration (b) globalization (c) transnational (d) multidomestic
d
Companies that use the internet to market their products and gain competitive advantage are employing a(n) ___________ strategy.
e-business
Explain the importance of strategic leadership and how to implement strategies.
strategic leadership—the capability to inspire people to successfully engage in a process of continuous change, performance enhancement, as well as implementation and control of organizational strategies. To excel at strategic management, a leader must have the ability not only to make strategic choices but also to learn from any mistakes made. Th is includes the willingness to exercise control and make modifications to meet the needs of changing conditions.
The process of formulating and implementing strategies to accomplish long term goals and to maintain a competitive advantage is called __________.
strategic management
A __________ strategy tries to operate without a strong national identity and seeks a balance between the efficiency of worldwide operations and responsiveness to local cultures.
transnational
When a company expands by acquiring suppliers or distributors, it is called growth through ________.
vertical integration
