Strategic Managment-Test 2-Short Answers

Describe some tactics used by politicians that can also aid strategists.

1. Achieving desired results is more important than imposing a particular method, so consider various methods and choose, whenever possible, the one(s) that will afford the greatest commitment from employees/managers. 2. Achieving satisfactory results with a popular strategy is generally better than trying to achieve optimal results with an unpopular strategy. 3. An effective way to gain commitment and achieve desired results is oftentimes to shift from specific to general issues and concerns. 4. An effective way to gain commitment and achieve desired results is oftentimes to shift from short-term to long-term issues and concerns. 5. Middle level managers must be genuinely involved in and supportive of strategic decisions because successful implementation will hinge on their support.

What are the advantages and disadvantages of a divisional organizational structure?

A divisional structure has some clear advantages. The first is that accountability is clear. Also, it creates career development opportunities for managers, allows local control of local situations, leads to a competitive climate within an organization, and allows new businesses and products to be added easily. A divisional structure does have its limitations. A divisional structure is costly because each division requires functional specialists who must be paid, there exists some duplication of staff services, facilities and personnel, and better-qualified individuals require higher salaries. It is also costly because it requires an elaborate headquarters-driven control system. Finally, competition between divisions may become so intense that it is dysfunctional and leads to limited sharing of ideas and resources for the common good of the firm.

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, 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. Faculty and/or staff might have to be greatly reduced, which could lead to unhappy students in very large classes.

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.

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 a 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 industry-wide 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.

What are the three commonly used strategies or approaches for implementing changes in an organization? Give an advantage and/or disadvantage for each type of approach.

Although there are various approaches for implementing changes, three commonly used strategies are a force change strategy, an educative change strategy, and a rational or self-interest change strategy. A force change strategy involves giving orders and enforcing those orders; this strategy has the advantage of being fast, but low commitment and high resistance plague it. An educative change strategy is one that presents information to convince people of the need for change; the disadvantage of an educative change strategy is that implementation becomes slow and difficult. However, this type of strategy evokes greater commitment and less resistance than does the force change strategy. Finally, a rational or self-interest change strategy is one that attempts to convince individuals the change is to their personal advantage. When this appeal is successful, strategy implementation can be relatively easy.

Explain the nature and role of ESOPs in strategic management.

An ESOP is a tax-qualified, defined-contribution, employee-benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions. ESOPs empower employees to work as owners. Besides reducing worker alienation and stimulating productivity, ESOPs allow firms other benefits, such as substantial tax savings. Principal, interest, and dividend payments on ESOP-funded debt are tax-deductible. Banks lend money to ESOPs at interest rates below prime. This money can be repaid in pretax dollars, lowering the debt service as much as 30 percent in some cases.

List four major reasons annual objectives are essential for strategy implementation.

Annual objectives are essential for strategy implementation because they: 1) represent the basis for allocating resources; 2) are a primary mechanism for evaluating managers; 3) are the major instrument for monitoring progress toward achieving long-term objectives; and 4) establish organizational, divisional, and departmental priorities.

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.

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 related diversification.

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 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 rapidly becoming global in scope.

Define and give an examples 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 PepsiCo heavily advertising its new Diet Pepsi special-edition silver cans, featuring the blue-and-red Pepsi logo in a heart shape. Market development is introducing present products or services into new geographic areas. China Petrochemical's purchase of three Canadian oil companies 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 General Electric building new composite material jet engines.

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 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 must 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 does 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. 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.

Name at least ten issues that may require a management policy.

Possible answers include: 1) To offer extensive or limited management development workshops and seminars. 2) To centralize or decentralize employee-training activities. 3) To recruit through employment agencies, college campuses and/or newspapers. 4) To promote from within or to hire from the outside. 5) To promote on the basis of merit or on the basis of seniority. 6) To tie executive compensation to long-term and/or annual goals. 7) To offer numerous or few employee benefits. 8) To negotiate directly or indirectly with labor unions. 9) To delegate authority for large expenditures or to retain this authority centrally. 10) To allow much, some, or no overtime work. 11) To establish a high- or low-safety stock of inventory. 12) To use one or more suppliers. 13) To buy, lease, or rent new production equipment. 14) The degree to which to stress quality control. 15) To establish many or only a few production standards. 16) To operate one, two, or three shifts. 17) To discourage using insider information for personal gain. 18) To discourage sexual harassment. 19) To discourage smoking at work. 20) To discourage insider trading. 21) To discourage moonlighting.

Discuss PE firms and explain what a secondary buyout is.

Private-equity (PE) firms jumped aggressively back into the business of acquiring and selling firms in 2012-2013. The intent of virtually all PE acquisitions is to buy firms at a low price and sell them alter at a high price, arguably just good business. PE firms are increasingly buying companies form other PE firms. Such PE to PE acquisitions are called secondary buyouts. In 2012 these acquisitions totaled $30 billion in the USA.

In a BCG Matrix, all divisions are classified as either 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, having a high relative market share and a high industry growth rate. 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 examples 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 possess 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. Related diversification means adding new but related products or services. An example of related diversification is Toys 'R' Us developing a new Wi-Fi tablet computer for children. Unrelated diversification means adding new, unrelated products or services. An example of unrelated diversification is retailer IKEA opening a chain of motels in Europe.

Compare and contrast restructuring and reengineering.

Restructuring involves reducing the size of the firm in terms of number of employees, number of divisions or units, and number of hierarchical levels in the firm's organizational structure. Restructuring is concerned primarily with shareholder well-being rather than employee well-being. In contrast, reengineering is concerned more with employee and customer well-being than shareholder well-being. Reengineering involves reconfiguring or redesigning work, jobs, and processes for the purpose of improving cost, quality, service, and speed. Whereas restructuring is concerned with eliminating or establishing, shrinking or enlarging, and moving organizational departments and divisions, the focus of reengineering is changing the way work is actually carried out. Reengineering is characterized by many tactical decisions, whereas restructuring is characterized by strategic decisions.

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. The audit, compensation and nominating committees are made up solely of outside directors. Each director owns a large equity stake in the company. Each director attends at least 75 percent of all meetings. The board meets regularly without management present and evaluates its own performance annually. The CEO is not also the Chairperson of the Board. There are no interlocking directorships (where a director or CEO sits on another director's board).

What are five differences between strategy formulation and strategy implementation?

Strategy formulation is positioning forces before the action, whereas strategy implementation is managing forces during the action. Strategy formulation focuses on effectiveness, whereas strategy implementation focuses on efficiency. Strategy formulation is primarily an intellectual process, whereas strategy implementation is primarily an operational process. Strategy formulation requires good intuitive and analytical skills, whereas strategy implementation requires special motivational and leadership skills. Strategy formulation requires coordination among a few individuals, whereas strategy implementation requires coordination among many individuals.

Give five sets of coordinates of SPACE Matrix directional vectors 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). Any pair of coordinates with a negative x-coordinate and a positive y-coordinate is correct, in other words, any pair of coordinates that describe a point in the upper-left quadrant.

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.

There are four basic ways a divisionally structured firm could be organized. What are these four ways? Give an example of each.

The four basic ways a divisionally structured firm could be organized are: 1) by geographic area. An example of this would be any organization with similar branch facilities located in widely dispersed areas, like Hershey; 2) by product or service. General Motors, DuPont, Microsoft, and Procter & Gamble are examples of divisional structure by product; 3) by customer. Book publishing companies often organize their activities around customer groups such as college, secondary schools, and private commercial schools; and 4) by process. An example of this is a manufacturing business organized into six divisions: electrical work, glass cutting, welding, grinding, painting and foundry work. Each division would be responsible for generating revenues and profits.

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

The major benefit of the BCG Matrix is that it 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 at a 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.

Discuss the dos and don'ts in developing organizational charts.

There are some basic dos and don'ts in regard to devising or constructing organizational charts, especially for midsize to large firms. First of all, reserve the title CEO for the top executive of the firm. Don't use the title "president" for the top person; use it for the division top managers if there are divisions within the firm. Also, do not use the title "president" for functional business executives. They should have the title "chief," or "vice president," or "manager," or "officer," such as "Chief Information Officer," or "VP of Human Resources." Further, do not recommend a dual title (such as "CEO and President") for just one executive. Actually, "chairperson" is much better than "chairman" for this title. Directly below the CEO, it is best to have a COO (chief operating officer) with any division presidents reporting directly to the COO. On the same level as the COO and also reporting to the CEO, draw in your functional business executives, such as a CFO (chief financial officer), VP of Human Resources, a CSO (Chief Strategy Officer), a CIO (Chief Information Officer), a CMO (Chief Marketing Officer), a VP of R&D, a VP of Legal Affairs, an Investment Relations Officer, Maintenance Superintendent, etc. Note in Figure 7-8 that these positions are labeled and placed appropriately. Note that a controller and/or treasurer would normally report to the CFO.

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.

There are three major approaches for managing and resolving conflict in an organization. Define these three approaches and give an example of each.

Various approaches for managing and resolving conflict can be classified into three categories: avoidance, defusion, and confrontation. Avoidance includes such actions as ignoring the problem in hopes the conflict will resolve itself, or physically separating the conflicting individuals. Defusion can include playing down differences between conflicting parties while accentuating similarities and common interests, compromising so there is neither a clear winner nor loser, resorting to majority rule, appealing to a higher authority, or redesigning present positions. Confrontation is exemplified by exchanging members of conflicting parties so each can gain an appreciation of the other's point of view, or holding a meeting at which conflicting parties present their views and work through their differences. Student answers will vary on the examples given for each approach.

Discuss how work life/home life balance is being addressed by organizations.

Work/family strategies have become so popular among companies today that the strategies now represent a competitive advantage for those firms that offer such benefits as elder care assistance, flexible scheduling, job sharing, adoption benefits, an on-site summer camp, employee help lines, pet care, and even lawn service referrals. New corporate titles such as work and life coordinator and director of diversity are becoming common. A corporate objective to become more lean and mean must today include consideration for the fact that a good home life contributes immensely to a good work life. The work/family issue is no longer just a women's issue. Some organizations offer family days, when family members are invited to the workplace and given a chance to see what other family members do each day. Flexible working hours are another human resource response to the need for individuals to balance work life and home life.

Define and give an example, where available, of three integrative strategies.

he three integrative strategies are forward integration, backward integration, and horizontal integration. Specific student examples will vary, but samples are given here. Forward integration is the gaining of ownership or increased control over distributors or retailers. An example of forward integration is PayPal pushing its service off the Web and into stores via an agreement with Discover card. Backward integration is the seeking of ownership or increased control of a firm's suppliers. Fancy Motels Inc. acquiring a furniture manufacturer is an example of this strategy. Horizontal integration is the seeking of ownership or increased control over competitors. An example of horizontal integration is the Britain's GlaxoSmithKline PLC acquiring Human Genomes Sciences Inc.