Fred r david – strategic management, 13th edition ch06

Exam Name _ TRUE/FALSE Write 'T' if the statement is true and 'F' if the statement is false 1) Long-term objectives represent the results expected from pursuing certain strategies 1) _ 2) Objectives provide direction and allow for organizational synergy 2) _ 3) Strategic objectives include those associated with growth in revenues, growth in earnings, higher dividends, larger profit margins and improved cash flow 3) _ 4) Strategic objectives include larger market share, quicker on-time delivery than rivals, quicker design-tomarket times than rivals, lower costs than rivals, and wider geographic coverage than rivals 4) _ 5) "If it ain't broke, don't fix it" refers to managing by crisis 5) _ 6) The overall aim of the Balanced Scorecard is to balance financial objectives with strategic objectives 6) _ 7) Since a combination strategy is not risky, many organizations pursue a combination of two or more strategies simultaneously 7) _ 8) Horizontal integration is seeking ownership or increased control over competitors 8) _ 9) Divestiture is selling all of a company's assets, in parts, for their tangible worth 9) _ 10) A chief executive officer is located in the divisional level of a large firm 10) 11) Gaining ownership or increased control over distributors or retailers is called forward integration strategy 11) 12) Franchising is an effective means of implementing forward integration 12) 13) A growing trend is for franchisers to buy out their part of the business from their franchisees 13) 14) McDonalds currently owns more than 50 percent of its restaurants 14) 15) 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 15) 16) A strategy of seeking ownership or increased control of a firm's suppliers is backward integration 16) 17) If a firm's present suppliers are expensive and unreliable in meeting the firm's need for parts, components or raw materials, the firm should pursue a horizontal integration strategy 17) 18) Horizontal integration is an appropriate strategy when the competitors of an organization are doing poorly 18) 19) Market penetration, market development, product development and joint venture are intensive strategies 19) 20) When the correlation between dollar sales and dollar marketing expenditures has historically been low, market penetration is an appropriate strategy 20) 21) Market development includes introducing present products into new geographic areas 21) 22) An appropriate strategy when an organization has excess production capacity is market development 22) 23) Orascom Telecom and Etisalat both seek to dominate the international market while searching for opportunities in other regions, especially in Africa and Asia 23) 24) Product development is a strategy that seeks increased sales by improving or modifying present products or services 24) 25) Product development is an appropriate strategy when an organization has successful products that are in the maturity stage of their life cycle 25) 26) Instead of extending the life cycle of existing products through modification and improvement, innovative strategies make existing products obsolete 26) 27) Innovative strategy requires investing a small amount of capital in R&D and changing the company culture to one that supports creativity and talent 27) 28) There are four basic types of diversification concentric, conglomerate, forward and backward 28) 29) Most companies favor related diversification strategies in order to exploit the common use of a well-known brand name 29) 30) The related diversification strategy is effective when an organization has a weak management team 30) 31) Almarai's takeover of companies that are not part of their primary dairy business is an example of related diversification 31) 32) Unrelated diversification is an appropriate strategy when an organization's present channels of distribution can be used to market the new products to current customers 32) 33) The Libyan Investment Authority's involvement in industries such as oil, travel, banking, and telecommunication is a good example of related diversification 33) 34) Unrelated diversification may be an especially effective strategy when an organization's basic industry is experiencing increasing annual sales and profits 34) 35) Retrenchment and turnaround are the same strategy 35) 36) 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 36) 37) Chapter 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 37) 38) Chapter bankruptcy applies to municipalities 38) 39) According to statistics from the American Bankruptcy Institute, Chapter 11 bankruptcy filings in the U.S increased from 43,694 in 1980 to 60,837 in 2009 39) 40) Chapter 13 bankruptcy is similar to Chapter 11, but available only to large corporations 40) 41) Divestiture is the selling of land a firm owns 41) 42) Divestiture has become a popular strategy to enable firms to focus on their core business and become more diversified 42) 43) Liquidation is often appropriate when retrenchment and divestiture have failed 43) 44) According to Porter, strategies allow organizations to gain competitive advantage from three different bases cost leadership, differentiation and integration 44) 45) For consumers who are price sensitive, cost leadership emphasizes producing standardized products at very low per-unit cost 45) 46) A best-value strategy offers products or services to a wide range of customers at the lowest price on the market 46) 47) A low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the market 47) 48) Al Faisaliah Hotel would be a good example of a firm seeking the best-value focus strategy 48) 49) A cost leadership strategy can be especially effective when most buyers use the product in the same way 49) 50) A differentiation strategy can only be achieved with a large target market 50) 51) Gaining a differentiation advantage is a primary reason for pursuing forward, backward, and horizontal integration strategies 51) 52) The most effective differentiation bases are those that are hard or expensive for rivals to duplicate 52) 53) A low cost focus strategy can be especially attractive when the target market niche is small 53) 54) 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 54) 55) In a turbulent, high-velocity market, a lead-change strategy is best whenever the firm has the resources to pursue this approach 55) 56) Cooperative arrangements and joint ventures between competitors are becoming increasingly popular 56) 57) Joint ventures tend to fail when the managers who are required to collaborate daily in operating the venture are not involved in forming or shaping the venture 57) 58) Divestiture would be an appropriate strategy when a need exists to introduce a new technology quickly 58) 59) An acquisition occurs when a large organization purchases a smaller one or vice versa 59) 60) When an acquisition or merger is not desired by both parties, it is called a takeover or a hostile takeover 60) 61) In the Arab world, hostile takeovers are common due to the current nature of social and business networking, which appears to favour hostile attitudes 61) 62) Out of the wordld's 300 largest private equity firms in 2010, sixty were from the Arab world 62) 63) A leveraged buyout occurs when a firm's management and other private investors use borrowed funds to buy out the firm's shareholders 63) 64) First mover advantages refers to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms 64) 65) 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 65) 66) India commands over 60 percent of all backoffice outsourcing 66) 67) In the Arab world, the non-profit sector is not as common and active as it is in Western countries 67) 68) Strategists in governmental organizations operate with far more strategic autonomy than their counterparts in private firms 68) 69) According to varous sources, 95 percent of all businesses in the Arab region are family firms 69) 70) All sizes and types of organizations can utilize and benefit from strategic-management concepts and techniques 70) 71) D) joint venture E) concentric diversification 108) Which strategy would be effective when the stockholders of a firm can minimize their losses by selling the organization's assets? 108) _ A) Differentiation B) Integration C) Liquidation D) Diversification E) Cost leadership 109) Under which strategy would you offer products or services to a wide range of customers at the lowest price available on the market? 109) _ A) Low-cost B) Best-value focus C) Low-cost focus D) Best-value E) Differentiation 110) According to Porter, which strategy offers products or services to a small range of customers at the lowest price available on the market? 110) _ A) Low-cost B) Low-cost focus C) Differentiation D) Best-value focus E) Best-value 111) Under which condition would a cost leadership strategy be especially effective? 111) _ A) When there are many ways to differentiate the product or service and many buyers perceive these differences as having value B) When the products of rival sellers are essentially identical and supplies are readily available from any of several eager sellers C) When technological change is fast paced and competition revolves around rapidly evolving product features D) When few rival firms are following a similar approach E) When buyer needs and uses are diverse 112) Under which condition would a differentiation strategy be especially effective? 112) _ A) When industry leaders not consider the niche to be crucial to their own success B) When technological change is fast paced and competition revolves around rapidly evolving product features C) When few, if any, other rivals are attempting to specialize in the same target segment 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 the target market niche is large, profitable and growing 113) What occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity? 113) _ A) Divestiture B) Retrenchment C) Liquidation D) Forward integration E) A joint venture 114) All of the following are cooperative arrangements except 114) _ A) cross-manufacturing agreements B) R&D partnerships C) marketing plans D) joint-bidding consortia E) cross-licensing agreements 115) Which of the following is not a reason joint ventures fail? 115) _ A) 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 B) Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture C) The venture may begin to compete more with one of the partners than the other D) Stakeholders from both partners are equally satisfied E) The venture may not be supported equally by both partners 116) Which strategy would be most appropriate when the distinctive competencies of two or more firms complement each other especially well? 116) _ A) Joint venture B) Retrenchment C) Divestiture D) Conglomerate diversification E) Integration 117) When two organizations of about equal size unite to form one enterprise, which of these occurs? 117) _ A) Hostile takeover B) Acquisition Merger C) D) Divestiture E) Leveraged buyout 118) Mergers and acquisitions are created for all of the following reasons except to 118) _ A) gain economies of scale B) smooth out seasonal trends in sales C) gain new technology D) increase its number of employees E) reduce tax obligations 119) When Dubai Aerospace Enterprise (DAE) acquired Standard Aero and Landmark Aviation in 2007, the transaction was valued at 119) _ A) US$1.09 billion B) US$1.19billion C) US$19 billion D) US$1.9 billion E) US$2.9 billion 120) When companies take over functional operations of other firms, such as human resources, information systems, payroll, accounting, or customer service, this is called 120) _ A) franchising B) outsourcing C) licensing D) divestiture E) marketing 121) According to journalists' findings, what is a serious obstacle for many small business owners? 121) _ A) A lack of business ethics B) Having too many suppliers C) An excess of employees and managerial staff D) A lack of experience in networking E) A lack of strategic-management knowledge ESSAY Write your answer in the space provided or on a separate sheet of paper 122) Define and give an example of three integrative strategies 123) List some guidelines for when forward integration would be a particularly good strategy to pursue 124) Define and give an example of three intensive strategies 125) List some guidelines for when market development would be a particularly good strategy to pursue 126) Define and give an example of the two diversification strategies 127) List some guidelines for when related diversification would be a particularly good strategy to pursue 128) Outline the five types of bankruptcy Chapters 7, 9, 11, 12 and 13 129) Discuss Michael Porter's five generic strategies 130) What are the characteristics of a firm that is successfully pursuing a cost leadership strategy? 131) Discuss four common problems that cause joint ventures to fail 132) Name at least six reasons for performing mergers or acquisitions 1) TRUE 2) TRUE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) TRUE 13) FALSE 14) FALSE 15) TRUE 16) TRUE 17) FALSE 18) FALSE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) TRUE 25) TRUE 26) TRUE 27) FALSE 28) FALSE 29) TRUE 30) FALSE 31) TRUE 32) TRUE 33) FALSE 34) FALSE 35) TRUE 36) FALSE 37) TRUE 38) TRUE 39) TRUE 40) FALSE 41) FALSE 42) FALSE 43) TRUE 44) FALSE 45) TRUE 46) TRUE 47) TRUE 48) TRUE 49) TRUE 50) FALSE 51) FALSE 52) TRUE 53) FALSE 54) FALSE 55) TRUE 56) TRUE 57) TRUE 58) FALSE 59) TRUE 60) TRUE 61) FALSE 62) FALSE 63) TRUE 64) TRUE 65) FALSE 66) FALSE 67) TRUE 68) FALSE 69) TRUE 70) TRUE 71) FALSE 72) D 73) C 74) D 75) C 76) D 77) B 78) E 79) E 80) C 81) E 82) B 83) E 84) B 85) A 86) D 87) C 88) E 89) A 90) C 91) C 92) D 93) E 94) B 95) D 96) E 97) E 98) E 99) A 100) A 101) E 102) B 103) E 104) B 105) C 106) C 107) B 108) C 109) D 110) B 111) B 112) B 113) E 114) C 115) D 116) A 117) C 118) D 119) D 120) B 121) E 122) 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 firm's 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 Reader's Digest Association acquired Reiman Publications LLC 123) Some guidelines for when forward integration would be an especially effective strategy are 1) when an organization's present distributors are especially expensive, unreliable, or incapable of meeting the firm's distribution needs; 2) when the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward; 3) when an organization competes in an industry that is growing and is expected to continue to grow markedly; 4) when an organization has both the capital and human resources needed to manage the new business of distributing its own products; 5) when the advantages of stable production are particularly high; and (6) when present distributors or retailers have high profit margins 124) 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 greater marketing efforts is called market penetration An example of this is when Almarai penetrated the GCC market by securing agreements with large retailers such as Carrefour, Panda, and Al Othaim allowing it to reach a wider customer base Market development is introducing present products or services into new geographic areas For example, Gandour products are available in more than 55 countries worldwide and are supplied from the Gandour network of factories It uses distributors to market its products to countries like China, the United States, Philippines, and Malaysia An example of product development is when Juhayna introduced two new varieties, half-cream and light milk, alongside its full-milk category In addition, it launched various fruit-related products in its existing category of juice and flavored milk Pure (100 percent natural juice) and Taza (fresh milk) 125) 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 organization's basic industry is becoming rapidly global in scope 126) The two types of diversification strategies are known as related and unrelated Businesses are said to be related when their value chains possess competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar that no competitively valuable crossbusiness relationships exist An example of related diversification is Almarai’s takeover of companies that are not part of their primary dairy business Western Bakery in 2007 and Modern Food Industries in 2009 This move allowed the company to offer bakery products using existing channels of distribution and capabilities Firms that have successfully pursued unrelated diversification include Kingdom Holding (www.kingdom.com.sa ), the Al-Futtaim Group (www.futtaim.com), the Kharafi Group (www.makharafi.net), Group Ona, Orascom Industries (www.orascomci.com), and the Saud Bahwan Group (www.saudbahwangroup.com) 127) Six guidelines for when related diversification may be an effective strategy are 1) when an organization competes in a no-growth or a slow-growth industry; 2) when adding new, but related, products would significantly enhance the sales of current products; 3) when new, but related, products could be offered at highly competitive prices; 4) when new, but related, products have seasonal sales levels that counterbalance an organization's existing peaks and valleys; 5) when an organization's products are currently in the declining stage of the product's life cycle; and 6) when an organization has a strong management team 128) Chapter 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 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 $350,000 129) 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, of which there are two alternative types type is a low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market, whereas type is a best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market The best value strategy aims to offer customers a range of products or services at the lowest price available compared to a rival's products with similar attributes Differentiation is a strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive There are two focus strategies a low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the market, whereas a best-value focus strategy offers products or services to a small range of customers at the best price-value available on the market 130) 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 131) 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 A final problem is that the venture may begin to compete more with one of the partners than the other 132) 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 ... to its own resources E) When the target market niche is large, profitable and growing 113) What occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing... Western countries 67) 68) Strategists in governmental organizations operate with far more strategic autonomy than their counterparts in private firms 68) 69) According to varous sources,... officer is located in the divisional level of a large firm 10) 11) Gaining ownership or increased control over distributors or retailers is called forward integration strategy 11) 12) Franchising