Ch05-Strategies in Action PDF

347
CHAPTER 5
Strategies in Action
True/False
Long-Term Objectives
1.
Long-term objectives represent the results expected from pursuing certain strategies.
Ans: T
2.
Objectives provide direction and allow for organizational synergy.

Ans: T
3.
Page: 170
Since a combination strategy is not risky, many organizations pursue a combination

of two or more strategies simultaneously.
Ans: F
8.
Page: 170
The overall aim of the Balanced Scorecard is to balance financial objectives with
strategic objectives.
Ans: F
7.
Page: 169
If it aint broke, dont fix it refers to managing by crisis.

Ans: F
6.
Page 169
Strategic objectives include larger market share, quicker on-time delivery than
rivals, quicker design-to-market times than rivals, lower costs than rivals, and
wider geographic coverage than rivals.
Ans: T
5.
Page: 168
Strategic objectives include those associated with growth in revenues, growth in

earnings, higher dividends, larger profit margins and improved cash flow.
Ans: F
4.
Page: 168
Page: 171
Horizontal integration is seeking ownership or increased control over competitors.

Ans: T
Page 173
348
9.
Divestiture is selling all of a companys assets, in parts, for their tangible worth.
Ans: F
10.
Page 173
A chief executive officer is located in the divisional level of a large firm.

Ans: F
Page: 174
Integration Strategies
11.
Gaining ownership or increased control over distributors or retailers is called forward

integration strategy.
Ans: T
12.
Franchising is an effective means of implementing forward integration.

Ans: T
13.
Page: 175
If a firms present suppliers are expensive and unreliable in meeting the firms needs
for parts, components and/or raw materials, the firm should pursue a horizontal
integration strategy.
Ans: F
17.
Page: 175
A strategy of seeking ownership or increased control of a firms supplier is

backward integration.
Ans: T
16.
Page: 175
Forward integration strategy is especially effective when the availability of quality

distributors is so limited as to offer a competitive advantage to those firms that
integrate forward.
Ans: T
15.
Page: 174
A growing trend is for franchisers to buy out their part of the business from their
franchisees.
Ans: F
14.
Page: 174
Page: 176
Horizontal integration is an appropriate strategy when the competitors of an

organization are doing poorly.
Ans: F
Page: 176
349
Intensive Strategies
18.
Market penetration, market development, product development and joint venture are
intensive strategies.
Ans: F
19.
When the correlation between dollar sales and dollar marketing expenditures has
historically been low, market penetration is an appropriate strategy.
Ans: F
20.
Page: 179
Product development is a strategy that seeks increased sales by improving or

modifying present products or services.
Ans: T
24.
Page: 178
Increasing advertising expenditures can be a market development strategy.

Ans: F
23.
Page: 178
An appropriate strategy when an organization has excess production capacity is

market development.
Ans: T
22.
Page: 178
Market development includes introducing present products into new geographic

areas.
Ans: T
21.
Page: 177
Page: 179
Product development is an appropriate strategy when an organization has successful

products that are in the maturity stage of the product life cycle.
Ans: T
Page: 179
Diversification Strategies
25.
There are four basic types of diversification: concentric, conglomerate, forward and
backward.
Ans: F
26.
Page: 180
Most companies favor related diversification strategies in order to exploit common

use of a well-known brand name.
Ans: T
Page 180
350
27.
The related diversification strategy is effective when an organization has a weak

management team.
Ans: F
28.
Unrelated diversification is an appropriate strategy when an organizations present

channels of distribution can be used to market the new products to current
customers.
Ans: T
29.
Page: 182
Donald Trump starting Trump University in 2005 is a good example of unrelated

diversification.
Ans: T
30.
Page: 181
Page: 183
Unrelated diversification may be an especially effective strategy when an

organizations basic industry is experiencing increasing annual sales and profits.
Ans: F
Page 184
Defensive Strategies
31.
Retrenchment and turnaround are the same strategy.

Ans: T
32.
Although bankruptcy can be an effective type of retrenchment strategy, it does not

allow firms to avoid major debt obligations and to void union contracts.
Ans: F
33.
Page: 185
Chapter 9 bankruptcy applies to municipalities.

Ans: T
35.
Page 185
Chapter 7 bankruptcy is a liquidation procedure used only when a firm sees no hope
of being able to operate successfully or to obtain necessary creditor agreement.
Ans: T
34.
Page: 184
Page: 185
Chapter 13 bankruptcy is similar to Chapter 11, but available only to large

corporations.
Ans: F
Page: 185
351
36.
Divestiture is the selling of land a firm owns.

Ans: F
37.
Page: 186
Liquidation is often appropriate when retrenchment and divestiture have failed.

Ans: T
Page: 188
Michael Porters Five Generic Strategies

38.
According to Porter, strategies allow organizations to gain competitive advantage

from three different bases: cost leadership, differentiation and integration.
Ans: F
39.
For consumers who are price sensitive, cost leadership emphasizes producing
standardized products at very low per-unit cost.
Ans: T
40.
Page 188
A differentiation strategy can only be achieved with a small target market.

Ans: F
44.
Page 188
Jiffy Lube International would be a good example of a firm seeking the best-value
focus strategy.
Ans: F
43.
Page 188
A low-cost focus strategy offers products or services to a small range of customers at

the lowest price available on the market.
Ans: T
42.
Page: 188
A best-value strategy offers products or services to a wide range of customers at the

lowest price on the market.
Ans: F
41.
Page: 188
Page 189
Gaining a differentiation advantage is a primary reason for pursuing forward,

backward, and horizontal integration strategies.
Ans: F
Page 189
352
45.
A cost leadership strategy can be especially effective when most buyers use the
product in the same way.
Ans: T
46.
The most effective differentiation bases are those that are hard or expensive for
rivals to duplicate.
Ans: T
47.
Page 191
A differentiation strategy can be especially attractive when the industry has many
different niches and segments, thereby allowing a focuser to pick a competitively
attractive niche suited to its own resources.
Ans: F
48.
Page 190
Page 193
In a turbulent, high-velocity market, a lead-change strategy is best whenever the firm

has the resources to pursue this approach.
Ans: T
Page 193
Means for Achieving Strategies

49.
Cooperative arrangements and joint ventures between competitors are becoming

increasingly popular.
Ans: T
50.
Joint ventures tend to fail when managers who must collaborate daily in operating
the venture are not involved in forming or shaping the venture.
Ans: T
51.
Page: 193
Page: 196
Divestiture would be an appropriate strategy when a need exists to introduce a new

technology quickly.
Ans: F
Page: 196
Merger/Acquisition
52.
An acquisition occurs when a large organization purchases a smaller one or vice

versa.
Ans: T
Page: 197
353
53.
When an acquisition or merger is not desired by both parties, it is called a takeover

or hostile takeover.
Ans: T
54.
A leveraged buyout occurs when a firms management and other private investors
use borrowed funds to buy out the firms shareholders.
Ans: T
55.
Page: 200
First mover advantage refers to the benefits a firm may achieve by entering a new
market or developing a new product or service prior to rival firms.
Ans: T
56.
Page: 197
Page: 200
Companies are avoiding outsourcing more and more because it is more expensive
than traditional methods and it does not allow a firm to concentrate on core
competencies.
Ans: F
Page: 201
Strategic Management in Nonprofit and Government Organizations

57.
The nonprofit sector is Americas largest employer.

Ans: T
58.
Page: 185
Strategists in governmental organizations operate with far more strategic autonomy

than their counterparts in private firms.
Ans: F
Page: 187
Strategic Management in Small Firms

59.
All sizes and types of organizations can utilize and benefit from strategicmanagement concepts and techniques.
Ans: T
60.
Page: 187
Research shows strategic management in small firms is more formal than in large
firms, but large firms that engage in strategic management outperform those that do
not.
Ans: F
Page: 187
354
Multiple Choice
Long-Term Objectives
61.
Long-term objectives are needed at which level(s) in an organization?

a.
Corporate
b.
Divisional
c.
Functional
d.
All of these
e.
None of these
Ans: d
62.
Page: 168
Financial objectives involve all of the following except:

a.
growth in revenues.
b.
larger market share.
c.
higher dividends.
d.
greater return on investment.
e.
a rising stock price.
Ans: b
63.
What principle is based on the belief that the true measure of a really good
strategist is the ability to solve problems?
a.
Managing by crisis
b.
Managing by objectives
c.
Managing by extrapolation
d.
Managing by exception
e.
Managing by hope
f.
64.
Page: 169
Ans: a
Page: 170
What principle is built on the idea that there is no general plan for which way to
go and what to do?
a.
Managing by crisis
b.
Managing by extrapolation
c.
Managing by objectives
d.
Managing by hope
e.
Managing by exception
Ans: e
Page: 170
355
65.
All of the following are important factors in the Balanced Scorecard except:
a.
customer service.
b.
employee morale.
c.
product quality.
d.
business ethics.
e.
stockholder equity.
Ans: e
66.
Which level of strategy is most likely not present in small firms?

a.
Corporate/company
b.
Functional
c.
Divisional
d.
Operational
e.
All of these are present in small firms
Ans: c
67.
Page: 172
Budget Rent-a-Car opening car rental shops in Wal-Mart stores is an example of

which type of strategy?
a.
forward integration
b.
backward integration
c.
horizontal integration
d.
related diversification
e.
unrelated diversification
Ans: a
69.
Page: 160
All of the following are important factors in the Balanced Scorecard except:
a.
customer service.
b.
employee morale.
c.
product quality.
d.
business ethics.
e.
stockholder equity.
Ans: e
68.
Page: 170
Page 173
Goodyear Tire & Rubber Co. selling its North American farm-tire business to
Titan International is an example of which type of strategy?
a.
b.
c.
retrenchment
d.
divestiture
e.
liquidation
Ans: d
page 173
356
70.
Advanced Medical Optics using acquisitions to obtain all medical aspects of eye
care, from laser surgery to contacts to implants for all ages is an example of which
type of strategy?
a.
forward integration
b.
c.
d.
market development
e.
product development
Ans: d
71.
Page 173
Which of the following is most likely not included in the functional level of a
small company?
a.
Finance
b.
Marketing
c.
R&D
d.
Department managers
e.
Human resource managers
Ans: d
Page: 174
Integration Strategies
72.
Integration strategies are sometimes collectively referred to as which of these

strategies?
a.
Horizontal integration
b.
Diversification
c.
Vertical integration
d.
Stuck-in-the-middle
e.
Hierarchical integration
Ans: c
73.
Page: 174
Web sites to sell products directly to consumers are examples of which type of
strategy?
a.
b.
product development
c.
forward integration
d.
e.
conglomerate diversification
Ans: c
Page: 174
357
74.
Which of these strategies is effective when the number of suppliers is small and the
number of competitors is large?
a.
Conglomerate diversification
b.
Forward integration
c.
Concentric diversification
d.
Backward integration
e.
Horizontal diversification
Ans: d
75.
Backward integration is effective in all of these except:

a. when an organization competes in an industry that is growing rapidly.
b. when an organization has both capital and human resources to manage the new
business of supplying its own raw materials.
c. when an organization needs to acquire a needed resource quickly.
d. when the advantage of stable prices are not important.
e. when present suppliers have high profit margins.
Ans: d
76.
Page: 176
What refers to a strategy of seeking ownership of or increased control over a

firms competitors?
a.
Forward integration
b.
c.
Backward integration
d.
e.
Ans: d
77.
Page: 176
Page: 176
In which situation would horizontal integration be an especially effective

strategy?
a.
When an organization can gain monopolistic characteristics in a particular
area or region without being challenged by the federal government for
tending substantially to reduce competition.
b.
When an organization competes in a slowing industry.
c.
When decreased economies of scale provide major competitive
advantages.
d.
When an organization has neither the capital nor human talent needed to
successfully manage an expanded organization.
e.
When competitors are succeeding due to managerial expertise or having
particular resources an organization possesses.
Ans: a
Page: 177
358
Intensive Strategies
78.
Which strategy seeks to increase market share of present products or services in

present markets through greater marketing efforts.
a.
market penetration
b.
forward integration
c.
market development
d.
e.
product development
Ans: a
79.
When a domestic company first begins to export to India, it is an example of

a.
horizontal integration.
b.
c.
forward integration.
d.
concentric diversification.
e.
market development.
Ans: e
80.
Page: 178
Which strategy generally entails large research and development expenditures?

a.
market penetration
b.
retrenchment
c.
forward integration
d.
product development
e.
divestiture
Ans: d
81.
Page: 167
Page: 179
All of the following situations are conducive to market development except:

a.
when an organization competes in a high-growth industry.
b.
when an organization is very successful at what it does.
c.
when new untapped or unsaturated markets exist.
d.
when an organization has excess production capacity.
e.
when an organizations basic industry is becoming rapidly global in scope.
Ans: a
Page: 179
359
82.
Which strategy is appropriate when an organization competes in an industry

characterized by rapid technological developments?
a.
retrenchment
b.
product development
c.
d.
liquidation
e.
market penetration
Ans: b
Page: 179
Diversification Strategies
83.
Adding new, unrelated products or services for present customers is called

a.
b.
related diversification.
c.
d.
conglomerate diversification.
e.
unrelated diversification.
Ans: e
84.
Which strategy should an organization use if it competes in a no-growth or a slowgrowth industry.

a.
divestiture
b.
c.
d.
e.
retrenchment
Ans: b
85.
Page: 182
Page: 181
Which of the following is not an example of when an organization should use an

unrelated diversification strategy?
a.
When revenues derived from an organizations current products or services
would increase significantly by adding the new unrelated, products.
b.
When an organizations present channels of distribution can be used to
market the new products to current customers.
c.
When the new products have counter-cyclical sales patterns compared to an
organizations present products.
d.
When an organization competes in a highly competitive and/or a no-growth
industry.
e.
When the organization has a strong management team.
Ans: e
Page: 184
360
86.
Adding new, unrelated products or services is called

a.
b.
related diversification.
c.
d.
conglomerate diversification.
e.
unrelated diversification.
Ans: d
Page: 184
Defensive Strategies
87.
Win-Dixie closing one-third of its stores and eliminating 22,000 jobs in an attempt
to emerge from bankruptcy would be an example of:
a.
divestiture.
b.
c.
liquidation.
d.
retrenchment.
e.
Ans: d
88.
What kind of strategy is retrenchment?

a.
A turnaround or reorganization strategy
b.
An expansion strategy
c.
A conglomerate strategy
d.
An intensive strategy
e.
An offensive strategy
Ans: a
89.
Page: 184
Page: 184
Bankruptcy
a.
should never be used as a strategy.
b.
should be used only when one is legally forced to do so.
c.
can be an effective type of retrenchment strategy.
d.
should only be used for large firms.
e.
should only be used for small, private firms.
Ans: c
Page: 185
361
90.
Which chapter of the bankruptcy code applies to municipalities?

a.
Chapter 7
b.
Chapter 8
c.
Chapter 9
d.
Chapter 12
e.
Chapter 13
Ans: c
91.
The Family Farmer Bankruptcy Act of 1986 created

a. Chapter 7.
b. Chapter 8.
c. Chapter 9.
d. Chapter 12.
e. Chapter 13.
Ans: d
92.
Page: 185
Retrenchment would be an effective strategy when an organization

a.
has shrunk so quickly that major internal reorganization is needed.
b.
is one of the stronger competitors in a given industry.
c.
is plagued by inefficiency, low profitability, poor employee morale and
pressure from stockholders to improve performance.
d.
has decided to capitalize on opportunities, maximize threats, take advantage
of strengths and overcome weaknesses.
e.
does not have a clearly distinctive competence and has failed to meet its
objectives and goals consistently over time.
Ans: c
93.
Page: 185
Page: 185
What term refers to selling a division of an organization.

a.
Joint venture
b.
Divestiture
c.
d.
Liquidation
e.
Ans: b
Page: 186
362
94.
Which strategy should be implemented when a division is responsible for an

organizations overall poor performance?
a.
b.
divestiture
c.
forward integration
d.
cost leadership
e.
Ans: b
95.
Selling all of a companys assets in parts for their tangible worth is called
a.
joint venture.
b.
divestiture.
c.
concentric diversification.
d.
liquidation.
e.
unrelated integration.
Ans: d
96.
Page: 186
Page: 186
Which strategy would be effective when the stockholders of a firm can minimize
their losses by selling the organizations assets.
a.
integration
b.
differentiation
c.
diversification
d.
cost leadership
e.
liquidation
Ans: e
Page: 188
Michael Porters Five Generic Strategies

97.
Under which strategy would you offer products or services to a wide range of
customers at the lowest price available on the market?
a.
low-cost
b.
best-value
c.
low-cost focus
d.
best-value focus
e.
differentiation
Ans: b
Page: 188
363
98.
According to Porter, which strategy offers products or services to a small range of

customers at the lowest price available on the market?
a.
low-cost
b.
best-value
c.
low-cost focus
d.
best-value focus
e.
differentiation
Ans: c
99.
Under which condition would a cost leadership strategy be especially effective?

a.
When there are many ways to differentiate the product or service and many
buyers perceive these differences as having value.
b.
When buyer needs and uses are diverse
c.
When few rival firms are following a similar approach
d.
When technological change is fast paced and competition revolves around
rapidly evolving product features.
e.
When the products of rival sellers are essentially identical and supplies are
readily available from any of several eager sellers.
Ans: e
100.
Page: 188
Page: 190
Under which condition would a differentiation strategy be especially effective?

a.
When the target market niche is large, profitable and growing
b.
When technological change is fast paced and competition revolves around
rapidly evolving product features.
c.
When industry leaders do not consider the niche to be crucial to their own
success.
d.
When the industry has many different niches and segments, thereby allowing
a company to pick a competitively attractive niche suited to its own
resources.
e.
When few, if any, other rivals are attempting to specialize in the same target
segment.
Ans: b
Page: 192
364
Means for Achieving Strategies

101.
What occurs when two or more companies form a temporary partnership or

consortium for the purpose of capitalizing on some opportunity.
a.
Retrenchment
b.
A joint venture
c.
Liquidation
d.
Forward integration
e.
Divestiture
Ans: b
102.
All of the following are cooperative arrangements except:

a.
R&D partnerships.
b.
joint-bidding consortia.
c.
cross-licensing agreements.
d.
cross-manufacturing agreements.
e.
marketing plans.
Ans: e
103.
Page: 193
Which of the following is not a reason joint ventures fail?

a.
Managers who must collaborate daily in operating the venture are not
involved in forming or shaping the venture.
b.
The venture may not be supported equally by both partners.
c.
The venture may benefit the partnering companies but may not benefit the
customers who then complain about poorer service or criticize the companies
in other ways.
d.
Stakeholders from both partners are equally satisfied.
e.
The venture may begin to compete more with one of the partners than the
other.
Ans: d
104.
Page: 193
Page: 196
Which strategy would be most appropriate when the distinctive competencies of two
or more firms complement each other especially well?
a.
b.
Divestiture
c.
Joint venture
d.
Retrenchment
e.
Integration
Ans: c
Page: 196
365
Merger/Acquisition
105.
When two organizations of about equal size unite to form one enterprise, which of
these occurs?
a.
hostile takeover
b.
merger
c.
acquisition
d.
LBO
e.
divestiture
Ans: b
106.
Mergers and acquisitions are created for all of the following reasons except to
a.
gain new technology.
b.
reduce tax obligations.
c.
gain economies of scale.
d.
smooth out seasonal trends in sales.
e.
increase its number of employees.
Ans: e
107.
Page: 197
Page: 198
When companies take over functional operations of other firms, such as human
resources, information systems, payroll, accounting, or customer service, this is
called
a.
marketing.
b.
outsourcing.
c.
licensing.
d.
franchising.
e.
divestiture.
Ans: b
Page: 201
Strategic Management in Small Firms

108.
According to journalists findings, what is a serious obstacle for many small

business owners.
a.
a lack of business ethics
b.
an excess of employees and managerial staff
c.
a lack of experience in networking
d.
a lack of strategic-management knowledge
e.
having too many suppliers
Ans: d
Page: 205
366
Essay Questions
109.
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 firms 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
Readers Digest Association acquired Reiman Publications LLC.
Page: 174-177
110.
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 organizations present distributors are especially expensive,
unreliable, or incapable of meeting the firms 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.
Page: 175
111.
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
367
developing new ones. An example of product development is Miller Brewing

Company developing the new Skyy Blue citrus and vodka-flavored malt beverage.
Page: 177-179
112.
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 organizations basic
industry is becoming rapidly global in scope.
Page: 178
113.
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 crossbusiness 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.
Pages: 181-183
114.
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 organizations existing peaks and valleys; (5) when an
organizations products are currently in the declining stage of the products life
cycle; and (6) when an organization has a strong management team.
Page: 181
368
115.
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 Tycos sales.
Liquidation is the selling off of a companys assets, in parts, for their tangible worth.
When Service Merchandise liquidated in 2002, it closed all of its 216 stores in 32
states.
Page: 184-188
116.
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.
Page: 185
117.
Discuss Michael Porters 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 rivals 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
369
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 pricevalue available on the market.
Page: 188
118.
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.
Page: 190
119.
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.
Page: 196
120.
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.
Page: 198

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347

Objectives provide direction and allow for organizational synergy.

Since a combination strategy is not risky, many organizations pursue a combination

If it aint broke, dont fix it refers to managing by crisis.

Strategic objectives include those associated with growth in revenues, growth in

Horizontal integration is seeking ownership or increased control over competitors.

A chief executive officer is located in the divisional level of a large firm.

Gaining ownership or increased control over distributors or retailers is called forward

Franchising is an effective means of implementing forward integration.

A strategy of seeking ownership or increased control of a firms supplier is

Forward integration strategy is especially effective when the availability of quality

Horizontal integration is an appropriate strategy when the competitors of an

Product development is a strategy that seeks increased sales by improving or

Increasing advertising expenditures can be a market development strategy.

An appropriate strategy when an organization has excess production capacity is

Market development includes introducing present products into new geographic

Product development is an appropriate strategy when an organization has successful

Most companies favor related diversification strategies in order to exploit common

The related diversification strategy is effective when an organization has a weak

Unrelated diversification is an appropriate strategy when an organizations present

Donald Trump starting Trump University in 2005 is a good example of unrelated

Unrelated diversification may be an especially effective strategy when an

Retrenchment and turnaround are the same strategy.

Although bankruptcy can be an effective type of retrenchment strategy, it does not

Chapter 9 bankruptcy applies to municipalities.

Chapter 13 bankruptcy is similar to Chapter 11, but available only to large

Divestiture is the selling of land a firm owns.

Liquidation is often appropriate when retrenchment and divestiture have failed.

Michael Porters Five Generic Strategies

According to Porter, strategies allow organizations to gain competitive advantage

A differentiation strategy can only be achieved with a small target market.

A low-cost focus strategy offers products or services to a small range of customers at

A best-value strategy offers products or services to a wide range of customers at the

Gaining a differentiation advantage is a primary reason for pursuing forward,

In a turbulent, high-velocity market, a lead-change strategy is best whenever the firm

Means for Achieving Strategies

Cooperative arrangements and joint ventures between competitors are becoming

Divestiture would be an appropriate strategy when a need exists to introduce a new

An acquisition occurs when a large organization purchases a smaller one or vice

When an acquisition or merger is not desired by both parties, it is called a takeover

Strategic Management in Nonprofit and Government Organizations

The nonprofit sector is Americas largest employer.

Strategists in governmental organizations operate with far more strategic autonomy

Strategic Management in Small Firms

Long-term objectives are needed at which level(s) in an organization?

Financial objectives involve all of the following except:

Which level of strategy is most likely not present in small firms?

Budget Rent-a-Car opening car rental shops in Wal-Mart stores is an example of

Integration strategies are sometimes collectively referred to as which of these

Backward integration is effective in all of these except:

What refers to a strategy of seeking ownership of or increased control over a

In which situation would horizontal integration be an especially effective

Which strategy seeks to increase market share of present products or services in

When a domestic company first begins to export to India, it is an example of

Which strategy generally entails large research and development expenditures?

All of the following situations are conducive to market development except:

Which strategy is appropriate when an organization competes in an industry

Adding new, unrelated products or services for present customers is called

Which strategy should an organization use if it competes in a no-growth or a slowgrowth industry.

Which of the following is not an example of when an organization should use an

Adding new, unrelated products or services is called

What kind of strategy is retrenchment?

Which chapter of the bankruptcy code applies to municipalities?