Chapter 6

The best reason for investing company resources in vertical integration (either forward or backward) is to:

Add materially to a company's technological capabilities, strengthen the company's competitive position, and/or boost its profitability.

An offensive to yield good results can be short if:

Buyers respond immediately (to a dramatic cost-based price cut or imaginative ad campaign).

Strategic alliances are:

Collaborative formal arrangements where two or more companies join forces and agree to work cooperatively toward some strategically relevant objective.

Entering into strategic alliances and collaborative partnerships can be competitively valuable because:

Cooperative arrangements with other companies are very helpful in racing against rivals to build a strong global presence and/or racing to seize opportunities on the frontiers of advancing technology.

Vertical integration strategies:

Extend a company's competitive scope within the same industry by expanding its operations across multiple segments or stages of the industry value chain.

Which of the following rivals make the best targets for an offensive attack?

Firms with weaknesses in areas where the challenger is strong

Which of the following ways are employed by defending companies to fend off a competitive attack?

Gain product line exclusivity to force competitors to use other distributors.

A blue-ocean strategy:

Involves abandoning efforts to beat out competitors in existing markets and instead invent a new industry or new market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand.

An outsourcing strategy:

Iqnvolves farming out certain value chain activities presently performed in-house to outside vendors.

Why do mergers and acquisitions sometimes fail to produce anticipated results?

Key employees at the acquired company can quickly become disenchanted and leave.

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

Resource pooling and risk sharing, more adaptive response capabilities, and greater speed of deployment.

First-mover disadvantages (or late-mover advantages) rarely ever arise when:

The market response is strong and the pioneer gains a monopoly position that enables it to recover its investment.

The formation of a new corporation, jointly owned by two or more companies agreeing to share in the revenues, expenses, and control, is known as:

a joint venture.

For every emerging opportunity there exists:

a market penetration curve, and this typically has an inflection point where the business model falls into place.

The difference between a merger and an acquisition is that:

a merger is the combining of two or more companies into a single corporate entity, whereas an acquisition involves one company (the acquirer) purchasing and absorbing the operations of another company (the acquired).

The best strategic alliances:

are highly selective, focusing on particular value chain activities and on obtaining a particular competitive benefit.

A vertical integration strategy can expand the firm's range of activities:

backward into sources of supply and/or forward toward end users.

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.

Experience indicates that strategic alliances:

can suffer culture clash and integration problems due to different management styles and business practices.

Strategic alliances are more likely to be long-lasting when they involve:

collaboration with suppliers or distribution allies or when both parties conclude that continued collaboration is in their mutual interests.

Alliance management is considered an organizational capability and:

develops over time, out of effort and learning.

Backward vertical integration can produce a:

differentiation-based competitive advantage when activities enhance the performance of the final product.

Mergers and acquisitions are often driven by such strategic objectives as:

expanding a company's geographic coverage or extending its business into new product categories.

Strategic offensives should, as a general rule, be based on:

exploiting a company's strongest competitive assets—its most valuable resources and capabilities

Mergers and acquisitions:

frequently do not produce the hoped-for outcomes.

The strategic impetus for forward vertical integration is to:

gain better access to end users and better market visibility.

Which of the following is typically the strategic impetus for forward vertical integration?

gaining better access to end users and better market visibility

Companies racing against rivals for global market leadership need strategic alliances and collaborative partnerships with companies in foreign countries to:

get into critical country markets quickly, gain inside knowledge about unfamiliar markets and cultures, and access valuable skills and competencies that are concentrated in particular geographic locations.

A company racing to seize opportunities on the frontiers of advancing technology often utilizes strategic alliances and collaborative partnerships to:

help master new technologies and build new expertise and competencies, establish a stronger beachhead for participating in the target industry, and open up broader opportunities in the target industry.

The big risk of employing an outsourcing strategy is:

hollowing out a firm's own capabilities and losing touch with activities and expertise that contribute fundamentally to the firm's competitiveness and market success.

The range of product and service segments that the firm serves within its market is known as the firm's:

horizontal scope.

Being first to initiate a particular strategic move can have a high payoff in all of the following EXCEPT when:

market uncertainties make it difficult to ascertain what will eventually succeed.

Merger and acquisition strategies:

may offer considerable cost-saving opportunities and can also be beneficial in helping a company try to invent a new industry.

A primary reason for why mergers and acquisitions sometimes fail is due to the:

misinterpretation of the cultural differences, like employee disenchantment and low morale, differences in management styles and operating procedures, and operations integration decision mistakes.

Launching a preemptive strike type of offensive strategy entails:

moving first to secure advantageous competitive assets that rivals can't readily match or duplicate.

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

must be able to achieve the same scale economies as outside suppliers and match or beat suppliers' production efficiency with no drop-off in quality.

Outsourcing strategies can offer such advantages as:

obtaining higher quality and/or cheaper components or services, improving a company's ability to innovate, and reducing its risk exposure.

A blue-ocean type of offensive strategy:

offers growth in revenues and profits by discovering or inventing a new industry or distinct market segment that renders rivals largely irrelevant and allows a company to create and capture altogether new demand.

Relying on outsiders to perform certain value chain activities offers such strategic advantages as:

reducing the company's risk exposure to changing technology and/or changing buyer preferences.

A company that fails to manage its strategic alliance probably has:

refrained from making commitments to its partners and ensured they do the same.

Which of the following is defined as a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective?

strategic alliance

The two most compelling reasons for a company to pursue vertical integration (either forward or backward) are to:

strengthen the company's competitive position and/or boost its profitability.

The two big drivers of outsourcing are:

that outsiders can often perform certain activities better or more cheaply, and outsourcing allows a firm to focus its entire energies on those activities that are at the center of its expertise (its core competencies).

A strategy of vertical integration can have substantial drawbacks, including:

the environmental costs of coordinating operations across vertical chain activities.

The race among rivals for industry leadership is more likely to be a marathon rather than a sprint when:

the market depends on the development of complementary products or services that are currently not available, buyers have high switching costs, and influential rivals are in position to derail the efforts of a first-mover.

What does the scope of the firm refer to?

the range of activities the firm performs internally and the breadth of its product offerings, the extent of its geographic market, and its mix of businesses

Because when to make a strategic move can be just as important as what move to make, a company's best option with respect to timing is:

to carefully weigh the first-mover advantages against the first-mover disadvantages and act accordingly.

What is the goal of signalling a challenger that strong retaliation is likely in the event of an attack?

to dissuade challengers from attacking or diverting them into using less threatening options

The extent to which a firm's internal activities encompass one, some, many, or all of the activities that make up an industry's entire value chain system is known as:

vertical scope.

First-mover advantages are unlikely to be present in which one of the following instances?

when rapid market evolution (due to fast-paced changes in technology or buyer preferences) presents opportunities to leapfrog a first-mover's products with more attractive next-version products