MGMT Ch. 6
_____ is the rivalry between two companies that offer similar products and services, acknowledge each other as rivals, and act and react to each other's strategic actions.
Direct competition
AB Cutters has five strategic business units (SBUs)—marine terminals, trucking, third-party logistics, energy, and oil exploration. Because of a small market share, the company is not making much profit in the trucking sector, which otherwise is a fast-growing market. In the context of the BCG matrix, which of the following categories of SBUs best describes the trucking sector?
Question marks
_____ are companies that do not follow a consistent adaptive strategy but instead respond to changes in the external environment after they occur.
Reactors
_____ are usually the poorest performers among all the four kinds of industry-level adaptive strategies.
Reactors
_____ are best defined as the assets, capabilities, processes, employee time, information, and knowledge that an organization uses to improve its effectiveness and efficiency.
Resources
A sustainable competitive advantage is achieved when:
a firm's competitors cannot duplicate the value offered by the firm to its customers.
BallGame manufactures premium golf balls and prices these balls at twice the price of ordinary golf balls. The premium balls sell exceptionally well because customers believe that its patented three-layer construction is capable of increasing the ball's drive. None of the other golf ball manufacturers can produce the same quality. The patent on these golf balls gives BallGame _____.
a sustainable competitive advantage
Sivinch is a manufacturer and marketer of cosmetics. To ensure that its products stand out from other similar brands, Sivinch focuses on educating its customers on general skin and hair care. Its salespeople are trained to answer questions and help customers find solutions to their skin and hair problems. This has helped Sivinch _____.
achieve a competitive advantage
GlycoAll, a company that produces energy drinks, has started manufacturing and selling energy bars for the American market. The products turn out to be a huge success. Inspired by GlycoAll's success, Keith & Sons, a producer of energy drinks in the U.K., starts to sell energy bars for the European market. In the context of adaptive strategies, Keith & Sons would most likely be categorized as a(n) _____.
analyzer
The main purpose of a retrenchment strategy is to:
turn around very poor company performance by shrinking the size or scope of the business.
According to Porter's industry forces, which of the following is likely to occur when new companies can enter an industry easily?
Industry attractiveness is likely to decrease
Diversification is useful because:
It prevents companies from becoming too dependent on any one business unit
Firm-level strategies ask:
"How should we compete against a particular firm?" To determine their firm-level strategy, companies must ask "How should we compete against a particular firm?" Corporate-level strategies ask, "What business or businesses should we be in?" A firm determining their industry-level strategy would ask, "How do we compete in this industry?"
Floortree, a company that manufactures floor tiles, offers customized lightweight and high-strength tiles in different colors and shapes to compete with its rival company's high-strength tiles. In this scenario, which of the following strategies is FloorTree using to reduce its rival's market share?
An attack strategy
Aries Inc. is a computer manufacturer that has been in the market for several years. Many other companies have started manufacturing compact, and portable gadgets that are easier to use than desktop computers. Aries, however, has been reluctant to adopt new strategies because it thinks that its desktops were selling well when it first started and will continue to sell the same way even if new competitors and better products enter the market. Which of the following concepts is illustrated in this scenario?
Competitive inertia
_____ refers to a reluctance to change strategies or competitive practices that have been successful in the past.
Competitive inertia
CLM is a leading cable operator. The company has recently declared bankruptcy and its needs to restructure its processes to attain more flexibility and allow it to raise capital. Since CLM has identified its need for strategic change, what would be CLM's next step in the strategy-making process?
Conducting a situational analysis
_____ are the central companies in a strategic group.
Core firms
According to Porter's industry forces, _____ is a measure of the influence that suppliers of parts, materials, and services to firms in an industry have on the prices of these inputs.
bargaining power of suppliers
MCRS Toys manufactures learning toys and games exclusively for children in the age group of one to six years. In this scenario, the company is most likely using a(n) _____.
focus strategy
The _____ is a corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines.
portfolio strategy
According to strategic reference point theory, the _____ aims to protect an existing competitive advantage.
risk-avoiding strategy
When a company's resources are valuable, rare, imperfectly imitable, and nonsubstitutable, it has a .
sustainable competitive advantage When a company's resources are valuable, rare, imperfectly imitable, and nonsubstitutable, it has a sustainable competitive advantage. A competitive advantage is sustainable if competitors have tried unsuccessfully to duplicate the advantage and have, for the moment, stopped trying to duplicate it.
When a company purchases another business that does something different from what the purchasing company does, the purchasing company is using a strategy of ________-
unrelated diversafication A company that purchases another business that does something different from what the purchasing company does is using the unrelated diversification strategy. Related diversification is used when a company expands by acquiring a business similar to the one it is already in. Procter & Gamble's purchase of Pantene from Hoffmann-La Roche is an example of related diversification. Unrelated diversification is used when a company expands by acquiring a business that is very different from the business it is already in. Virgin Group's purchase of Euro Belgian Airlines to create Virgin Express is an example of unrelated diversification because Virgin was not in the airline business when it acquired Euro Belgian Airlines. Virgin's later airline acquisitions, especially by Virgin Express, were related diversifications. Vertical integration occurs when an organization acquires a company that was formerly a supplier or a customer. Walt Disney's purchase of ABC Studios (a former distributor of Disney's work) is an example of vertical integration.
Widget Corp. has five strategic business units (SBUs)—informatics, shipping, third-party logistics, structural materials, and oil exploration. The third-party logistics unit is quite profitable in spite of operating in a slow-growing market. It provides funds for the operation of the other business units as well. In the context of the BCG matrix, which of the following categories of SBUs best describes the third-party logistics unit?
Cash cows
True or False When using a focus strategy, a company tries to create a product that will appeal to the broadest possible customer base.
False Companies that use a focus strategy target niche markets—small groups of customers with specialized interests.
In the context of corporate-level strategies, which of the following exemplifies diversification?
Owning stocks in a variety of companies in different industries
Business Projected Growth Rate Current Market Share Shipping Low 1% Cargo inspection High 5% Railroad loading Low 75% Freight forwarding High 70% Which of the following divisions would you take profits from and continue to run?
Railroad loading You should take profits from the railroad loading division (perhaps investing those profits in the freight forwarding or cargo inspection divisions) but continue to run the division, because it is a cow. Breakdown: Shipping- (Dog). This company has a low business growth rate and a small relative market share. Cargo inspection- (Question mark). This company has a high business growth rate but a small relative market share. Railroad loading- (Cash cow) This company has a low business growth rate but a large relative market share. Freight forwarding- (Star)This company has a high business growth rate and a large relative market share.
Gemini Inc. has decided to decrease its product prices to respond to its competitor's strategy. To achieve this, the company needed to lower its manufacturing costs. However, the managers at Gemini have been buying expensive raw materials and hiring many employees. Which of the following best illustrates the situation at Gemini?
Strategic dissonance
Boston Consulting Group Matrix
The Boston Consulting Group (BCG) matrix assists in the portfolio decision-making process. Think about the BCG matrix this way: The business growth rate shows how many customers an industry is likely to have in the future. The higher the business growth rate, the less risky an investment is because there are more customers for a company to capture. Relative market share refers to how many customers a business has now. The larger the relative market share, the better the position of the company within its industry. The best investment opportunities are stars—companies that have high market share and high business growth rates. Next are question marks. These companies have small relative market share but high market growth rates. Question marks are worth a gamble if you think the company will gain relative market share over time. A cash cow is a company that has a large relative market share but a low market growth rate. Because these companies have no future, it is best to milk them: Take the profits they give you and invest them somewhere else. Finally, there are the dogs—companies with small relative market share and low market growth. Investing in a dog is pointless. Sell it and focus your attention on a star or a question mark.
According to Michael Porter, which of the following industry forces determines industries' overall attractiveness and potential for long-term profitability?
The bargaining power of suppliers
Crossmart Inc. has been trying to protect itself from the negative effects of industry-wide competition by producing products at consistently lower prices than its competitors. However, it has not compromised on the quality of its products and the products are good enough to be sustained in the market. In the context of Porter's positioning strategies, which of the following strategies has been adopted by Crossmart?
The cost leadership strategy
Which of the following is an important condition that a firm must meet in order to gain a sustainable competitive advantage?
The firm's resources must be imperfectly imitable
True or False A company that uses tight cost controls is likely to use a low-cost leadership strategy.
True Companies that have tight cost controls are constantly looking for ways to operate more efficiently so that they can maintain a cost leadership strategy.
True or False Differentiation strategies can reduce the bargaining power of large buyers.
True Differentiation strategies can reduce the bargaining power of large buyers, because the company is making a unique product that buyers cannot find elsewhere.
In any organization, _____ are the less visible, internal decision-making routines, problem-solving processes, and organizational cultures that determine how efficiently inputs can be turned into outputs.
core capabilities
WindWings is a company that manufactures and markets flutes, a product with a steady demand rate. It is so successful at what it does that the company controls 85 percent of the world's flute industry. In terms of adaptive strategies, WindWings would most likely be categorized as a(n) _____.
defender
SpokedWheels Inc. has introduced a specialized mountain bike in the market. Two-thirds of its profits come from the sale of mountain bikes. The company is recognized worldwide for its ability to design and produce superior mountain bikes that are tougher, more durable, and more reliable than its competitors'. This ability of producing superior mountain bikes is the company's _____.
distinctive competence
Amanda Industries has five strategic business units (SBUs)—online retail, shipping, third-party logistics, structural materials, and oil exploration. The oil exploration unit is costing the company a huge amount of money. It is neither making any profit at present nor will it make any profit in the future as the oil fields are diminishing and the company has a small share in this market. In the context of the BCG matrix, which of the following categories of SBUs best describes the oil exploration unit?
dogs
A(n) _____ is a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use.
grand strategy
The BCG matrix starts by recommending that while the substantial cash flows from cash cows last, they should be reinvested in stars to:
help them grow even faster and obtain even more market share.
When determining whether or not two firms are direct competitors, one can consider the level _______________ of and ____________ .
market commonality ; resource similarity To determine when and where companies are in direct competition, one can compare market commonality and resource similarity. The higher the market commonality and resource similarity, the more direct the competitors are.
According to Michael Porter, the fact that it is relatively easy to become a YouTube partner is an example of _________ . In this case, barriers are ___________ .
potential new entrants; low Because the barriers are low, it is relatively easy for people to become YouTube partners, so the number of potential new entrants in this industry is high. While this will make it easier to start a business, it may make the overall landscape more competitive and make it more difficult to stay in business.
Ace Glue is a global innovation company. It manufactures a number of imaginative products which ranges from health care to office products. Its products are being sold in more than 100 countries and it continuously keeps searching for new market opportunities. It has also doubled its investment to market its products. In the context of adaptive strategies, Ace Glue is most likely to be categorized as a(n) _____.
prospector
Necessary to sustain a competitive advantage, _____ resources are not controlled or possessed by many competing firms.
rare Rare resources are not controlled or possessed by many competing firms, but are necessary to maintain a competitive advantage.
In the context of sustainable competitive advantage, _____ are those resources that are not controlled or possessed by many competing firms.
rare resources
Pretend that you own a small coffee shop. You have decided that this year is a good time to grow your business, and you have chosen to do so by acquiring another coffee shop one town over. This is an example of .
related diversification Because another coffee shop is a business related to your coffee shop, this is an example of related diversification.
MilchMaan, a German dairy cooperative, covers an area of 500 acres. The organization is one of the best dairy cooperatives in the country. It recruits its employees from various top universities in the country and uses good quality equipment. In this scenario, the organization's processes, its employees, and its equipment are examples of its:
resources
Companies are more likely to adopt a(n) _____ when market commonality is large, and companies have overlapping products, services, or customers in multiple markets?
response strategy
Funk Booster, a company that manufactures vehicle boosters, launched a new product, NOS3. This launch was aimed at occupying the shares held by Funk Booster's competitor, Fly-Wagon's, product, NOS-A. To prevent Funk Booster from occupying their shares, Fly-Wagon launched a new product, NOS-X, which was an advanced version of NOS-A. Which of the following strategies was used by Fly-Wagon to defend its market share?
response strategy
The ______ is influenced by all of the other competitive forces.
rivalry among competitors According to Porter, rivalry among competitors is influenced by all of the other competitive forces. Think of the soft drink industry, for example. The companies that produce Coke and Pepsi have a fierce rivalry due, in part, to the environment in which they must compete. It is relatively easy to get into the soft drink industry (number of potential new entrants is high), there are a limited number of cola suppliers (the bargaining power of suppliers is high), customers switch between soft drinks readily based on price (the bargaining power of buyers is high), and customers have many ways to quench their thirst other than soft drinks (the threat of substitutes is high). The more difficult the environment, the more competitive an organization will need to be if it is to survive.
A _____ is an assessment of the strengths and weaknesses in an organization's internal environment and the opportunities and threats in its external environment.
situational analysis
Companies following a _____ would most likely try to improve the way in which they sell the same goods or services to the same customers.
stability strategy
Libra Travels regularly checks the prices at which other travel agencies sell their services to evaluate its position and make changes, if needed. Libra Travels uses the prices of other travel agencies as a:
strategic reference point to measure its competencies.
When conducting a SWOT analysis, information about turnover, profit margins, and staff quality can be used to identify:
strengths and weaknesses
When referring to a SWOT analysis, the letter S stands for ______ , and it refers to factors that are ________ to the organization.
strengths; internal A SWOT analysis is a critical review of the organization and its environment that takes place during the strategy formulation process. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal to the organization, while opportunities and threats are external to the organization. Any information about finances or staff that comes from within the organization can be used to identify strengths and weaknesses.
