Essay Questions

Discuss the five steps involved in performing an IFE Matrix.

The first step is to list ten to twenty internal factors, including strengths and weaknesses using percentages, ratios and comparative numbers. The second step is to assign a weight that ranges from 0.00 (not important) to 1.0 (all-important) to each factor based on its relative importance. The third step is to assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness, a minor weakness, a major strength, or a minor strength. Next, multiply each factor's weight by its rating to determine a weighted score for each variable. Finally, sum the weighted scores for each variable to determine the total weighted score for the organization.

Identify the five basic functions of management, and describe each function.

The five basic functions of management are planning, organizing, motivating, staffing and controlling. Please refer to Table 4-3 on page 132 in the text for the descriptions of each function.

According to Roger Schroeder, there are five basic functions or decision areas in production. Describe these five functions.

The five basic functions or decision areas in production are process, capacity, inventory, workforce and quality. Please refer to Table 4-5 on page 147 in the text for descriptions of each function or decision area.

Four basic approaches exist to determine R&D budget allocations. What are these approaches? Which one would you recommend for a pharmaceutical company? Why?

The four approaches to determining commonly used R&D budget allocations are: (1) financing as many project proposals as possible; (2) using a percentage-of-sales method; (3) budgeting about the same amount competitors spend for R&D; and (4) deciding how many successful new products are needed and working backward to estimate the required R&D investment. Students should recommend the fourth approach for a pharmaceutical company, deciding how many successful new products are needed, and work backward to estimate the required R&D investment, because most firms have no choice but to continually develop new and improved products because of changing consumer needs and tastes, new technologies, shortened product life cycles and increased domestic and foreign competition. Students should also mention that different strategies require different R&D capabilities, so no one approach will be appropriate for all companies at all times.

Describe the characteristics of an effective mission statement.

The major characteristics of an effective mission statement are a declaration of attitude, a customer orientation and a declaration of social policy.

Explain the resource-based view and its relation to strategic management.

The resource-based view (RBV) approach to competitive advantage contends that internal resources are more important than external factors for a firm in achieving and sustaining competitive advantage, in contrast to the I/O theory. According to this view, organizational performance is determined by physical resources, human resources and organizational resources. RBV theory asserts that resources are actually what help a firm exploit opportunities and neutralize threats. The theory also asserts that in order to maintain a competitive advantage, a resource must either be rare, not easily substitutable, or hard to imitate. The RBV has continued to grow in popularity and continues to seek a better understanding of the relationship between resources and sustained competitive advantage.

Define and give an example of the self-concept component in a mission statement.

The self-concept component of a mission statement asks the question, "What is the firm's distinctive competence or major competitive advantage?" An example of the self-concept component is, "Crown Zellerback is committed to leapfrogging ongoing competition within 1,000 days by unleashing the constructive and creative abilities and energies of each of its employees."

There are seven basic functions of marketing. List and define these functions.

The seven basic functions of marketing are (1) customer analysis, (2) selling products/services, (3) product and service planning, (4) pricing, (5) distribution, (6) marketing research and (7) opportunity analysis. Students should define each of these functions.

According to James Van Horne, what are the three decisions that comprise the functions of finance? Describe each function.

The three basic functions of finance, according to James Van Horne, are the investment decision, the financing decision and the dividend decision. The investment decision is the allocation and reallocation of capital and resources to project, products, assets and divisions of an organization. The financing decision determines the best capital structure for the firms and includes examining various methods by which the firm can raise capital. Dividend decisions concern issues such as the percentage of earning paid to stockholders, the stability of dividends paid over time and the repurchase or issuance of stock.

Define and give an example of three integrative strategies.

The three integrative strategies are forward integration, backward integration and horizontal integration. Forward integration is the gaining of ownership or increased control over distributors or retailers. An example of forward integration is Gateway Computer Company opening its own chain of retail computer stores. Backward integration is the seeking of ownership or increased control of a firm's suppliers. J.P. Morgan outsourcing its technology operations to firms such as EDS and IBM is an example of backward integration. Horizontal integration is the seeking of ownership or increased control over competitors. An example of horizontal integration is when Reader's Digest Association acquired Reiman Publications LLC.

Explain what Drucker means when he says, "Trees die from the top."

"Trees die from the top," can be explained as 'top management creates organizational spirit.' When top management's spirit dies, so does the rest of the company's spirit. This leads to the downfall, or death, of the company.

Using a Grand Strategy Matrix approach, what strategies are recommended for a firm that is a weak competitor in a slow-growing market? Elaborate on what these strategies could mean for a college or university.

A firm that is a weak competitor in a slow-growing market would be located in Quadrant III. Quadrant III strategies include retrenchment, concentric diversification, horizontal diversification, conglomerate diversification, divestiture and liquidation. Student answers will vary when elaborating on what these strategies could mean for a college or university. However, students should mention that the college or university could possibly have to be closed or facility and staff may have to be drastically reduced which leads to unhappy students in very large classes.

Define and give examples of joint venture, retrenchment, divestiture and liquidation.

A joint venture is when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. An example of this is when Dell Computer and EMC Corporation created a sales and development alliance. Retrenchment is regrouping through cost and asset reduction to reverse declining sales and profit. Net2Phone cutting 110 jobs in 2002 as part of its restructuring plan is an example of retrenchment. Selling a division or part of an organization is called divestiture. An example of this is Tyco International selling off its plastics department, which accounts for about 4 percent of Tyco's sales. Liquidation is the selling off of a company's assets, in parts, for their tangible worth. When Service Merchandise liquidated in 2002, it closed all of its 216 stores in 32 states.

What are the characteristics of a firm that is successfully pursuing a cost leadership strategy?

A successful cost leadership strategy usually permeates the entire firm, as evidenced by high efficiency, low overhead, limited perks, intolerance of waste, intensive screening of budget requests, wide spans of control, rewards linked to cost containment and broad employee participation in cost control efforts.

Explain the process of developing a mission statement.

A widely used approach to developing a mission statement is first to select several articles about mission statements and ask all managers to read these as background information. Then ask managers themselves to prepare a mission statement for the organization. A facilitator or committee of top managers should then merge these statements into a single document and distribute this draft mission statement to all managers. A request for modifications, additions and deletions is needed next, along with a meeting to revise the document. To the extent all managers have input into and support the final mission statement document, organizations can more easily obtain managers' support for other strategy formulation, implementation and evaluation activities.

Discuss Michael Porter's five generic strategies.

According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Porter calls these bases generic strategies. Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive. Two alternative types of cost leadership strategies can be defined. Type 1 is a low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market. Type 2 is best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market.; the best value strategy aims to offer customers a range of products or services at the lowest price available compared to a rival's products with similar attributes. Differentiation is a strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive. A low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the market. A best-value focus strategy offers products or services to a small range of customers at the best price-value available on the market.

Agree or disagree with (and discuss) the following statement: "Corporate intelligence is not corporate espionage because 95 percent of the information a company needs to make strategic decisions is available and accessible to the public."

Agree. Firms need an effective competitive intelligence (CI) program. The three basic missions of a CI program are (1) to provide a general understanding of an industry and its competitors, (2) to identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors and (3) to identify potential moves a competitor might make that would endanger a firm's position in the market. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions.

Give at least seven reasons why some firms do no strategic planning.

Ans: Some reasons for poor or no strategic planning are as follows: Poor reward structures, fire-fighting, waste of time, too expensive, laziness, content with success, fear of failure, overconfidence, prior bad experience, self-interest, fear of the unknown, honest difference of opinion, and suspicion.

Explain the relationship between strategic management and competitive advantage for firms. How can a firm achieve sustained competitive advantage?

Ans: Strategic management is all about gaining and maintaining competitive advantage. Competitive advantage is anything a firm does especially well compared to rival firms. When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage. Getting and keeping competitive advantage is essential for long-term success of an organization. A firm must strive to achieve sustained competitive advantage by (1) continually adapting to changes in external trends and events and internal capabilities, competencies and resources, and by (2) effectively formulating, implementing and evaluating strategies that capitalize upon those factors.

Explain the significance of the ISO (International Organization for Standardization). What are the purposes of ISO 9000, ISO 14000, and ISO 14001?

Ans: The ISO is based in Geneva, Switzerland and is a network of the national standards institutes of 147 countries. The ISO is the world's largest developer of standards and is widely accepted worldwide. ISO standards are voluntary, since the organization has no legal authority to enforce their implementation. However, many companies that are not ISO certified often cannot get work. ISO 9000 focuses on quality control and ISO 14000 focuses on operating in an environmentally-friendly manner. ISO 14000 refers to a series of voluntary standards in the environmental field. ISO 14001 is similar to ISO 14000 because it is also an environmental standard. ISO 14001 is a standard for Environmental Management Systems. Standards include environmental auditing, environmental performance evaluation, environmental labeling, and life-style assessment. ISO 14001 standards offer a universal technical standard for environmental compliance.

Compare and contrast business and military strategy.

Business and military strategy are very similar. A key aim of both business and military strategy is "to gain competitive advantage." They both also try to use their own strengths to exploit competitor's weaknesses. Happiness is not a result of accidental strategies in either business or military organizations. The element of surprise provides great competitive advantages in both military and business strategy; information systems that provide data on opponents' or competitors' strategies and resources are also vitally important. Finally, both business and military organizations must adapt to change and constantly improve to be successful. While business and military strategy are the same in many ways, they have one major difference—business strategy is formulated, implemented and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict.

Discuss the following statement: "Planning would be impossible without assumptions."

By identifying future occurrences that could have a major effect on the firm and by making reasonable assumptions about those factors, strategists can carry the strategic-management process forward. Assumptions are needed only for future trends and events that are most likely to have a significant effect on the company's business. Assumptions can serve as checkpoints on the validity of strategies. If future occurrences deviate significantly from assumptions, strategists know that corrective actions may be needed. Without reasonable assumptions, the strategy-formulation process could not proceed effectively. Firms that have the best information generally make the most accurate assumptions, which can lead to major competitive advantages.

Identify the reasons dividends are sometimes paid out even when funds could be better reinvested in the business or when the firm has to tap outside sources to pay the dividends.

Dividends are sometimes paid out even when funds could be better reinvested in the business or when the firm has to obtain outside sources of capital. The reasons for these situations are as follows. (1) Paying cash dividends is customary. Failure to do so could be thought of as a stigma. A dividend change is considered a signal about the future. (2) Dividends represent a sales point for investment bankers. Some institutional investors can buy only dividend-paying stocks. (3) Shareholders often demand dividends, even in companies with great opportunities for reinvesting all available funds. (4) A myth exists that paying dividends will result in a higher stock price.

Describe the tactics that have been used by politicians that can also aid strategists.

Equifinality—It is often possible to achieve similar results using different means or paths. Strategists should recognize that achieving a successful outcome is more important than imposing the method of achieving it. It may be possible to generate new alternatives that give equal results but with far greater potential for gaining commitment. Satisfying—Achieving satisfactory results with an acceptable strategy is far better than failing to achieve optimal results with an unpopular strategy. Generalization—Shifting focus from specific issues to more general ones may increase strategists' options for gaining organizational commitment. Focus on Higher-Order Issues—By raising an issue to a higher level, many short-term interests can be postponed in favor of long-term interests. For instance, by focusing on issues of survival, the auto and steel industries were able to persuade unions to make concessions on wage increases. Provide Political Access on Important Issues—Strategy and policy decisions with significant negative consequences for middle managers will motivate intervention behavior from them. If middle managers do not have an opportunity to take a position on such decisions in appropriate political forums, they are capable of successfully resisting the decisions after they are made. Providing such political access provides strategists with information that otherwise might not be available and that could be useful in managing intervention behavior.

What are the five major types of external forces that should be examined as part of an external audit? Give an example of each type of force.

External forces can be divided into five broad categories: (1) economic forces, (2) social, cultural, demographic and environmental forces, (3) political, governmental and legal forces, (4) technological forces and (5) competitive forces. Relationships among these forces and an organization are depicted in Figure 3-2.

Discuss some forces that influence the formality of strategic-management systems.

Firms that compete in complex, rapidly changing environments, such as technology companies, tend to be more formal in strategic planning. Firms that have many divisions, products, markets and technologies also tend to be more formal in applying strategic-management concepts. Greater formality in applying the strategic-management process is usually positively related with the cost, comprehensiveness, accuracy and success of planning across all types and sizes of organization.

If you construct a SPACE Matrix and the directional vector points to the lower left quadrant, what type of strategies would you recommend? Give several examples.

If the directional vector points to the lower-left quadrant of the SPACE Matrix, students should suggest defensive strategies. Defensive strategies include retrenchment, divestiture, liquidation and concentric diversification.

What are the pitfalls in strategic planning that management in an organization should watch out for or avoid? Identify any five pitfalls.

There are 13 pitfalls. Students should list any five of the following: (1) using strategic planning to gain control over decisions and resources; (2) doing strategic planning only to satisfy accreditation or regulatory requirements; (3) too hastily moving from mission development to strategy formulation; (4) failing to communicate the plan to employees, who continue to work in the dark; (5) top managers making many intuitive decisions that conflict with the formal plan; (6) top managers not actively supporting the strategic-planning process; (7) failing to use plans as a standard for measuring performance; (8) delegating planning to a "planner" rather than involving all managers; (9) failing to involve key employees in all phases of planning; (10) failing to create a collaborative climate supportive of change; (11) viewing planning to be unnecessary or unimportant; (12) becoming so engrossed in current problems that insufficient or no planning is done; and (13) being so formal in planning that flexibility and creativity are stifled.

What are the advantages and disadvantages of having international operations? Explain.

International operations create many advantages for a company: 1) Foreign operations can absorb excess capacity, reduce unit costs and spread economic risks over a wider number of markets; 2) foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials and/or cheap labor; 3) competitors in foreign markets may not exist, or competition may be less intense than in domestic markets; 4) foreign operations may result in reduced tariffs, lower taxes and favorable political treatment in other countries; 5) joint ventures can enable firms to learn the technology, culture and business practices of other people and to make contacts with potential customers, suppliers, creditors and distributors in foreign countries; 6) many foreign governments and countries offer varied incentives to encourage foreign investment in specific locations; and 7) economies of scale can be achieved from operations in global rather than solely domestic markets. Larger-scale production and better efficiencies allow higher sales volumes and lower price offerings. There are also numerous potential disadvantages of having internal operations: 1) nationalistic factions could seize foreign operations; 2) firms confront different and often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic and competitive forces when doing business internationally. These forces can make communication difficult between the parent firm and subsidiaries; 3) weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated. Keeping informed about the number and nature of competitors is more difficult when doing business internationally; 4) language, culture and value systems differ among countries, and this can create barriers to communication and problems managing people; 5) gaining an understanding of regional organizations is difficult but is often required in doing business internationally; 6) dealing with two or more monetary systems can complicate international business operations; and 7) the availability, depth and reliability of economic and marketing information in different countries varies extensively, as do industrial structures, business practices and the number and nature of regional organizations.

Define and discuss the differences between vision and mission statements.

Many organizations today develop a vision statement that answers the question "What do we want to become?" Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is "Our vision is to take care of your vision." The vision of the Institute of Management Accountants is "Global leadership in education, certification, and practice of management accounting and financial management." Mission statements are "enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms." It addresses the basic question that faces all strategists: "What is our business?" A clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization.

List some guidelines for when market development would be a particularly good strategy to pursue.

Market development would be an effective strategy in all of the following situations: (1) when new channels of distribution are available that are reliable, inexpensive and of good quality; (2) when an organization is very successful at what it does; (3) when new untapped or unsaturated markets exist; (4) when an organization has the needed capital and human resources to manage expanded operations; (5) when an organization has excess production capacity; and (6) when an organization's basic industry is becoming rapidly global in scope.

Define and give an example of three intensive strategies.

Market penetration, market development and product development are the three types of intensive strategies. Seeking increased market share for present products or services in present markets through marketing efforts is called market penetration. An example of this is when American Express launched a $100 million + advertising campaign in 2002 to boost its lead over Citigroup in the credit card industry. Market development is introducing present products or services into new geographic areas. South African Breweries PLC trying to acquire Miller Brewing Company for about $5 billion is an example of market development. Product development is seeking increased sales by improving present products or services or ​developing new ones. An example of product development is Miller Brewing Company developing the new Skyy Blue citrus and "vodka-flavored" malt beverage.

Explain the concept of matching in the strategy formulation framework. Give at least three examples of matching.

Matching external and internal critical success factors is the key to effectively generating feasible alternative strategies. See Table 6-1 on page 220 for examples of matching.

Discuss four common problems that cause joint ventures to fail.

One problem that causes joint ventures to fail is that managers who should collaborate daily in operating the venture are not involved in forming or shaping the venture. A second problem is if the venture benefits the partnering companies but may not benefit customers who then complain about poorer service or criticize the companies in other ways. A third problem occurs if the venture is not supported equally by both partners, which creates problems. A final problem that can cause a joint venture to fail is that the venture may begin to compete more with one of the partners than the other.

In a BCG Matrix, all divisions are called question marks, stars, cash cows or dogs. Define each of these terms.

Question Marks have a low relative market share position, yet they compete in a high-growth industry. Stars represent the organization's best long-run opportunities for growth and profitability. Cash Cows have a high relative market share position but compete in a low-growth industry. Dogs have a low relative market share position and compete in a slow- or no-market-growth industry.

Name at least six reasons for performing mergers or acquisitions.

Reasons include: 1) to provide improved capacity utilization; 2) to make better use of the existing sales force; 3) to reduce managerial staff; 4) to gain economies of scale; 5) to smooth out seasonal trends in sales; 6) to gain access to new suppliers, distributors, customers, products and creditors; 7) to gain new technology; and 8) to reduce tax obligations.

Define and give an example of the two diversification strategies.

Related and unrelated are the two types of diversification strategies. Businesses are said to be related when their value chains posses competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationships exist. An example of related diversification is Amazon.com Inc.'s recent move to sell personal computers though its online store. An example of unrelated diversification is Trump Entertainment Resorts starting Trump university, an online business university.

List some guidelines for when related diversification would be a particularly good strategy to pursue.

Six guidelines for when related diversification may be an effective strategy are: (1) when an organization competes in a no-growth or a slow-growth industry; (2) when adding new, but related, products would significantly enhance the sales of current products; (3) when new, but related, products could be offered at highly competitive prices; (4) when new, but related, products have seasonal sales levels that counterbalance an organization's existing peaks and valleys; (5) when an organization's products are currently in the declining stage of the product's life cycle; and (6) when an organization has a strong management team.

List some guidelines for when forward integration would be a particularly good strategy to pursue.

Some guidelines for when forward integration would be an especially effective strategy are: (1) when an organization's present distributors are especially expensive, unreliable, or incapable of meeting the firm's distribution needs; (2) when the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward; (3) when an organization competes in an industry that is growing and is expected to continue to grow markedly; (4) when an organization has both the capital and human resources needed to manage the new business of distributing its own products; (5) when the advantages of stable production are particularly high; and (6) when present distributors or retailers have high profit margins.

Discuss the appropriate role of a board of directors in an organization.

Some principles are: No more than two directors are current or former company executives. No directors do business with the company or accept consulting or legal fees from the firm. The audit, compensation and nominating committees are made up solely of outside directors. Each director owns a large equity stake in the company, excluding stock options. At least one outside director has extensive experience in the company's core business and at least one has been CEO of an equivalent-sized company. Fully employed directors sit on no more than four boards and retirees sit on no more than seven. Each director attends at least 75 percent of all meetings. The board meets regularly without management present and evaluates its own performance annually. The audit committee meets at least four times a year. The board is frugal on executive pay, diligent in CEO succession oversight responsibilities, and prompt to act when trouble arises. The CEO is not also the Chairperson of the Board. Shareholders have considerable power and information to choose and replace directors. Stock options are considered a corporate expense. There are no interlocking directorships (where a director or CEO sits on another director's board).

Compare and contrast strategic planning with strategic management.

Strategic planning is more often used in the business world, whereas strategic management is often used in academia. Sometimes, strategic management is used to refer to strategy formulation, implementation and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today.

Define what strategists are. Describe what they do in an organization.

Strategists are individuals who are most responsible for the success or failure of an organization. They help an organization gather, analyze and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, identify business threats and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision-making in the firm.

Which stage in the strategic-management process is most difficult? Explain why.

Strategy implementation is the most difficult stage in the strategic-management process because it requires personal discipline, commitment and sacrifice. Successful strategy implementation hinges upon managers' ability to motivate employees, which is more of an art than a science

A good mission statement effectively reflects the anticipations of customers and reveals the utility that various products or services offer customers. Give three examples of this.

Student answers may vary, but could include that: (1) AT&T's mission statement focuses on communication rather than on telephones; (2) Exxon's mission statement focuses on energy rather than on oil and gas; (3) Union Pacific's mission statement focuses on transportation rather than on railroads; and/or (4) Universal Studios' mission statement focuses on entertainment rather than on movies.

Give five coordinates of a SPACE Matrix directional vector that would suggest conservative strategies to be most appropriate.

Student answers will vary. However, five examples they may suggest are (-1,1), (-2,2), (-3,3), (-4,4), and (-5,5).

Identify and give an example of six cultural products.

Student answers will vary. However, they should include and give examples for any of the following: rites, ceremonial, ritual, myth, saga, legend, story, folktale, symbol, language, metaphors, values, belief and heroes/heroines. These products are explained further in Table 4-1 on page 127

List three opportunities and three threats that could represent key factors facing your college or university.

Student answers will vary. However, they should look at economic, social/cultural, political/legal, technological and competitive factors.

Identify five key economic variables that could represent major opportunities or threats to a bank in your town or city.

Student answers will vary. However, they should look at economic, social/cultural, political/legal, technological and competitive factors. Refer to Table 3-1 on page 85.

List and define the major components of an effective mission statement.

Students should list and define the following components of an effective mission statement: (1) customers, (2) products or services, (3) markets, (4) technology, (5) concern for survival, growth and profitability, (6) philosophy, (7) self-concept, (8) concern for public image and (9) concern for employees.

Explain the benefits and limitations of developing a Boston Consulting Group Matrix.

The BCG Matrix has one major benefit: draws attention to the cash flow, investment characteristics and needs of an organization's various divisions. The BCG Matrix has some limitations: 1) Viewing every business as either a star, cash cow, dog or question mark is an oversimplification; many businesses fall right in the middle of the BCG Matrix and thus are not easily classified, 2) the BCG Matrix does not reflect whether or not various divisions or their industries are growing over time; that is, the matrix has no temporal qualities, but rather it is a snapshot of an organization as any given point in time; and 3) other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.

List five steps that comprise an effective framework for conducting an EFE Matrix. Explain the details involved in performing any one of the steps.

The EFE Matrix can be developed in five steps: 1) list key external factors as identified in the external-audit process with a total of from 10 to 20 factors, including both opportunities and threats that affect the firm and its industry; 2) assign to each factor a weight that ranges from 0.0 to 1.0; 3) assign a 1 to 4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor; 4) multiply each factor's weight by its rating to determine a weighted score; and 5) sum the weighted scores for each variable to determine the total weighted score for the organization.

Discuss the I/O approach in relation to competitive advantage.

The I/O approach to competitive advantage advocates that external factors are more important than internal factors in a firm achieving competitive advantage. Proponents of the I/O view contend that organizational performance will be primarily determined by industry forces, rather than the firm's internal functional decisions made. Research findings suggest that approximately 20 percent of a firm's profitability can be explained by the industry, whereas 36 percent of the variance in profitability is attributed to the firm's internal factors. Effective integration of both external and internal factors is the key to securing and keeping a competitive advantage.

Compare and contrast the IE Matrix with the BCG Matrix.

The IE Matrix is similar to the BCG Matrix in that both tools involve plotting organizational divisions in a schematic diagram. Also, the size of each circle represents the percentage sales contribution of each division, and pie slices reveal the percentage profit contribution of each division in both the BCG and IE Matrix. Some important differences between the IE Matrix and the BCG Matrix include: 1) different axes; 2) the IE Matrix requires more information about the divisions than the BCG Matrix; and 3) the strategic implications of each matrix are different.

Explain how the Internet is changing businesses around the world.

The Internet is acting as a national and even global economic engine that is spurring productivity. The Internet is saving companies billions of dollars in distribution and transaction costs from direct sales to self-service systems. The Internet is changing the very nature of opportunities and threats by altering the life cycles of products, increasing the speed of distribution, creating new products and services, erasing limitations of traditional geographic markets and changing the historical trade-off between production standardization and flexibility. It is also altering economies of scale, changing entry barriers and redefining the relationship between industries and various suppliers, creditors, customers and competitors. An emerging consensus holds that technology management is one of the key responsibilities of strategists.

List 10 major benefits of strategic management, as stated by Greenley.

There are 14 benefits stated by Greenley. Students are to list any 10 of the following: (1) it allows for identification, prioritization and exploitation of opportunities, (2) it provides an objective view of management problems, (3) it represents a framework for improved coordination and control of activities, (4) it minimizes the effects of adverse conditions and changes, (5) it allows major decisions to better support established objectives, (6) it allows more effective allocation of time and resources to identified opportunities, (7) it allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions, (8) it creates a framework for internal communication among personnel, (9) it helps integrate the behavior of individuals into a total effort, (10) it provides a basis for clarifying individual responsibilities, (11) it encourages forward thinking, (12) it provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities, (13) it encourages a favorable attitude toward change, and (14) it gives a degree of discipline and formality to the management of a business.

King and Cleland recommend organizations carefully develop a written mission statement for six reasons. List and describe five of these reasons.

There are six reasons King and Cleland give to develop a mission statement. Students may list and describe any five of the following: (1) to ensure unanimity of purpose within the organization, (2) to provide a basis, or standard, for allocating organizational resources, (3) to establish a general tone or organizational climate, (4) to serve as a focal point for individuals to identify with the organization's purpose and direction, and to deter those who cannot from participating further in the organization's activities, (5) to facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within the organization, and (6) to specify organizational purposes and then to translate these purposes into objectives in such a way that cost, time and performance parameters can be assessed and controlled.

Discuss the limitations of financial ratio analysis.

There are some limitations of financial ratio analysis. The first is that financial ratios are based on accounting data, and firms differ in their treatment of such items as depreciation, inventory valuation, R&D expenditures, pension plan costs, mergers and taxes. Second, seasonal factors can influence comparative ratios. A third limitation is that departures from industry averages do not always indicate a firm is doing especially well or badly.

Describe the positive features and limitations of QSPM.

There are three positive features of QSPM: 1) Sets of strategies can be examined sequentially or simultaneously; 2) there is no limit to the number of strategies that can be evaluated or the number of sets of strategies that can be examined at once using the QSPM; and 3) the last positive feature is that it requires strategists to integrate pertinent external and internal factors into the decision process. The QSPM is not without some limitations: 1) It always requires intuitive judgments and educated assumptions; 2) The ratings and attractiveness scores require judgmental decisions, even though they should be based on objective information; and 3) it can be only as good as the prerequisite information and matching analyses upon which it is based.

Discuss the process of performing an external audit.

To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal and technological trends. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a blackboard. A prioritized list of these factors could be obtained by requesting that all managers to rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat.

Discuss the opportunities and threats China presents to an international firm interested in doing business with China.

U.S. firms increasingly are doing business in China as market reforms create a more businesslike arena daily. Risks that still restrain firms from initiating business with China include the following: (1) poor infrastructure, (2) disregard for the natural environment, (3) absence of a legal system, (4) rampant corruption, (5) lack of freedom of press, speech and religion, (6) severe human-rights violations, (7) little respect for patents, copyrights, brands and logos, (8) counterfeiting, fraud and pirating of products, (9) little respect for legal contracts and (10) no generally accepted accounting principles. Both the European community and the U.S. have approved China's membership in the WTO. This action integrated the world's most populated country into the global trading order. Some key changes resulting from this action are as follows: (1) foreign companies can take increased stakes in mobile phone companies; (2) tariffs on high-tech products will be phased out and eliminated by 2005; (3) import tariffs on automobiles will drop to 25 percent by mid-2006 from 90 percent today; (4) foreign banks may conduct domestic currency business with Chinese firms; (5) foreign banks may do business anywhere in China by 2006; (6) foreign firms will be allowed a 49 percent stake in securities joint ventures by 2004; (7) foreign insurance firms may own operations in China; and (8) retail oil distribution will open in China by 2004.

Describe why a mission statement is so important in the strategic-management process.

​A clear mission statement is essential for effectively establishing objectives and formulating strategies. It reveals what an organization wants to be and whom it wants to serve. A business mission is the foundation for priorities, strategies, plans and work assignments. It is the starting point for the design of managerial jobs and for the design of managerial structures.

Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and 13.

​Chapter 7 bankruptcy is a liquidation procedure used only when a corporation sees no hope of being able to operate successfully or to obtain the necessary creditor agreement. Chapter 9 bankruptcy applies to municipalities. Chapter 11 bankruptcy allows organizations to reorganize and come back after filing a petition for protection. Chapter 12 bankruptcy provides special relief to family farmers with debt equal to or less than $1.5 million. Chapter 13 bankruptcy is a reorganization plan similar to Chapter 11, but it is available only to small businesses owned by individuals with unsecured debts of less than $100,000 and secured debts of less than $350,000.

Compare and contrast vision statement with mission statement.

​Many organizations develop both a mission statement and a vision statement. Whereas the mission statement answers the question, "What is our business," the vision statement answers the question, "What do we want to become?" When employees and managers together shape or fashion the vision and mission statements for a firm, the resultant documents can reflect the personal visions managers and employees have in their hearts and minds about their own futures. Shared vision creates a commonality of interests that can lift workers out of the monotony of daily work and put them into a new world of opportunity and challenge.

Discuss what needs to be completed, besides the calculation and interpretation of ratios, to complete an effective financial ratio analysis.

The analysis should be conducted on three separate fronts: 1. How has each ratio changed over time? This information provides a means of evaluating historical trends. It is important to note whether each ratio has been increasing, decreasing, or nearly constant historically. For example, a 10 percent profit margin could be bad if the trend has been down 20 percent each of the last three years. But a 10 percent profit margin could be excellent if the trend has been up, up, up. Therefore, calculate the percentage change in each ratio from one year to the next to assess historical financial performance on that dimension. Identify and examine large percent changes in a financial ratio from one year to the next. 2. How does each ratio compare to industry norms? A firm's inventory turnover ratio may appear impressive at first glance, but may pale when compared to industry standards or norms. Industries can differ dramatically on certain ratios. For example grocery companies such as Kroger have a high inventory turnover whereas automobile dealerships have a lower turnover. Therefore, comparison of a firm's ratios within its particular industry can be essential in determining strength/weakness. 3. How does each ratio compare with key competitors? Oftentimes competition is more intense between several competitors in a given industry or location than across all rival firms in the industry. When this is true, financial ratio analysis should include comparison to those key competitors. For example, if a firm's profitability ratio is trending up over time and compares favorably to the industry average, but it is trending down relative to its leading competitor, there may be reason for concern.

Identify any five differences when comparing American versus foreign cultures.

The chapter gives 11 differences between U.S. and foreign managers. Please refer to page 130-131.

What four basic steps comprise the controlling function of management?

The controlling function of management is particularly important for effective strategy evaluation. Controlling consists of four basic steps: (1) establishing performance standards, (2) measuring individual and organizational performance, (3) comparing actual performance to planned performance standards and (4) taking corrective actions.

According to Michael Porter, what are the five competitive forces that create vital opportunities and threats for organizations? Which force do you feel is most important in the computer industry today? Why?

The first one is rivalry among competing firms. The second is potential entry of new competitors. The third is potential development of substitute products. The fourth is bargaining power of suppliers. The last one is bargaining power of consumers.