Questions Chapter 6

Developing Strategic Alternatives

 True/False Questions

Question
Question stem Choice Reference
title

TF06.01 External analysis is an integral part of strategy formulation. T Understand the

Decision Logic
of Strategy
Development
TF06.02 Strategic planning is essentially decision making, deciding which strategy from among the T Understand the
many available alternatives the organization will pursue. Decision Logic
of Strategy
Development
TF06.03 Strategy formulation includes development of strategic alternatives, evaluation of T Understand the
alternatives, and strategic choice. Decision Logic
of Strategy
Development
TF06.04 The strategies selected by the organization should address external issues, draw on T Linking
competitive advantages or fix competitive disadvantages, keep the organization within the Strategy with
parameters of the mission and values, move the organization toward the vision, and make Situational
progress toward achieving one or more of the organization’s strategic goals. Analysis
TF06.05 In making decisions concerning the five categories of strategies (directional strategies, adaptive F Understand the
strategies, market entry/exit strategies, competitive strategies, and implementation strategies), Decision Logic
the order in which the strategies are addressed is inconsequential since the strategies are of Strategy
mutually exclusive. Development
TF06.06 Market entry/exit strategies are the means for accomplishing the ends of adaptive T Understand the
strategies. Decision Logic
of Strategy
Development
TF06.07 Implementation strategies are developed to activate competitive strategies but do not serve F Understand the
this purpose for adaptive and market entry/exit strategies. Decision Logic
of Strategy
Development
TF06.08 Competitive strategies are of two types: one that determines an organization’s strategic T Understand the
posture and one that positions the organization vis- à-vis other organizations within the market. Decision Logic
of Strategy
Development
 Question
title Question stem Choice Reference

TF06.09 Market entry strategies are used for reduction of scope of an organization. F Understand the
Decision Logic
of Strategy
Development
TF06.10 The choice of a strategic alternative creates additional direction for an organization but F Understand
has little to do with shaping its internal systems. the Decision
Logic of
Strategy
Development
TF06.11 Adaptive strategies involve decisions about whether an organization should expand, reduce, or T Understand
maintain its scope. the Decision
Logic of
Strategy
Development
TF06.12 Market development is a directional strategy that an organizational unit or division can use to F Expansion
enter new markets with present products or services. of Scope
Strategies
TF06.13 Divestiture is a reduction strategy in which an operating strategic service unit is sold off as a T Reduction
result of a decision to permanently and completely leave the market despite its current viability. of Scope
Strategies –
Divestiture
TF06.14 The three major methods of market entry are: purchase (e.g., acquisition), cooperation (e.g., F Understand
joint venture), and market segmentation (e.g., cost leadership). Market
Entry/Exit
Strategy
Linkage
TF06.15 Purchase market entry strategies allow an organization to use its financial resources to enter a T Purchase
market quickly, thereby initiating the adaptive strategy. Strategies
TF06.16 In general, venture capital investments are used to become involved in the growth and T Venture
development of a small organization that has the potential to develop a new or innovative Capital
technology. Investment

TF06.17 Strategic alliances are special variants of venture capital investments in which several F Alliances
venture capital firms pool an investment in a single entity.
TF06.18 An organization that uses internal resources for entering a new market is deploying a T Internal
development strategy. Ventures
TF06.19 Strategic posture is the way organizations behave within their market segments or T Strategic
industry. Posture
 Question
title Question stem Choice Reference

TF06.20 Cost leadership is an adaptive strategy for the expansion of an organization’s F Positioning
scope. Strategies -
Marketwide
or Focus
TF06.21 Differentiation is a strategy to make the product or service different (or appear so in the mind T Positioning
of the buyer) from competitors’ products or services. Strategies -
Marketwide
or Focus
TF06.22 A major disadvantage of the positioning strategy of cost leadership is that prices will probably F Positioning
be higher than that of the competition. Strategies -
Marketwide
or Focus
TF06.23 A major advantage of the differentiation positioning strategy is that it gives the organization T Positioning
greater control over pricing. Strategies -
Marketwide
or Focus
TF06.24 Marketwide positioning strategies can be based on differentiation or cost leadership. T Positioning
Strategies –
Marketwide or
Focus
TF06.25 Combination strategies are often used, especially in larger complex organizations, T Understand
because no single strategy alone may be sufficient. Combination
Strategies
TF06.26 Competitive strategies are corporate-level decisions that specify the organization’s scope and F Understand
focus. the Decision
Logic of
Strategy
Development
TF06.27 Implementation strategies are the most specific class of strategies and are directed toward T Understand
value-added service delivery and value-added support activities. the Decision
Logic of
Strategy
Development
TF06.28 Diversification strategies are directed toward providing services of equal or better quality at a F Diversification
lower cost than competitors.
TF06.29 Vertical integration strategies involve decisions to grow along the channel of distribution or T Vertical
stages in the continuum of care. Integration
 Question
title Question stem Choice Reference
TF06.30 Market development is a strategy aimed at developing new products and/or services and F Market
marketing them to established customers. Development

TF06.31 Strategic decisions are relatively easy to understand because they provide a clear set of F Why
independent choices and only rarely represent a relational hierarchy. Identifying
Strategic
Alternatives
Is Important

TF06.32 Although there are many strategies available to health care organizations it is critically F The Process
important that they focus on a single strategy and not pursue more than one strategy for Identifying
simultaneously. Strategy
Alternatives

TF06.33 Strategy formulation involves managing dilemmas, dealing with paradoxes, tolerating ambiguity T Understand
and coping with contradictions. the Decision
Logic of
Strategy
Development
TF06.34 Diversification is removing a new related or unrelated product or service which is outside the F Diversification
organization’s core business.

TF06.35 Diversification is generally thought of as a risky strategy because it involves entering relatively T Diversification
unfamiliar markets or businesses.

TF06.36 When a health care organization grows along its channel of distribution toward the patient it is F Vertical
called backward vertical integration. Integration

TF06.37 The purpose of vertical integration is to increase the continuity of care while T Vertical
simultaneously controlling the channel of demand for health services. Integration
TF06.38 An example of market development would be a chain of urgent care organizations opening a F Market
surgical rehab unit next door. Development

TF06.39 An attempt to serve customers in a new geographical area with our existing services is an F Penetration
example of a penetration strategy.
TF06.40 When a health care organization decides to “ride the decline” and allow the service to generate T Harvesting
as much revenue as possible without additional investment it is an example of harvesting.

Question
title
Question stem
MC06.01 Which of the following is
NOT part of strategy
formulation:
MC06.02 Strategies selected by the
organization should address
external issues, draw on
competitive advantages, and:
MC06.03 Decisions concerning five
categories of strategies –
directional strategies,
adaptive strategies, market
entry/exit strategies,
competitive strategies, and
implementation strategies –
should be addressed how:
MC06.04 Implementation strategies
include objectives and plans
for:
Multiple Choice Questions
Selections Choice Reference
a- External analysis. a Understand the
b- Development of strategic alternatives. Decision Logic of
c- Evaluation of alternatives. Strategy
d- Strategic choice. Development
a- Keep the organization within the parameters of the d The Process for
mission and values. Identifying
b- Move the organization toward the vision. Strategy
c- Make progress toward achieving one or more of the Alternatives
organization’s strategic goals.
d- All of the above.
a- In any order and without regard to specificity. b Understand the
b- Sequentially with each subsequent decision more Decision Logic
specifically defining the activities of the organization. of Strategy
c- Simultaneously with each decision being made Development
independently of other decisions.
d- In the order of market entry/exit strategies, competitive
strategies, directional strategies, and implementation
strategies with each subsequent decision more
specifically defining the activities of the organization.
a - Directional and adaptive strategies. c Understand the
b- Competitive strategies. Decision Logic
c- The organizational units to accomplish the of Strategy
strategies (managing strategic momentum). Development
d- Entering markets and exploiting brand
preferences among customers.
Question
title
Question stem Selections Choice Reference

MC06.05 Considering the a- The nature of the competitive environment. d Understand the
ends/means chain, the b- The scope of operations and specifically how the Decision Logic of
ends refer to: organization will expand, reduce, or maintain operations. Strategy
c- Service delivery strategies, value adding support Development
strategies, and action plans.
d- Mission, vision, values, and strategic goals.

MC06.06 Which of the following is a- Diversification. b Understand the

NOT an expansion of b- Horizontal integration. Decision Logic
scope strategy? c- Vertical integration. of Strategy
d- Market development. Development

MC06.07 In a focused factory
strategy, an organization:
a- Performs only one function in order to likely perform a Market
it better. Development
b- Concentrates on building competitive advantage by
operating only one facility.
c- Diversifies its products and services.
d- None of the above.

MC06.08 By pursuing maintenance of a- Investments in maintaining infrastructure will provide c Maintenance of

scope strategies, management
believes which of the following:
a competitive advantage in a stable industry. Scope
b- Short-term gains in profitability and market share can be Strategies
achieved by selectively eliminating product and service
lines.
c- The past strategy has been appropriate and few changes
are required in the target markets or the organization’s
products/services.
d- Maintaining a stable organizational structure will amplify
the organization’s ability to recognize emerging market
opportunities.
Question Question stem Selections Choice Reference
title

MC06.09 Which of the following is a- New management team may be required. d Strategic
a disadvantage of merger b- Limits potential. Posture
as market entry strategy: c- Initially must focus on a niche rather than entire market.
d- Takes a long time to merge cultures.

MC06.10 Which of the following are a- Mergers and acquisitions. b Positioning

positioning strategies: b- Cost leadership and differentiation. Strategies –
c- Defender, prospector, analyzer, and reactor. Marketwide or
d- Internal development, internal ventures, and Focus
reconfiguration of the value chain.
MC06.11 Which of the following is a- The market is no longer considered viable. a Retrenchment
NOT true regarding a b- Costs are increasing as percent of revenue.
retrenchment strategy: c- Profitability is declining.
d- Organization’s services have wide acceptance.

MC06.12 Which of the following is a- Purchase. d Understand

NOT a market entry b- Cooperation with other organizations. Market
strategy: c- Make internal investments. Entry/Exit
d- None of the above are market entry strategies. Strategy
Alternatives
MC06.13 Which of the following is a- Enhance the financial position. b Mergers
NOT an underlying b- Block access to a broader market.
reason why organizations c- Improve efficiency and effectiveness.
use a merger strategy: d- Overcome concerns about survival.

MC06.14 Strategic alliances include a- Networks. d Alliances

which of the following b- Consortiums.
configurations: c- Federations.
d- All the above.

MC06.15 Which of the following is a- Divestiture. c Market Exit

not a market exit strategy: b- Liquidation. Strategies
c- Status Quo.
d- Harvesting.

MC06.16 Which of the following is a- Defenders engage in limited search for opportunities. c Defender
NOT true regarding b- Defenders primary attention is on efficiency of existing Strategic
defenders: operations. Posture
c- Defenders are not concerned about cost efficiency.
d- Defenders seldom make adjustments in efficiency.
Question Question stem Selections Choice Reference
title

MC06.17 Which of the following are
reasons why organizations
adopt a reactor posture:
a- Top management has not clearly articulated the d Reactor
organization’s strategy. Strategic
b- Management does not shape the organization’s Posture
structure and processes to fit the strategy.
c- Management tends to maintain its current strategy-
structure relationship despite environmental changes.
d- All the above.

MC06.18 Which of the following is an a- Retrenchment. c Expansion of

expansion of scope b- Status quo. Scope
strategy: c- Vertical development. Strategies
d- None of the above.

MC06.19 Which of the following is a a- Harvesting. a Reduction of

reduction of scope strategy: b- Market development. Scope
c- Penetration. Strategies
d- Merger

MC06.20 Which of the following is
the underlying assumption
when selecting the
liquidation strategy:
a- The organization has a market but is less than formerly. d Liquidation
b- Joining with another organization will improve operations
and earnings.
c- Internal resources are available for investment at an
opportune time.
d- The organization cannot be sold as a viable on-going
operation.

Question Question stem
title
SE06.01 What is the linkage between
directional, adaptive, market
entry/exit, competitive and
implementation strategies.
SE06.02 What are the alternative
strategies available to an
organization included in the
class of strategies known as
adaptive strategies – expand,
reduce, or maintain scope?
Short Essay Questions
Rationale Reference
Decisions concerning five categories of strategies – directional, adaptive, Understand the
market entry/exit, competitive, and implementation – should generally be Decision Logic
addressed sequentially with each decision more specifically defining the of Strategy
activities of the organization. The organization must first establish or reaffirm Development
consensus on its mission, vision, values, and strategic goals (directional
strategies). Next, the adaptive strategies must be agreed on and developed
to accomplish the goals set forth by the directional strategies. Adaptive
strategies are corporate-level decisions that specify the organization’s scope
and focus on expanding, reducing, or maintaining operations. Then
strategists should discuss market entry/exit strategies as they are the means
to accomplish the adaptive strategies through purchase, cooperation,
internal development or market exit. Competitive strategies are generally
independent of the adaptive and market entry/exit strategies and are market
or service area specific. Competitive strategies determine the organization’s
strategic posture and position vis-à-vis other organizations within the market.
Finally, implementation strategies are directed toward value-adding service
delivery strategies, value-adding support strategies, and unit action plans
and must be developed to carry out competitive and market entry strategies.
Expansion of scope strategies include diversification, vertical integration, Understand
market development, product development, and penetration. Reduction of Adaptive
scope strategies decrease the size and scope of operations. Reduction of Strategy
scope strategies include divestiture, liquidation, harvesting, and retrenchment. Alternatives
The two maintenance of scope strategies are enhancement and status quo.
Question Question stem Rationale Reference
title

SE06.03 What are the differences Acquisitions are entry strategies for expansion through the purchase of an Understand
between the market entry existing organization, a unit of an organization, or a product/service. Thus, Market
strategies of acquisition, acquisition strategies may be used to carry out both corporate and divisional Entry/Exit
merger, and internal strategies such as diversification, vertical integration, market development, or Strategy
development? product development. There are many reasons to purchase another Alternatives
organization, such as to obtain real estate or other facilities, to acquire brands,
trademarks, or technology, and even to access employees. However, the most
common reason is to acquire customers. Mergers are similar to acquisitions.
In mergers, however, the two organizations combine through mutual
agreement to form a single new organization, often with a new name. Mergers
have been used most often in the health care segment to combine two similar
organizations (horizontal integration) in an effort to gain greater efficiency in
the delivery of health care services, reduction in duplication of services,
improved geographic dispersion, increased service scope, restraint in pricing
increases, and improved financial performance. Internal development uses the
existing organizational structure, personnel, and capital to generate new
products/services or distribution strategies. Internal development may be most
appropriate for products or services that are closely related to existing
products or services. Internal development is common for growing
organizations, particularly when they can exploit existing resources,
competencies, and capabilities (leveraging existing resources and other
assets).
Question Question stem Rationale Reference
title

SE06.04 Why is it unlikely that a single
strategy will be sufficient for an
organization?
Several strategic alternatives may have to be adopted and used in Lessons for
combination. For instance, one service category may require market Health Care
development whereas a different service category may require harvesting. Strategic
One division may be a defender positioned as a cost leader and another may Thinkers
be a prospector pursuing differentiation. Furthermore, several strategic
alternatives may be seen as phases or sequences in a broader strategic shift.
There are several types of strategies, and within each type several strategic
alternatives are available to health care organizations. In addition, there is a
general sequential decision logic in the strategy formulation process.
First, directional strategies must be articulated through the organization’s
mission, vision, values, and goals. Second, adaptive strategies are identified,
evaluated, and selected. The adaptive strategies are central to strategy
formulation and delineate how the organization will expand, reduce, or
maintain the scope of operations. Expansion strategies include diversification,
vertical integration, market development, product development, and
penetration. Reduction strategies include divestiture, liquidation, harvesting,
and retrenchment. Finally, maintenance of scope strategies includes
enhancement and status quo. The third type of strategic decision concerns
the market entry strategies. Expansion and maintenance of scope strategies
call for a method to carry out the strategy in the marketplace. Therefore, some
method for entering or gaining access to that market is required. Market entry
strategies include acquisitions and mergers, internal development, internal
ventures, reconfiguring the value chain, alliances and joint ventures, licensing,
and venture capital investments. Any of the market entry strategies may be
used to carry out an expansion or maintenance of scope adaptive strategy.
The fourth category of strategy includes the competitive strategies.
Competitive strategies specify the strategic posture of the organization and
position the products and services vis-à-vis competitors. The strategic posture
Question Question stem
title
SE06.05 Why are both the analytical
and emergent approaches
important to the development
of strategic alternatives?
SE06.06 Since related and unrelated
diversification are considered
risky strategies, why do
health care organizations
engage in such strategies?
SE06.07 Vertical integration has been
a particularly popular
strategy in health care. Why
has it been popular in this
industry?
Rationale Reference
should be well thought through by strategic leadership. Strategic posture
specifies the organization/market relationship and provides decision and
culture guidelines for management. Strategic postures that may be adopted
by an organization include defender, analyzer, prospector, or reactor
(although the latter usually indicates the lack of a strategy). In addition, there
are the positioning strategies (often called generic strategies). These include
cost leadership and differentiation, both of which can be applied as
marketwide strategies or focus strategies (a market segment strategy). Each
of the generic strategies places different demands on the organization and
requires unique resources, competencies, and capabilities.
Logical maps of the strategic decision alternatives are needed to start the Why Identifying
strategic planning process (analytical approach). As the strategy unfolds, Strategic
learning is needed to guide alternative decision making (emergent approach). Alternatives Is
This is why both the map and the compass are important aspects of strategic Important
thinking – the map is needed to get the journey started and the compass is
needed when the map no longer accurately describes the terrain.
Diversification strategies, in many cases, are selected because markets have Expansion of Scope
been identified outside the organization’s core business that offer potential for Strategies
substantial growth. Often it is thought that if the organization can successfully
engage in operations outside its core businesses new markets and new
opportunities will emerge.
A vertically integrated health care system offers a range of patient care and Vertical Integration
support services operated in a functionally unified manner. The expansion of
services may be arranged around an acute care hospital and include pre-acute,
acute, and post-acute services or be organized around specialized services
related solely to long-term care, mental health care, or some other specialized
area. The purpose of vertical integration is to increase the comprehensiveness
and continuity (or continuum) of care, while simultaneously controlling the
channel of demand for health care services. One of the more familiar examples
of vertical integration in health care has been the strategy of hospitals to
acquire physician practices in a move to more effectively control the “patient
flow.”
Question Question stem
title
SE06.08 What is venture capital
investment and what is
accomplished with this
strategy?
SE06.09 How are alliances in health
care sometimes thought of in
a way that is different from
strategic alliances based on
an expansion/cooperation
strategy?
SE06.10 What is the relationship
between competitive
strategies and strategic
posturing decisions?
Rationale Reference
Venture capital investment is a purchase strategy that provides capital to an Venture Capital
organization with a developing technology, product, or market and offers an Investment
opportunity to participate (have a share) in its growth (profitability). Typically,
venture capital investments are used to become involved in the growth and
development of a small organization that has the potential to develop a new or
innovative technology. In addition, venture capital investments are a way for
new health care organizations to grow.
Strategic alliances are loosely coupled agreements between two or more Alliances
organizations that are designed to achieve some long-term strategic purpose
that is not possible by a single organization operating alone. In health care the
term “alliance” is sometimes used to refer to the voluntary organizations that
hospitals join primarily to achieve economies of scale in purchasing. For some,
this type of alliance provides the benefit of allowing smaller organizations being
part of a large system, yet allows them to exist as free-standing, self-governing
institutions. An example of a major hospital alliances is Voluntary Hospitals of
America (VHA). Note that purchasing alliances are a different type from those
based on an expansion/cooperation strategy.
Competitive strategies are largely independent of the adaptive and market Understand
entry/exit strategies as they concern the basis for competing in a market or Competitive
service area. Managers must decide the strategic posture of the organization Strategy
and how the products and services will be positioned vis-à-vis those of Alternatives and
competitors. Therefore, the results of competitor analysis and internal analysis Strategic Posture
play an important role in the selection of an organization’s competitive
strategies. Strategic posture concerns the organization’s fundamental behavior
within the market – defending market position, prospecting for new products
and markets, or balancing market defense with careful entry into selected new
product areas and markets. In addition, an organization must consciously
position its products and services within a market through one of the market
wide or market segment positioning strategies (generic strategies).