Chapter

 7  -­‐  Strategic  Management  

 
Chapter  Overview  
 
This  chapter  explores  the  strategic  management  process.    It  begins  with  a  discussion  of  how  to  
analyze  the  firm’s  external  and  internal  environments  and  identify  the  firm’s  strategic  mission.    
Next,  the  strategy  formulation  process  is  presented  followed  by  strategy  implementation.    
Finally,  the  chapter  concludes  with  material  on  how  to  assess  the  outcomes  of  the  strategic  
management  process.  
 
Chapter  Objectives  
 
1.  Explain  how  the  firm’s  external  environment  should  be  examined  as  part  of  the  strategic  
management  process.  
 
2.  Explain  how  the  firm’s  internal  environment  should  be  examined  as  part  of  the  strategic  
management  process.  
 
3.  State  the  meaning  and  purpose  of  the  firm’s  strategic  intent  and  mission.  
 
4.  Understand  how  the  strategy  formulation  process  helps  the  firm  achieve  its  mission.  
 
5.  Describe  the  issues  that  should  be  considered  in  strategy  implementation.  
 
6.  Understand  how  the  outcomes  of  the  strategic  management  process  should  be  assessed.  
 
Outline  
 
I.    The  Strategic  Management  Process    
 
Strategic  management  includes  analysis  of  the  internal  and  external  environment  of  the  firm,  
definition  of  the  company’s  mission,  and  formulation  and  implementation  of  strategies  to  create  
or  continue  a  competitive  advantage.    
 
A. Strategic  management  is  a  dynamic  process  that  requires  a  long  term  perspective  and  
flexibility.  
1. Top  executives  are  usually  responsible  for  strategic  management.  
 
B. The  strategic  management  process  involves  five  steps  
1. Analyze  external  and  internal  environments  
2. Define  strategic  intent  and  mission’  
3. Formulate  strategies  
4. Implement  strategies  
5. Assess  strategic  outcomes  
II.  Step  One:  Analyzing  External  and  Internal  Environments  
 
The  SWOT  analysis  (strengths,  weaknesses,  opportunities,  threats)  is  a  commonly  used  
strategic  tool.      

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A. The  SWOT  analysis  allows  the  firm  to  analyze  the  internal  and  external  factors  that  can  
influence  the  organization’s  success.    
1. Managers  can  look  at  organizational  strengths  (S),  organizational  weaknesses  
(W),  environmental  opportunities  (O),  and  environmental  threats  (T).  
 
1.  The  External  Environment  
 
A. Managers  study  the  external  environment  to  identify  opportunities  and  threats  in  the  
market  place,  avoid  surprises,  and  respond  to  competitors.      
 
B. It  is  important  to  gather  accurate  data  in  a  timely  manner,  and  then  use  that  
information  to  gain  a  competitive  advantage.  
 
2.  Components  of  External  Analysis  
 
A. There  are  four  components  of  an  external  analysis  
1. Scanning  –  the  analysis  of  general  environmental  factors  that  may  directly  or  
indirectly  be  relevant  to  the  firm’s  future.    
a. The  goal  of  scanning  is  to  spot  emerging  trends  that  could  develop  
into  an  opportunity  or  a  threat.  
2. Monitoring  –  observing  environmental  changes  on  a  continuous  basis  to  
determine  whether  a  clear  trend  is  emerging.      
a. Monitoring  can  reduce  uncertainty  for  a  firm.  
3. Forecasting  –  involves  predicting  what  is  likely  to  happen  in  the  future,  the  
intensity  of  the  anticipated  event,  its  importance  to  the  firm,  and  the  pace  or  
time  frame  in  which  it  may  occur.    
a. Firms  need  strategic  flexibility  to  respond  to  changes  in  the  
environment.  
4. Assessing  –  evaluating  the  environmental  data  received  to  study  the  
implications  for  the  firm.      
a. Firms  need  to  understand  the  consequences  of  data.  
 
3.  Scope  of  the  External  Analysis    
 
A. The  external  environment  can  be  examined  at  four  different  levels  
1. The  general  environment  –  includes    
a. Demographic  trends  –  factors  such  as  population  size,  age  distribution,  
and  ethnic  mix  can  have  a  direct  impact  on  current  and  future  business  
b. Economic  conditions  –  local  companies  are  affected  by  local  economic  
conditions,  regional  firms  by  regional  conditions,  and  national  
companies  by  national  and  international  conditions.  
c. Political/legal  forces  –  government  policies  and  actions  can  have  a  
significant  impact  on  firms.  
d. Sociocultural  conditions  –  firms  are  more  likely  to  succeed  if  they  can  
adapt  products  and  services  to  prevalent  sociocultural  conditions.  
e. Technological  changes  –  firms  must  stay  on  top  of  technological  changes  
to  remain  competitive.  

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 [Link]  –  firms  are  increasingly  dependent  on  foreign  markets  for  
raw  materials,  for  manufacturing,  and  for  sales.  
2. The  industry  –  Michael  Porter’s  Five  Forces  model  suggests  five  forces  influence  
industries  
a. The  threat  of  new  entrants  –  barriers  to  entry  such  as  high  capital  
requirements,  government  regulations,  and  strong  brand  identification  
can  minimize  the  threat  that  new  competitors  will  enter  a  market.  
b. The  threat  of  substitutes  –  technological  advances  can  lead  to  the  
development  of  new  products  that  supplant  existing  ones.  
c. Suppliers  –  the  power  of  a  supplier  increases  when  there  are  few  other  
sources  of  supply,  when  the  supplier  has  many  other  buyers,  when  
there  are  no  satisfactory  substitutes,  and  when  the  cost  of  switching  
suppliers  is  high.  
d. Customers  –  the  bargaining  power  of  customers  increases  when  they  
purchase  a  large  share  of  the  firm’s  output,  the  product  is  important  to  
them,  close  substitutes  are  readily  available,  and  the  product  is  
relatively  standardized.  
e. Intensity  of  rivalry  among  competitors  –  the  intensity  of  rivalry  among  
competitors  increases  with  the  number  of  competitors,  when  industry  
growth  is  slow,  when  there  is  unused  capacity,  and  when  there  are  high  
exit  barriers.  
3. Strategic  groups  –  consist  of  a  cluster  of  firms  within  an  industry  that  tend  to  
adopt  common  strategies  of  technological  leadership,  quality  standards,  prices,  
distribution  channels,  and  customer  service.    Managers  need  to  follow  and  
respond  to  the  moves  of  these  strategic  groups.  
4. Direct  competitors  –  companies  should  make  a  detailed  study  of  each  of  their  
direct  competitors  in  order  to  make  inferences  about  the  competitor’s  goals  and  
objectives,  strategies,  strengths  and  weaknesses,  and  possible  competitive  
moves.  
 
4.  The  Internal  Environment  
 
A. In  addition  to  analyzing  the  external  environment,  firms  need  to  examine  the  internal  
environment  to  identify  internal  resources,  capabilities,  and  knowledge  that  can  help  
the  firm  capitalize  on  opportunities  and  minimize  threats.  
 
B. The  resource-­‐based  view  suggests  that  basing  a  business  strategy  on  what  the  firm  is  
capable  of  doing  provides  a  more  sustainable  competitive  advantage  than  basing  it  on  
external  opportunities.    
1. Things  a  company  does  well  are  called  core  competencies.      
 
5.  Resource  Types  
 
A. The  inputs  a  firm  uses  to  deliver  products  and  services  can  be    
a. Tangible  –  resources  that  can  be  quantified  and  observed  including  financial  
resources,  physical  assets,  and  manpower.  
b. Intangible  –  resources  that  are  difficult  to  quantify  and  include  on  a  balance  
sheet,  but  can  provide  the  firm  with  the  strongest  competitive  advantage.  

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 a) The  three  most  important  intangible  resources  are  
1. The  firm’s  reputation  –  consumers  tend  to  buy  from  firms  they  
hold  in  high  regard  and  so  a  good  reputation  can  decrease  
uncertainty  and  risk.  
2. Technology  –  patents,  copyrights,  and  trade  secrets  can  all  
provide  a  competitive  advantage  as  can  the  ability  to  create  
new  technology  faster  than  competitors.  
3. Human  capital  –  the  skills,  knowledge,  reasoning,  and  decision-­‐
making  abilities  of  employees  can  give  a  firm  an  advantage  over  
rivals.    
 
6.  Analyzing  the  Firm’s  Capabilities  
 
A. There  are  three  ways  to  analyze  a  firm’s  capabilities  
1) A  functional  analysis  establishes  organizational  capabilities  for  each  of  the  
major  functional  areas  of  the  business.  
2) The  value  chain  analysis  breaks  the  firm  down  into  a  sequential  series  of  
activities  and  attempts  to  identify  the  value  added  of  each  activity.  
a. Primary  activities  -­‐  involved  with  the  transformation  of  inputs  and  
outputs.  
b. Direct  customer  contact  –  sales,  customer  service,  and  marketing.    
c. Support  –  human  resource  management  and  administrative  assistance.  
3) Benchmarking  assesses  capabilities  by  comparing  the  firm’s  activities  or  
functions  with  those  of  other  firms.    
a. It  involves  four  stages  
1) Identifying  activities  that  are  weak  or  need  improvement.  
2) Identifying  firms  that  are  at  the  leading  edge  of  these  activities.  
3) Studying  those  firms  to  understand  why  they  do  so  well.  
4) Using  the  information  to  improve  the  firm’s  functions.  
 
III.  Step  Two:  Strategic  Intent  and  Mission  
 
After  analyzing  the  external  and  internal  environments,  the  next  step  of  the  strategic  
management  process  involves  formal  statements  of  strategic  intent  and  mission.  
 
A. Strategic  intent  is  the  firm’s  internally  focused  definition  of  how  the  firm  intends  to  use  
its  resources,  capabilities,  and  core  competencies  to  win  competitive  battles.        
1. It  guides  future  activities.  
 
B. Strategic  mission  is  the  firm’s  externally  focused  definition  of  what  it  plans  to  produce  
and  market  utilizing  its  internally  based  core  competence.  
 
IV.  Step  Three:  Strategy  Formulation  
 
The  third  component  in  the  strategic  management  process  is  strategy  formulation.  
 
A. Strategy  formulation  is  the  design  of  an  approach  to  achieve  the  firm’s  mission.  
 

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 B. Strategy  formulation  takes  place  at    
1. The  corporate  level  
2. The  business  unit  level  
 
1.  Corporate  Level  Strategy    
 
A. Corporate  level  strategy  is  the  overall  plan  concerning  the  number  of  businesses  the  
corporation  holds,  the  variety  of  markets  or  industries  it  serves,  and  the  distribution  of  
resources  among  those  businesses.  
 
B. Diversification  strategy  is  a  firm’s  plan  to  create  and  manage  a  mix  of  businesses  owned  
by  the  firm.    It  answers  the  question  “what  business  are  we  in?”  and  “what  businesses  
should  we  be  in?”  
 
C. Corporate  diversification  can  be  analyzed  in  terms  of    
1. Portfolio  mix  –  portfolio  analysis  is  used  to  classify  the  processes  of  a  diversified  
company  within  a  single  framework  or  taxonomy.  
a. The  McKinsey-­‐General  Electric  Portfolio  Analysis  Matrix  classifies  in  terms  
of  industry  attractiveness  and  business  unit  position  and  identifies  which  
units  should  be  grown,  harvested,  or  held.  
b. The  Boston  Consulting  Group’s  Growth-­‐Matrix  classifies  according  to  
relative  market  share  and  market  growth  and  identifies  dogs  (divest  as  soon  
as  possible),  cows  (milk),  stars  (invest  for  growth),  and  question  marks  
(needs  additional  analysis).  
c. Portfolio  analysis  is  attractive  because  it  provides  useful  information  in  a  
simple  framework,  but  it  also  assumes  that  each  unit  operates  
independently.  
2. Diversification  type  –  four  major  types  of  business  mix  are    
a. Concentration  strategy  –  focus  on  a  simple  business  operating  in  a  single  
industry  segment.  
1) This  strategy  is  attractive  because  it  allows  the  firm  to  become  
the  best  in  that  single  business,  but  unattractive  because  all  
earnings  come  from  a  single  source.  
b. Vertical  integration  strategy  –  the  firm  acquires  businesses  that  supply  
channels  (backward  integration)  or  distributes  to  the  primary  business  
(forward  integration).  
1) This  strategy  is  attractive  because  it  gives  the  firm  more  control  
and  can  reduce  costs  and  uncertainty,  but  it  also  requires  the  
firm  to  invest  in  businesses  it  may  be  unfamiliar  with.  
c. Concentric  diversification  –  the  firm  expands  by  creating  or  acquiring  new  
businesses  that  are  related  to  the  firm’s  core  business.  
1) This  strategy  is  attractive  because  it  can  reduce  costs  and  core  
competencies  can  be  transferred  to  the  new  business,  but  it  can  
be  problematic  because  business  unit  managers  may  not  
cooperate  with  each  other  and  the  interrelationships  between  
business  units  can  be  difficult  to  manage.  
d. Conglomerate  diversification  –  involves  managing  a  portfolio  of  businesses  
that  are  unrelated  to  each  other.      

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 1) This  strategy  is  attractive  because  its  spreads  risk  across  more  
than  one  industry  and  market,  but  is  unattractive  because  it  
may  not  build  on  the  firm’s  core  competencies  and  executives  
may  lack  the  knowledge  to  effectively  run  disparate  business  
units.  
3. Diversification  process  –  diversification  can  occur  through    
a. Acquisition  or  restructuring  –  acquisition  (purchasing  other  firms)  and  
merger  (integrating  two  firms)  can  help  a  firm  gain  market  power,  expand  
into  new  markets,  spread  risk,  and  avoid  the  cost  of  new  product  
development.  
b. Internationalization  –  firms  expand  internationally  to  increase  market  size,  
share  resources  and  knowledge,  lower  costs,  and  spread  business  risk.  
 
2.  Business  Level  Strategy  
 
A. A  business  level  strategy  is  the  strategy  the  firm  uses  to  compete  in  each  business  area  
or  market  segment.  
 
B. There  are  two  basic  business  level  strategies  
1. A  cost  leadership  strategy  involves  providing  products  and  services  that  are  less  
expensive  than  those  of  competitors.  
a. Firms  must  be  more  efficient  than  competitors  and  pass  the  savings  along  to  
customers  in  the  form  of  lower  prices.  
b. Firms  need  to  sell  large  volumes  to  earn  acceptable  returns.  
2. A  differentiation  strategy  involves  delivering  products  and  services  that  customers  
perceive  as  unique.  
a. Firms  must  invest  in  new  products  or  features  so  that  customers  perceive  
the  products  to  be  better  than  those  of  competitors.  
b. Firms  must  be  able  to  achieve  this  at  a  price  customers  are  willing  to  pay.  
 
V.  Step  Four:  Strategy  Implementation  
 
The  fourth  step  in  the  strategic  management  process  is  strategy  implementation.  
 
A. Successful  strategy  implementation  requires  the  firm  to  consider  
1. Strategic  leadership  
2. Organizational  structure  and  controls  
3. Cooperative  strategies  
4. Global  strategies  
5. Human  resource  strategies  
6. Corporate  entrepreneurship  and  innovation  
 
1.  Strategic  Leadership  
 
A. Leadership  plays  a  fundamental  role  in  the  success  or  failure  of  the  firm.      
 
B. Effective  leaders  meaningfully  influence  the  behavior,  thoughts,  and  feelings  of  
employees.  

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2.  Organizational  Controls  
 
A. A  company’s  board  of  directors  is  responsible  for  monitoring  the  actions  and  decisions  
of  top  executives.  
 
B. Under  the  Sarbanes-­‐Oxley  Act  of  2002,  public  companies  must  now  follow  a  set  of  
accountability  standards  designed  to  prevent  some  of  the  worst  corporate  abuses.  
 
3.  Organizational  Structures  
 
A. Organizational  structure  provides  the  structure  for  the  orderly  execution  of  strategies.      
 
B. A  firm’s  structure  must  be  congruent  with  its  formulated  strategy  for  strategy  
implementation  to  be  successful.  
1. Roles  for  individuals  must  be  defined,  policies  established,  chains  of  command  
determined,  and  decision  making  processes  identified.  
 
4.  Cooperative  Strategies  
 
A. Cooperative  strategies  involve  establishing  partnerships  or  strategic  alliances  with  other  
firms.      
 
B. Through  strategic  alliances  firms  can  
1. Combine  resources,  capabilities,  and  core  competencies  to  gain  market  power.  
2. Overcome  trade  barriers.  
3. Learn  from  each  other.  
4. Pool  resources.  
5. Compete  more  effectively.  
6. Speed  up  market  entry.  
 
5.  Human  Resource  Strategies  
 
A. Human  resources  strategy  should  also  be  consistent  the  firm’s  overall  strategy.  
 
B. Decisions  regarding  recruitment,  employee  evaluation,  training,  and  career  
advancement  should  all  support  the  company’s  strategic  mission.  
 
6.  Corporate  Entrepreneurship  and  Innovation    
 
A. Innovation  is  important  to  developing  a  sustainable  competitive  advantage.    
 
B. Firms  also  need  to  encourage  an  entrepreneurial  spirit  by  supporting  employees  who  
are  willing  to  take  risks,  are  proactive  and  creative,  and  who  can  see  opportunities  
where  others  perceive  problems.  
 
VI.  Step  Five:  Strategic  Outcomes  
 

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The  fifth  step  of  the  strategic  management  process  is  an  analysis  of  the  outcomes  to  determine  
whether  company  strategies  are  successful.  
 
A. Stakeholders  are  groups  or  individuals  who  have  an  interest  in  the  performance  of  the  
company  and  how  it  uses  its  resources  including  employees,  customers,  and  
shareholders.  
1. Companies  strive  to  meet  the  needs  of  investors  and  shareholders  in  particular.  
 
B. The  interests  of  other  stakeholders  can  conflict  with  those  of  shareholders  and  create  
ethical  dilemmas  for  companies.  
 
C. Standard  measures  of  strategic  success  include  
1. Profits  
2. Sales/market  share  growth  
3. Growth  in  corporate  assets  
4. Reduced  competitive  threats  
5. Innovations  that  fuel  future  success  
 
D. Firms  must  consider  both  short  term  outcomes  and  especially  long  term  outcomes.  
 
Study  Questions  
 
1)  Which  of  the  following  is  not  included  in  the  strategic  management  process?  
A)  Analysis  of  the  internal  and  external  environment  of  the  firm  
B)  Formulation  of  the  firm's  code  of  ethics  
C)  Definition  of  the  firm's  mission  
D)  Implementation  of  strategies  to  create  a  competitive  advantage  
Answer:    B  
Diff:  1   Page  Ref:  196  
Objective:    LO1  
 
2)  When  Visa  and  MasterCard  began  to  differentiate  their  cards  based  on  prestige,  American  
Express  learned  which  lesson  about  strategic  management?  
A)  A  firm  must  remain  inflexible  with  its  plan.  
B)  A  firm  must  plan  long-­‐term.  
C)  When  competitors  learn  how  to  copy  the  strategy,  a  firm  has  to  reformulate  to  stay  ahead.  
D)  all  of  the  above  
Answer:    C  
Diff:  2   Page  Ref:  196  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 
3)  The  SWOT  analysis  is  used  in  which  step  of  the  strategic  management  process?  
A)  Formulating  strategy  
B)  Implementing  strategy  
C)  Evaluating  strategy  
D)  Analyzing  the  internal  and  external  environments  
Answer:    D  

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Diff:  1   Page  Ref:  198  
Objective:    LO1  
 
4)  Which  of  the  following  is  not  true  of  the  SWOT  analysis?  
A)  SWOT  stands  for  strengths,  weaknesses,  opportunities,  and  threats.  
B)  Strengths  and  weaknesses  are  found  in  the  internal  analysis  of  the  firm.  
C)  The  SWOT  analysis  tells  the  firm  what  strategies  to  pursue.  
D)  The  objective  is  to  analyze  factors  from  both  inside  and  outside  the  organization  that  may  
influence  success.  
Answer:    C  
Diff:  3   Page  Ref:  198  
Objective:    LO1  
 
5)  Which  of  the  following  is  not  a  component  of  the  external  environment  analysis?  
A)  Benchmarking  
B)  Scanning  
C)  Monitoring  
D)  Forecasting  
Answer:    A  
Diff:  1   Page  Ref:  200  
Objective:    LO1  

6)  Observing  environmental  changes  on  a  continuous  basis  to  determine  whether  a  clear  trend  
is  emerging  is  
A)  assessing.  
B)  scanning.  
C)  monitoring.  
D)  forecasting.  
Answer:    C  
Diff:  1   Page  Ref:  200  
Objective:    LO1  
 
7)  When  Best  Buy  and  Circuit  City  evaluated  the  impact  of  Walmart's  move  to  offer  product  
warranties  at  half  the  price,  they  were  engaging  in  which  component  of  external  analysis?  
A)  Assessing  
B)  Scanning  
C)  Monitoring  
D)  Forecasting  
Answer:    A  
Diff:  2   Page  Ref:  200-­‐201  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 
8)  When  the  Acme  Company  delayed  its  investment  in  new  information  technology  based  on  
predictions  of  what  was  likely  to  happen  in  the  future,  the  intensity  of  the  anticipated  event,  its  
importance  to  the  firm,  and  the  time  frame  in  which  it  was  expected  to  occur,  the  firm  was  
engaged  in  which  component  of  the  external  environment?  
A)  Assessing  

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B)  Scanning  
C)  Monitoring  
D)  Forecasting  
Answer:    D  
Diff:  2   Page  Ref:  200  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 

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9)  Which  level  of  environmental  analysis  is  the  broadest?  
A)  The  general  environment  
B)  The  industry  
C)  The  strategic  group  
D)  Direct  competitors  
Answer:    A  
Diff:  1   Page  Ref:  201  
Objective:    LO1  
 
10)  Which  of  the  following  is  a  segment  of  the  general  environment?  
A)  Demographic  trends  
B)  Economic  conditions  
C)  Globalization  
D)  all  of  the  above  
Answer:    D  
Diff:  2   Page  Ref:  201  
Objective:    LO1  

11)  When  e-­‐commerce  companies  recognized  there  were  more  women  using  the  Internet  than  
men,  there  were  significant  business  implications  since  women  do  most  of  the  household  
shopping.  Which  segment  of  the  general  environment  does  this  represent?  
A)  Demographic  trends  
B)  Economic  conditions  
C)  Globalization  
D)  Socio-­‐cultural  trends  
Answer:    A  
Diff:  2   Page  Ref:  201  
Objective:    LO1  
AACSB:    Multicultural  and  diversity  understanding  
 
12)  By  2020,  it  is  estimated  that  what  percent  of  the  population  will  be  50  and  older?  
A)  15  
B)  35  
C)  50  
D)  70  
Answer:    C  
Diff:  1   Page  Ref:  202  
Objective:    LO1  
AACSB:    Multicultural  and  diversity  understanding  
 

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13)  When  the  Justice  Department  sued  Microsoft  for  a  high-­‐tech  monopoly,  which  component  
of  the  external  environment  was  being  addressed?  
A)  Demographic  trends  
B)  Political/legal  forces  
C)  Economic  trends  
D)  Socio-­‐cultural  conditions  
Answer:    B  
Diff:  2   Page  Ref:  203  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 
14)  The  norms,  values,  and  preferences  of  a  society  are  analyzed  in  which  component  of  the  
external  environment?  
A)  Demographic  trends  
B)  Political/legal  forces  
C)  Economic  trends  
D)  Socio-­‐cultural  trends  
Answer:    D  
Diff:  1   Page  Ref:  203  
Objective:    LO1  

15)  McDonald's  was  able  to  make  progress  in  the  French  market  by  adapting  its  menu  and  the  
look  of  its  restaurants  after  carefully  analyzing  which  component  of  the  external  environment?  
A)  Demographic  trends  
B)  Political/legal  forces  
C)  Economic  trends  
D)  Socio-­‐cultural  trends  
Answer:    D  
Diff:  2   Page  Ref:  203  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 
16)  The  changes  that  Mattel  made  in  Barbie  after  the  1960s  were  in  response  to  which  
component  of  the  external  environment?  
A)  Demographic  trends  
B)  Political/legal  forces  
C)  Economic  trends  
D)  Socio-­‐cultural  trends  
Answer:    D  
Diff:  2   Page  Ref:  204  
Objective:    LO1  
AACSB:    Multicultural  and  diversity  understanding  
 

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17)  Which  of  the  following  statements  is  true  of  globalization?  
A)  Firms  are  becoming  less  dependent  on  foreign  markets  for  raw  materials.  
B)  It  is  difficult  to  define  what  is  "domestic"  and  what  is  "foreign."  
C)  Borderless  strategic  alliances  are  less  common  with  more  fierce  international  competition  
today.  
D)  Firms  are  becoming  less  dependent  on  foreign  markets  for  the  sale  of  products  and  services.  
Answer:    B  
Diff:  3   Page  Ref:  204  
Objective:    LO1  
AACSB:    Globalization  
 
18)  A  group  of  firms  with  products  that  can  substitute  for  one  another  is  referred  to  as  
A)  a  strategic  group.  
B)  an  external  environment.  
C)  a  supplier.  
D)  an  industry.  
Answer:    D  
Diff:  1   Page  Ref:  204  
Objective:    LO1  
 
19)  According  to  Michael  Porter's  framework,  which  of  the  following  is  not  one  of  the  five  forces  
within  an  industry?  
A)  The  threat  of  new  entrants  
B)  Technology  
C)  Intensity  of  rivalry  
D)  Customers  
Answer:    B  
Diff:  1   Page  Ref:  205  
Objective:    LO1  

20)  Which  of  the  following  is  considered  a  barrier  to  entry?  
A)  Strong  brand  identification  already  exists  in  the  industry.  
B)  Intellectual  property  that  is  legally  protected  may  keep  firms  out  of  the  industry.  
C)  Capital  requirements  are  so  high  that  few  firms  have  the  resources  to  enter.  
D)  all  of  the  above  
Answer:    D  
Diff:  2   Page  Ref:  205  
Objective:    LO1  
 
21)  The  threat  of  new  entrants  ________  as  barriers  to  entry  ________.  
A)  decreases;  decrease  
B)  increases;  decrease  
C)  decreases;  increase  
D)  increases;  increase  
Answer:    C  
Diff:  3   Page  Ref:  205  
Objective:    LO1  
 

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22)  The  erosion  of  CD  sales  and  the  increase  in  music  downloads  reflects  which  of  Porter's  five  
forces  in  the  industry?  
A)  Suppliers  
B)  Threat  of  new  entrants  
C)  Threat  of  substitutes  
D)  Intensity  of  rivalry  
Answer:    C  
Diff:  2   Page  Ref:  206  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 
23)  The  Widget  Company  has  a  dependence  on  a  supplier,  the  Acme  Company.  This  dependence  
increases  if  
A)  the  Widget  Company  has  few  other  sources  of  supply.  
B)  the  Acme  Company  has  many  other  buyers.  
C)  the  cost  for  the  Widget  Company  to  suppliers  is  high.  
D)  all  of  the  above  
Answer:    D  
Diff:  3   Page  Ref:  206  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 
24)  Which  of  the  following  factors  causes  an  increase  in  competitive  rivalry?  
A)  Fast  industry  growth  
B)  Undifferentiated  services  
C)  Low  exit  barriers  
D)  Fewer  number  of  competitors  
Answer:    B  
Diff:  3   Page  Ref:  206  
Objective:    LO1  

25)  Which  of  the  following  represents  a  strategic  group  in  the  automobile  industry?  
A)  Mercedes,  BMW,  and  Ford  
B)  Chevrolet,  Toyota,  and  Ford  
C)  Rolls  Royce,  Chevrolet,  and  Toyota  
D)  BMW,  Rolls  Royce,  and  Toyota  
Answer:    B  
Diff:  2   Page  Ref:  207  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 

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26)  The  strategic  management  viewpoint  that  bases  business  strategy  on  what  the  firm  is  
capable  of  doing,  providing  a  more  sustainable  competitive  advantage  than  basing  it  on  external  
opportunities,  is  the  
A)  competitor  analysis.  
B)  resource-­‐based  view.  
C)  functional  analysis.  
D)  value-­‐chain  analysis.  
Answer:    B  
Diff:  2   Page  Ref:  207  
Objective:    LO2  
 
27)  3M's  ability  to  leverage  its  knowledge  of  adhesive  and  thin-­‐film  technology  is  an  example  of  
which  strategic  management  viewpoint?  
A)  Competitor  analysis  
B)  Resource-­‐based  view  
C)  Functional  analysis  
D)  Value-­‐chain  analysis  
Answer:    B  
Diff:  2   Page  Ref:  207  
Objective:    LO2  
AACSB:    Reflective  thinking  skills  
 
28)  Which  of  the  following  is  an  example  of  a  firm's  tangible  resources?  
A)  Reputation  
B)  Equipment  
C)  Human  capital  
D)  The  ability  to  create  new  technology  faster  than  competitors  
Answer:    B  
Diff:  3   Page  Ref:  208  
Objective:    LO2  
AACSB:    Analytic  skills  
 
29)  Which  of  the  following  is  not  an  intangible  resource  of  a  firm?  
A)  Human  capital  
B)  Capital  
C)  Technology  
D)  Reputation  
Answer:    B  
Diff:  2   Page  Ref:  208  
Objective:    LO2  
AACSB:    Analytic  skills  

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30)  How  can  human  capital  provide  a  core  competence?  
A)  Knowledge  that  resides  in  the  minds  of  people  is  unique  to  the  firm's  employees.  
B)  Employees  are  willing  to  collaboratively  use  their  talents  to  support  the  firm's  mission.  
C)  The  company's  culture  plays  a  key  role  in  how  well  people  work  together  to  achieve  the  firm's  
objectives.  
D)  all  of  the  above  
Answer:    D  
Diff:  3   Page  Ref:  208-­‐209  
Objective:    LO2  
 
31)  The  strategic  management  approach  that  establishes  organizational  capabilities  for  each  of  
the  major  areas  of  the  business  is  
A)  competitor  analysis.  
B)  resource-­‐based  view.  
C)  functional  analysis.  
D)  value-­‐chain  analysis.  
Answer:    C  
Diff:  1   Page  Ref:  209  
Objective:    LO2  
 
32)  Which  of  the  following  is  not  an  approach  for  organizations  to  examine  their  capabilities?  
A)  Functional  analysis  
B)  Benchmarking  
C)  Five  forces  analysis  
D)  Value-­‐chain  analysis  
Answer:    C  
Diff:  1   Page  Ref:  209  
Objective:    LO2  
 
33)  Porter's  value-­‐chain  analysis  attempts  to  identify  
A)  primary  activities  of  the  firm.  
B)  the  competitive  advantage  of  the  firm.  
C)  support  activities  of  the  firm.  
D)  the  value-­‐added  of  each  activity.  
Answer:    D  
Diff:  3   Page  Ref:  210  
Objective:    LO2  
 
34)  The  extent  to  which  the  value  created  by  a  particular  activity  is  greater  than  the  cost  
incurred  to  create  that  value  is  referred  to  as  
A)  margin.  
B)  competitive  advantage.  
C)  the  value  chain.  
D)  human  capital.  
Answer:    A  
Diff:  1   Page  Ref:  210  
Objective:    LO2  

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35)  Which  strategic  management  approach  is  being  used  when  Sears  assesses  its  customer  
service  capabilities  by  comparing  its  activities  with  those  of  Disney  and  Nordstrom's?  
A)  Value-­‐chain  analysis  
B)  Functional  analysis  
C)  Benchmarking  
D)  Five  forces  analysis  
Answer:    C  
Diff:  2   Page  Ref:  210  
Objective:    LO2  
AACSB:    Reflective  thinking  skills  
 
36)  Which  of  the  following  is  not  true  of  strategic  intent?  
A)  Strategic  intent  indicates  how  the  firm  will  use  its  resources.  
B)  Strategic  intent  flows  from  the  firm's  mission.  
C)  Strategic  intent  is  internally  focused.  
D)  all  of  the  above  
Answer:    B  
Diff:  2   Page  Ref:  211  
Objective:    LO3  
 
37)  A  firm's  strategic  mission  
A)  is  internally  focused.  
B)  flows  from  the  firm's  strategic  intent.  
C)  indicates  how  the  firm  will  use  its  resources.  
D)  is  crafted  without  regard  for  the  opportunities  in  the  external  environment.  
Answer:    B  
Diff:  1   Page  Ref:  211  
Objective:    LO3  
 
38)  Strategic  intent  and  mission  
A)  can  restrict  how  managers  view  the  environment.  
B)  can  easily  be  changed  in  search  of  new  opportunities  in  the  environment.  
C)  seldom  become  incongruent  with  the  firm's  environment.  
D)  are  the  result  of  the  SWOT  analysis.  
Answer:    A  
Diff:  3   Page  Ref:  212  
Objective:    LO3  
 

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39)  The  firm's  overall  plan  concerning  the  number  of  businesses  it  holds,  the  variety  of  markets  
or  industries  it  serves,  and  the  distribution  of  resources  among  those  businesses  is  referred  to  as  
the  
A)  diversification  strategy.  
B)  functional  strategy.  
C)  corporate-­‐level  strategy.  
D)  business-­‐level  strategy.  
Answer:    C  
Diff:  1   Page  Ref:  213  
Objective:    LO4  

40)  A  firm's  strategic  plan  to  create  and  manage  a  mix  of  businesses  owned  by  the  firm  is  a  
A)  BCG  Matrix.  
B)  diversification  strategy.  
C)  business-­‐unit  strategy.  
D)  functional-­‐unit  strategy.  
Answer:    B  
Diff:  2   Page  Ref:  214  
Objective:    LO4  
 
41)  The  McKinsey-­‐General  Electric  Portfolio  Analysis  Matrix  and  the  Boston  Consulting  Group's  
Growth-­‐Share  Matrix  are  techniques  of  
A)  portfolio  analysis.  
B)  five-­‐forces  analysis.  
C)  business-­‐level  strategy.  
D)  value-­‐chain  analysis.  
Answer:    A  
Diff:  2   Page  Ref:  214  
Objective:    LO4  
 
42)  According  to  the  BCG  Matrix,  a  business  unit  that  is  both  low  in  market  share  and  low  in  
market  growth  is  a  
A)  cow.  
B)  star.  
C)  question  mark.  
D)  dog.  
Answer:    D  
Diff:  2   Page  Ref:  214-­‐215  
Objective:    LO4  
 

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43)  What  is  the  recommendation  by  the  BCG  Matrix  for  a  star?  
A)  It  should  be  divested  as  soon  as  possible.  
B)  It  should  be  "milked"  as  much  as  possible  with  only  limited  additional  resources  devoted  to  it.  
C)  The  firm  should  greatly  invest  in  it  to  fuel  additional  growth.  
D)  Additional  analysis  is  necessary  to  decide  whether  or  not  additional  resources  should  be  
channeled  its  way.  
Answer:    C  
Diff:  2   Page  Ref:  215  
Objective:    LO4  
 
44)  Which  diversification  strategy  focuses  on  a  single  business  operating  in  a  single  industry  
segment?  
A)  Concentration  strategy  
B)  Vertical  integration  strategy  
C)  Concentric  diversification  strategy  
D)  Conglomerate  diversification  strategy  
Answer:    A  
Diff:  2   Page  Ref:  216  
Objective:    LO4  

45)  Which  type  of  diversification  strategy  tends  to  be  less  profitable  as  a  result  of  corporate  
executives  lacking  sufficient  knowledge  to  effectively  manage  disparate  business  units?  
A)  Concentration  strategy  
B)  Vertical  integration  strategy  
C)  Concentric  diversification  strategy  
D)  Conglomerate  diversification  strategy  
Answer:    D  
Diff:  2   Page  Ref:  216  
Objective:    LO4  
AACSB:    Reflective  thinking  skills  
 
46)  When  companies  decide  how  to  compete  in  a  market  segment,  they  are  formulating  
A)  corporate  strategy.  
B)  business-­‐level  strategy.  
C)  diversification  strategy.  
D)  functional-­‐level  strategy.  
Answer:    B  
Diff:  1   Page  Ref:  217  
Objective:    LO4  
 
47)  Maytag's  focus  on  product  reliability  suggests  the  firm  has  chosen  a  
A)  low  cost  strategy.  
B)  portfolio  strategy.  
C)  corporate-­‐level  strategy.  
D)  differentiation  strategy.  
Answer:    D  
Diff:  1   Page  Ref:  217  
Objective:    LO4  

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48)  Which  of  the  following  plays  a  role  in  strategy  implementation?  
A)  Strategic  leadership  
B)  Human  resource  strategies  
C)  Organizational  structure  and  controls  
D)  all  of  the  above  
Answer:    D  
Diff:  2   Page  Ref:  218  
Objective:    LO5  
 
49)  In  the  strategic  implementation  phase  of  the  strategic  management  process,  top  executives  
are  responsible  for  
A)  charting  general  implementation  plans.  
B)  making  key  resource  allocation  decisions.  
C)  delegating  day-­‐to-­‐day  operations.  
D)  all  of  the  above  
Answer:    D  
Diff:  2   Page  Ref:  218  
Objective:    LO5  

50)  The  role  of  boards  of  directors  in  monitoring  the  actions  and  decisions  of  top  executives  
changed  with  the  passage  of  
A)  the  Sarbanes-­‐Oxley  Act.  
B)  NAFTA.  
C)  the  Foreign  Corrupt  Practices  Act.  
D)  the  ADA.  
Answer:    A  
Diff:  1   Page  Ref:  219  
Objective:    LO5  
 
51)  When  Procter  and  Gamble  partnered  with  General  Electric  to  develop  a  jet  engine  for  
Boeing's  new  jumbo  jet,  they  engaged  in  which  strategy?  
A)  concentric  diversification  strategy  
B)  cooperative  strategy  
C)  diversification  strategy  
D)  portfolio  strategy  
Answer:    B  
Diff:  2   Page  Ref:  220  
Objective:    LO5  
AACSB:    Reflective  thinking  skills  
 
52)  Partners  in  strategic  alliances  can  
A)  learn  from  each  other.  
B)  pool  resources  for  risky  projects.  
C)  speed  up  entry  into  new  markets.  
D)  all  of  the  above  
Answer:    D  
Diff:  2   Page  Ref:  220  
Objective:    LO5  

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53)  Innovation  contributes  to  a  sustainable  competitive  advantage  if  
A)  it  is  difficult  or  costly  for  competitors  to  imitate.  
B)  customers  can  see  a  value  in  the  innovation.  
C)  the  firm  is  capable  of  commercializing  the  innovation.  
D)  all  of  the  above  
Answer:    D  
Diff:  2   Page  Ref:  221  
Objective:    LO5  
 
54)  The  final  step  of  the  strategic  management  process  is  
A)  formulation  of  the  strategy.  
B)  implementation  of  the  strategy.  
C)  analysis  of  the  strategic  outcomes.  
D)  formulation  of  the  firm's  strategic  intent  and  mission.  
Answer:    C  
Diff:  1   Page  Ref:  222  
Objective:    LO6  

55)  The  ultimate  criterion  when  studying  strategic  outcomes  should  be  the  firm's  
A)  long-­‐term  success.  
B)  profits.  
C)  growth  of  market  share.  
D)  growth  of  company  assets.  
Answer:    A  
Diff:  2   Page  Ref:  223  
Objective:    LO6  
 
56)  For  a  strategy  to  be  successful,  a  firm  must  be  flexible  and  make  changes  to  the  plan  based  
on  experience.  Strategic  management  requires  adaptation  to  changing  conditions.  
Answer:    TRUE  
Diff:  2   Page  Ref:  196  
Objective:    LO1  
 
57)  Strategic  outcomes  refer  to  the  intended  results  of  the  strategic  plan.  
Answer:    FALSE  
Diff:  3   Page  Ref:  198  
Objective:    LO1  
 
58)  Rubbermaid  failed  to  consider  that  the  cost  of  a  raw  material,  resin,  could  not  be  passed  
along  to  their  customers  through  increased  costs.  Sterlite,  a  major  competitor,  did  not  pass  
along  the  increase  to  their  customers.  As  a  result,  Walmart  replaced  Rubbermaid's  products  
with  Sterlite's.  This  was  an  example  of  a  failure  to  accurately  assess  the  environmental  data.  
Answer:    TRUE  
Diff:  2   Page  Ref:  200  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

59)  The  ups  and  downs  in  one  economic  sector  seldom  have  a  ripple  effect  on  other  sectors.  
Answer:    FALSE  
Diff:  2   Page  Ref:  203  
Objective:    LO1  
 
60)  Polaroid  erected  a  barrier  to  entry  that  kept  Kodak  from  entering  the  industry  with  their  
patent.  
Answer:    TRUE  
Diff:  2   Page  Ref:  205  
Objective:    LO1  
AACSB:    Reflective  thinking  skills  
 
61)  In  examining  the  firm's  capabilities,  company  leaders  may  choose  functional  analysis,  value-­‐
chain  analysis,  or  five  forces  analysis.  
Answer:    FALSE  
Diff:  3   Page  Ref:  209  
Objective:    LO2  

62)  The  firm's  internally  focused  definition  of  what  it  plans  to  produce  and  market  is  the  
strategic  mission  while  the  firm's  externally  focused  definition  of  how  the  firm  intends  to  use  its  
resources  is  the  strategic  intent.  
Answer:    FALSE  
Diff:  2   Page  Ref:  211  
Objective:    LO3  
 
63)  When  Wrigley  decided  to  focus  almost  exclusively  on  the  chewing  gum  market  and  Seagram  
decided  to  enter  the  beverage  market  while  also  competing  in  the  entertainment  industry,  both  
firm's  were  deciding  their  diversification  strategies.  
Answer:    TRUE  
Diff:  2   Page  Ref:  214  
Objective:    LO4  
AACSB:    Reflective  thinking  skills  
 
64)  Strategic  competitiveness  can  be  attained  only  when  the  firm's  selected  structure  is  
congruent  with  its  formulated  strategy.  
Answer:    TRUE  
Diff:  2   Page  Ref:  219  
Objective:    LO5  
 
65)  It  is  essential  that  the  executive  team  assess  the  short-­‐range  outcomes  as  part  of  the  
strategic  management  process.  The  long-­‐term  outcomes  need  not  be  assessed  since  they  are  
constantly  changing  and  the  plan  adapts  to  them.  
Answer:    FALSE  
Diff:  2   Page  Ref:  223  
Objective:    LO6  
 

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

66)  What  are  the  components  of  the  strategic  management  process?  
Answer:    The  components  of  the  strategic  management  process  are  analysis  of  the  external  and  
internal  environments,  definition  of  strategic  intent  and  mission,  formulation  of  strategy,  
implementation  of  strategy,  and  assessment  of  strategic  outcomes.  
Diff:  1   Page  Ref:  197  
Objective:    LO1  
 
67)  What  is  the  SWOT  analysis?  
Answer:    The  SWOT  analysis  is  a  strategic  management  tool  to  evaluate  the  firm  that  is  
accomplished  by  identifying  its  strengths,  weaknesses,  opportunities,  and  threats.  A  properly  
generated  SWOT  generates  information  which  helps  a  firm  respond  to  various  strategic  
challenges.  
Diff:  2   Page  Ref:  198  
Objective:    LO1  

68)  Discuss  the  four  components  of  an  external  environmental  analysis.  
Answer:    The  four  components  of  an  external  environmental  analysis  are  scanning,  monitoring,  
forecasting  and  assessing.  Scanning  is  the  analysis  of  factors  that  may  be  relevant  to  the  firm's  
future.  The  objective  is  to  identify  early  signs  of  emerging  trends  that  may  result  in  an  
opportunity  or  a  threat.  Monitoring  is  the  observing  of  environmental  changes  on  a  continuous  
basis  to  determine  where  a  clear  trend  is  emerging.  In  forecasting,  the  firm  attempts  to  predict  
what  is  likely  to  happen  in  the  future,  the  intensity  of  the  anticipated  event,  its  importance  to  
the  firm,  and  the  pace  or  time  frame  in  which  it  may  occur.  Evaluation  of  environmental  data  
received  to  study  the  implications  for  the  firm  is  the  process  of  assessing.  
Diff:  3   Page  Ref:  200-­‐201  
Objective:    LO1  
 
69)  What  are  the  segments  of  the  general  environment?  How  are  they  related?  
Answer:    The  general  environment  is  comprised  of  demographic  trends,  economic  conditions,  
political/legal  forces,  socio-­‐cultural  conditions,  technological  changes,  and  globalization.  They  
are  not  independent  segments.  A  change  in  one  is  likely  to  affect  others.  
Diff:  2   Page  Ref:  201  
Objective:    LO1  
 

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70)  Describe  Porter's  Five  Forces  model.  
Answer:    According  to  Porter,  the  five  forces  within  an  industry  are  the  threat  of  new  entrants,  
the  threat  of  substitutes,  suppliers,  customers,  and  intensity  of  rivalry.  A  new  entrant  is  likely  to  
take  away  part  of  the  market  and  earnings  of  existing  firms.  The  threat  of  new  entrants  
decreases  as  barriers  to  entry  and  fear  of  retaliation  by  current  industry  firms  increase.  
Technological  changes  may  lead  to  the  discovery  and  manufacturing  of  new  products  that  can  
substitute  for  existing  products.  Higher  quality,  lower  costs,  more  features,  and  safety  
considerations  may  induce  consumers  to  shift  preferences  from  the  old  to  the  new.  Firms  are  
seldom  self-­‐sufficient.  They  purchase  inputs  from  suppliers  who  can  affect  the  cost  of  inputs.  
Dependence  may  pose  a  threat  to  the  firm  if  the  supplies  are  essential  to  the  firm.  This  
dependence  increases  if  the  buyer  has  few  other  sources  of  supply,  the  supplier  has  many  other  
buyers,  satisfactory  substitutes  for  the  input  are  not  available,  or  the  cost  of  changing  suppliers  
is  significant.  Customers  enjoy  more  bargaining  power  and  negotiate  better  terms  when  they  
purchase  a  large  portion  of  the  firm's  output,  the  product  is  important  to  them,  close  substitutes  
are  easily  available,  and  the  products  are  relatively  standardized.  The  intensity  of  rivalry  
increases  with  the  number  of  competitors,  slow  industry  growth,  unused  productive  capacity,  
undifferentiated  services,  and  high  exit  barriers.  
Diff:  3   Page  Ref:  205-­‐206  
Objective:    LO1  
 
71)  What  is  the  difference  between  tangible  and  intangible  resources?  Give  an  example  of  each.  
Answer:    Tangible  resources  can  be  observed  and  quantified.  Examples  are  financial  resources,  
physical  assets  and  workers.  Intangible  resources  are  items  that  are  difficult  to  quantify  and  
include  on  a  balance  sheet.  Yet  these  often  provide  the  firm  with  the  strongest  competitive  
advantage.  These  assets  are  invisible  and  not  obvious.  Examples  include  a  company's  reputation,  
technology,  and  human  capital.  
Diff:  1   Page  Ref:  208  
Objective:    LO2  
AACSB:    Reflective  thinking  skills  

72)  What  is  benchmarking?  

Answer:    Benchmarking  is  a  strategic  management  approach  that  assesses  capabilities  by  
comparing  the  firm's  activities  or  functions  to  those  of  other  firms.  
Diff:  1   Page  Ref:  210  
Objective:    LO2  
 
73)  What  is  the  difference  between  the  firm's  strategic  intent  and  strategic  mission.  How  are  
they  related?  
Answer:    The  firm's  strategic  intent  is  the  internally  focused  definition  of  how  the  firm  intends  to  
use  its  resources,  capabilities,  and  core  competencies  to  win  competitive  battles.  The  strategic  
mission  is  the  firm's  externally  focused  definition  of  what  it  plans  to  produce  and  market,  
utilizing  its  internally  based  core  competence.  A  firm's  strategic  mission  flows  from  its  strategic  
intent.  
Diff:  2   Page  Ref:  211  
Objective:    LO3  
 

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall.

74)  What  is  portfolio  analysis?  
Answer:    Portfolio  analysis  is  an  approach  to  classify  the  processes  of  a  diversified  company  
within  a  single  framework  or  taxonomy.  
Diff:  2   Page  Ref:  214  
Objective:    LO4  
 
75)  Describe  the  recommendations  of  the  Boston  Consulting  Group's  Growth-­‐Share  Matrix.  
Answer:    The  recommendations  of  the  BCG  Matrix  are  as  follows:  
·∙   A  business  unit  that  is  both  low  in  market  share  and  low  in  market  growth  is  a  dog  and  should  
  be  divested  as  soon  as  possible.  
·∙   A  business  unit  that  has  a  high  market  share  in  a  market  with  low  growth  potential  is  a  cow  
and     should  be  "milked"  as  much  as  possible  with  only  limited  additional  resources  devoted  
to  it.  
·∙   If  a  business  unit  has  both  a  high  market  share  and  operates  in  a  growing  market,  it  is  a  star  
and     the  corporation  should  greatly  invest  in  it  to  fuel  additional  growth.  
·∙   If  a  business  unit  has  a  low  market  share  but  operates  in  a  growing  market,  it  is  a  question  
  mark  and  additional  analysis  is  necessary  to  decide  whether  or  not  more  resources  should  be  
  channeled  its  way.  
Diff:  3   Page  Ref:  214-­‐215  
Objective:    LO4  
 
76)  What  are  the  four  types  of  diversification?  
Answer:    The  four  major  types  of  diversification  are  concentration,  vertical  integration,  
concentric  diversification,  and  conglomerate  diversification.  
Diff:  2   Page  Ref:  216  
Objective:    LO4  

77)  What  is  conglomerate  diversification?  What  are  its  advantages  and  disadvantages?  
Answer:    Conglomerate  diversification  involves  managing  a  portfolio  of  businesses  that  are  
unrelated  to  each  other.  One  advantage  of  conglomerate  diversification  is  that  risks  are  spread  
across  different  markets  and  industries.  Potential  downturns  in  one  business  segment  may  be  
offset  by  higher  earnings  in  other  business  units.  Research  suggests  that  as  a  whole,  
conglomerates  are  not  as  profitable  as  the  other  types  of  corporate  diversification  strategies.  
The  main  problems  appear  to  be  that  conglomerate  diversification  does  not  build  on  a  firm's  
core  competencies  and  that  corporate  executives  do  not  have  sufficient  knowledge  to  
effectively  manage  disparate  business  units.  
Diff:  3   Page  Ref:  216  
Objective:    LO4  
 
78)  What  are  the  two  basic  choices  when  selecting  a  business-­‐level  strategy?  Provide  examples  
of  each.  
Answer:    The  two  basic  choices  when  selecting  a  business-­‐level  strategy  are  cost  leadership  and  
differentiation.  Providing  products  and  services  that  are  less  expensive  than  those  of  
competitors  is  referred  to  as  cost  leadership.  Walmart  follows  a  cost-­‐leadership  strategy.  
Delivering  products  and  services  that  customers  perceive  to  be  different  and  better  is  a  
differentiation  strategy.  Tiffany's  follows  a  differentiation  strategy.  
Diff:  2   Page  Ref:  217  
Objective:    LO4  

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79)  What  is  a  cooperative  strategy?  What  purposes  do  they  serve?  
Answer:    A  cooperative  strategy  involves  establishing  partnerships  or  strategic  alliances  with  
other  firms.  Firms  may  combine  resources,  capabilities,  and  core  competencies  to  gain  market  
power,  overcome  trade  barriers,  learn  from  each  other,  pool  resources  for  expensive  and  risky  
projects,  compete  more  effectively  in  a  particular  industry,  and  speed  up  entry  into  new  
markets.  Strategic  alliances  also  allow  a  firm  to  create  and  disband  projects  with  minimal  
paperwork.  
Diff:  2   Page  Ref:  220  
Objective:    LO5  
 
80)  What  are  some  of  the  standard  measures  of  strategic  success  evaluated  in  the  final  stage  of  
the  strategic  management  process?  
Answer:    Some  of  the  standard  measures  of  strategic  success  include  profits,  growth  of  
sales/market  share,  growth  of  corporate  assets,  reduced  competitive  threats,  and  innovations  
that  fuel  future  success.  It  is  important  for  the  firm  to  assess  both  the  short  term  and  long  range  
when  assessing  strategic  outcomes.  
Diff:  2   Page  Ref:  223  
Objective:    LO6  

 
 
 
 
 
 
 

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