MGMT 478 Ch. 5

A value chain activity that a firm performs especially well is called​ a(n) ______.

core competence

Method's soaps are distinguished by natural, less toxic ingredients, sustainability, unique packaging, and premium pricing. The company is following which of the following competitive strategies?

differntiation

for nonprofit and governmental organizations, strategic management is an important means to develop and justify requests for needed _______

financial support

The collection of activities that leads to the ultimate price of a product is commonly referred to as a​ firm's ______.

value chain

when a firm sells a division of the organization it is utilizing which strategy?

Divestiture

what is another word for retrenchment

Downsizing

the IBM stores example mentioned in the video exemplifies what type of strategy?

Forward integration

An effective means of implementing forward integration is _______

Franchising

amazon.com is planning to enter the $412 billion pharmacy business. which type of diversification does this represent?

Unrelated Diversification

being a ______ can be an effective strategy in industries where technology is rapidly advancing

fast follower

liquidation

selling all of a company's assets, in parts, for their tangible worth

Peter Drucker says firms are most vulnerable when they are _______

successful

Bill Saporita makes which statement

"whether it is broke or not, fix it, and make is better"

A​ "blue ocean​ strategy" is​ when:

a organization aims to target a new market where competition is not yet present

which of the following is a guideline for indicating that product development may be an effective strategy?

an organization competes in a high-growth industry

related diversification may be an effective strategy when _______

an organization competes in a no-growth or slow-growth industry

A divestiture may be an especially effective strategy to pursue​ when:

an organization has pursued a retrenchment strategy and failed to accomplish needed improvements

Financial Objectives

include growth in revenues, growth in earnings, higher dividends, larger profit margins, greater return on investment, higher earnings per share, a rising stock price, improved cash flow, and so on

which of the following is a condition that leads firms to "borrow" capabilities through joint ventures or strategic alliances?

the costs and risks of merging are too high

Which of the following is a reason for a firm to initiate a leveraged buyout (LBO)?

to avoid a hostile takeover

what is the difference between the Type 3 and Type 4 levels of differentiation strategy?

type 3 has a broad target market and type 4 has a narrow target market

The Nature of Long-Term Objectives

- provide direction - allow synergy - assist in evaluation - establish priorities - reduce uncertainty - minimize conflicts - stimulate exertion - aid in both the allocation of resources and the design of jobs

Related Diversification

Adding new but related products or services Facebook acquired the text messaging firm WhatsApp for $19 billion. Synergies • Transferring competitively valuable expertise, technological know-how, or other capabilities from one business to another • Combining the related activities of separate businesses into a single operation to achieve lower costs • Exploiting common use of a known brand name • Using cross-business collaboration to create strengths Guidelines • When an organization competes in a no-growth or a slowgrowth industry • When adding new, but related, products would significantly enhance the sales of current products • When new, but related, products could be offered at highly competitive prices • When new, but related, products have seasonal sales levels that counterbalance an organization's existing peaks and valleys • When an organization's products are currently in the declining stage of the product's life cycle • When an organization has a strong management team

Method uses contract manufacturers as a way of scaling and gaining efficiencies but requires their its contract manufacturers to meet certain environmental standards. Which type of integration strategy does this represent?

backward integration

Method utilizes many strategies, but environmentally-friendly products manufacturing methods, and sustainability focus compel it to place extra focus on which of the following?

operational strategies

Market Penetration

Seeking increased market share for present products or services in present markets through greater marketing efforts Under Armour signed tennis champion Andy Murray to a 4- year, $23 million marketing deal. Guidelines • When current markets are not saturated with a particular product or service • When the usage rate of present customers could be increased significantly • When the market shares of major competitors have been declining while total industry sales have been increasing • When the correlation between dollar sales and dollar marketing expenditures historically has been high • When increased economies of scale provide major competitive advantages

Five Characteristics of Objectives

1. Quantitative: measurable 2. Understandable: clear 3. Challenging: achievable 4. Compatible: consistent vertically and horizontally in a chain of command 5. Obtainable: realistic

Divestiture could be an effective strategy under which of the following conditions?

A division is responsible for an organizations overall poor performance

Boeings decision to build 80% of its wing flap motors in-house is an example of which strategy?

Backward integration

Firms should use value chain analysis to develop and nurture a ______ competence and convert that into a distinctive competence

Core

Market Development

Introducing present products or services into new geographic area Gap opened its first five stores in China. Guidelines • When new channels of distribution are available that are reliable, inexpensive, and of good quality • When an organization is very successful at what it does • When new untapped or unsaturated markets exist • When an organization has the needed capital and human resources to manage expanded operations • When an organization has excess production capacity • When an organization's basic industry is rapidly becoming global in scope

Which intensive strategy seeks to increase market share for present products or services in present markets through greater marketing​ efforts?

Market penetration

a firm that increases the number of sales associates, increases advertising expenditures, offers external sales promotion items, and increases publicity efforts is likely to be pursuing which strategy?

Market penetration (not backward integration that is seeking ownership or increased control of a​ firm's suppliers) (not forward integration that is gaining ownership or increased control over distributors or retailers)

Varying Performance Measures by Organizational Level

Organizational Level Corporate Division Function Operational Basis for Annual Bonus or Merit Pay Corporate 75% based on long-term objectives 25% based on annual objectives 50% based on long-term objectives 50% based on annual objectives 25% based on long-term objectives 75% based on annual objectives 25% based on long-term objectives 75% based on annual objectives

Which strategy may be pursued effectively when the firm has successful products in the maturity stage of the life​ cycle, the firm competes in a​ high-growth industry characterized by rapid technological​ developments, and the firm has especially strong​ R&D capabilities?

Product development

The Apple Watch as a​ wrist-top computer is an example of which strategy pursued by​ Apple?

Product development (not market development that involves introducing present products and services into new geographic areas)

which of the following are the 5 characteristics of objectives?

Quantitative, understandable, challenging, compatible, obtainable

to examine the value chain activities across an industry to determine "best practices" among competing firms, an organization would use an analytic tool known as _________

benchmarking

Which of the following is NOT a potential benefit of merging with or acquiring another​ firm?

increasing managerial staff

Which of the following is TRUE of​ benchmarking?

it is used to determine whether a firms value chain is competitive compared with those of rivals

A popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity is​ a(n) ______.

joint venture

which of the following is NOT a benefit of being a first mover

secure access to widely available resources

Benchmarking

Entails examination of value chain activities across an industry to determine "best practices" among competing firms; firms engage in benchmarking for the purpose of duplicating or improving on those best practices.

Forward Integration

Gaining ownership or increased control over distributors or retailers Amazon began rapid delivery services in some U.S. cities. Guidelines • When an organization's present distributors are especially expensive • When the availability of quality distributors is so limited as to offer a competitive advantage • When an organization competes in an industry that is growing • When an organization has both capital and human resources to manage distributing their own products • When the advantages of stable production are particularly high • When present distributors or retailers have high profit margins

Retrenchment

Regrouping through cost and asset reduction to reverse declining sales and profit Staples closed 250 stores and reduced by 50% the size of other stores - also called a turnaround or reorganizational strategy - designed to fortify an organization's basic distinctive competence Guidelines • When an organization has a distinctive competence but has failed consistently to meet its goals • When an organization is one of the weaker competitors in a given industry • When an organization is plagued by inefficiency, low profitability, and poor employee morale • When an organization fails to capitalize on external opportunities and minimize external threats • When an organization has grown so large so quickly that major internal reorganization is needed

Product Development

Seeking increased sales by improving present products or services or developing new ones Amazon just began offering its own line of baby diapers and wipes. Guidelines • When an organization has successful products that are in the maturity stage of the product life cycle • When an organization competes in an industry characterized by rapid technological developments • When major competitors offer better-quality products at comparable prices • When an organization competes in a high-growth industry • When an organization has strong research and development capabilities

When two organizations of about equal size unite to form one​ enterprise, they are pursuing which​ strategy?

merger

Method's competitors are large companies with incredible economies of scale. However, Method attempts to keep their pricing at a $1.00 or less of its competition while offering high-quality environmentally friendly products. This strategy indicates that Method recognizes what about its competition and customer base?

method recognizes buyers will not pay a higher price unless their perceived value of the differentiated offering exceeds its price

which of the following is a good guideline for indicating when market development may be an especially effective strategy?

new channels of distribution are available that are reliable, inexpensive, and of good quality

Types of Strategies

• Most organizations simultaneously pursue a combination of two or more strategies, but a combination strategy can be exceptionally risky if carried too far. • No organization can afford to pursue all the strategies that might benefit the firm. • Difficult decisions must be made and priorities must be established.

Long-Term Objectives

• The results expected from pursuing certain strategies • 2-to-5 year timeframe

Not Managing by Objectives

• Managing by Crisis • Managing by Hope • Managing by Extrapolation • Managing by Mystery

Unrelated Diversification

Adding new, unrelated products or services Kroger and Whole Foods Market are cooking meals, becoming restaurants. Guidelines • When revenues derived from an organization's current products would increase significantly by adding the new, unrelated products • When an organization competes in a highly competitive or a no-growth industry, as indicated by low industry profit margins and returns • When an organization's present channels of distribution can be used to market the new products to current customers • When the new products have countercyclical sales patterns compared to present products • When an organization's basic industry is experiencing declining annual sales and profits • When an organization has the capital and managerial talent needed to compete successfully in a new industry • When an organization has the opportunity to purchase an unrelated business that is an attractive investment opportunity • When there exists financial synergy • When existing markets for an organization's present products are saturated • When antitrust action could be charged against an organization that historically has concentrated on a single industry

Backward Integration

Seeking ownership or increased control of a firm's suppliers Starbucks purchased a coffee farm Guidelines • When an organization's present suppliers are especially expensive or unreliable • When the number of suppliers is small and the number of competitors is large • When the organization competes in a growing industry • When an organization has both capital and human resources • When the advantages of stable prices are particularly important • When present suppliers have high profit margins • When an organization needs to quickly acquire a needed resource

Horizontal Integration

Seeking ownership or increased control over competitors &T acquired Susquehanna Bancshares. Guidelines • When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government • When an organization competes in a growing industry • When increased economies of scale provide major competitive advantages • When an organization has both the capital and human talent needed • When competitors are faltering due to a lack of managerial expertise

Divestiture

Selling a division or part of an organization Sears Holdings divested its Lands' End division to Sears' shareholders. Guidelines • When an organization has pursued a retrenchment strategy and failed to accomplish improvements • When a division needs more resources to be competitive than the company can provide • When a division is responsible for an organization's overall poor performance • When a division is a misfit with the rest of an organization • When a large amount of cash is needed quickly • When government antitrust action threatens a firm

Liquidation

Selling all of a company's assets, in parts, for their tangible worth The Trump Taj Mahal in Atlantic City, New Jersey, faces liquidation. - can be an emotionally difficult strategy Guidelines • When an organization has pursued both a retrenchment strategy and a divestiture strategy, and neither has been successful • When an organization's only alternative is bankruptcy • When the stockholders of a firm can minimize their losses by selling the organization's assets

Strategic objectives

include a larger market share, quicker on-time delivery than rivals, shorter design-tomarket times than rivals, lower costs than rivals, higher product quality than rivals, wider geographic coverage than rivals, achieving technological leadership, consistently getting new or improved products to market ahead of rivals, and so on

Value Chain anaylsis

The process whereby a firm determines the value (price minus cost) of each and all activities that went into producing and marketing a product, from purchasing raw materials to manufacturing, distributing, and marketing those products.

Research indicates that strategic management in small firms is most likely ___

less formal than in large firms

which of the following is NOT a benefit of establishing clear objectives?

clear objectives provide the basis for creativity

When Gannett Company split its​ print-publishing business from its​ television/film business and sold​ it, the company was pursuing which​ strategy?

divestiture

selling a division or part of an organization is called

divestiture

Backward integration can be especially effective strategy under which of the following conditions

the number of suppliers is small and the number of competitors is large

Retrenchment may be especially effective strategy to pursue under which of the following conditions?

the organization is being pressured by stockholders to improve performance.

which of the following is NOT a risk of pursuing a cost leadership strategy

the unique product may not be valued highly enough by customers to justify the higher price

Method's soaps are premium products. They are "greener" with more natural ingredients; similarly, they are less toxic and less wasteful. They're also, priced accordingly. Method's ultimate price of its products is a result of a collection of activities is known as a ______.

value chain

​______ is the process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products.

value chain analysis

when would a company want to diversify?

when the firms industry is faltering