I.

Multiple Choice Question (3 Marks)

1. A company's strategy concerns A) its market focus and plans for offering a more appealing product than rivals. B) how it plans to make money in its chosen business. C) managements action plan for running the business and conducting operationsits commitment to pursue a particular set of actions in growing the business, staking out a market position, attracting and pleasing customers, competing successfully, conducting operations, and achieving targeted objectives. D) the long-term direction that management believes the company should pursue. E) whether it is employing an aggressive offense to gain market share or a conservative defense to protect its market position. Answer: C Page: 6 Learning Objective: 1 Difficulty: Medium Taxonomy: Knowledge AACSB: Value Creation 2. Which of the following is not a primary focus of a company's strategy? A) How to attract and please customers B) How each functional piece of the business will be operated C) How to achieve above-average gains in the companys stock price and thereby meet or beat shareholder expectations D) How to compete successfully E) How to grow the business Answer: C Page: 6 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 3. In crafting a companys strategy, A) managements biggest challenge is how closely to mimic the strategies of successful companies in the industry. B) managers have comparatively little freedom in choosing the hows of strategy. C) managers are wise not to decide on concrete courses of action in order to preserve maximum strategic flexibility. D) managers need to come up with some distinctive aha element to the strategy that draws in customers and produces a competitive edge over rivals. E) managers are well-advised to be risk-averse and develop a conservative strategydare-tobe-different strategies rarely are successful. Answer: D Page: 6 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 4.A companys strategy stands a better chance of succeeding when A) it is developed through a collaborative process involving managers from all levels of the organization. B) managers employ conservative strategic moves. C) it is predicated on competitive moves aimed at appealing to buyers in ways that set the company apart from rivals. D) managers copy the strategic moves of successful companies in its industry. E) managers focus on meeting or beating shareholder expectations

Answer: C Page: 7 Learning Objective: 1 Difficulty: Easy Taxonomy: Comprehension AACSB: Value Creation 5.A companys strategy and its quest for competitive advantage are tightly connected because A) Without a competitive advantage a company cannot become the industry leader. B) Without a competitive advantage a company cannot have a profitable business model. C) Crafting a strategy that yields a competitive advantage over rivals is a companys most reliable means of achieving above-average profitability and financial performance. D) a competitive advantage is what enables a company to achieve its strategic objectives. E) how a company goes about trying to please customers and outcompete rivals is what enables senior managers choose an appropriate strategic vision for the company. Answer: C Page: 9 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation

6.Which of the following is not something to look for in identifying a company's strategy? A) Actions to respond to changing market conditions or other external factors B) Management actions to revise the company's financial and strategic performance targets C) Actions to strengthen competitive capabilities and correct competitive weaknesses D) Actions to capture emerging market opportunities and defend against external threats to the company's business prospects E) Actions to gain sales and market share via lower prices, more performance features, more appealing design, or other such actions. Answer: B Page: 10 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 7.A company's "macroenvironment" refers to A) the industry and competitive arena in which the company operates. B) general economic conditions plus the factors driving change in the markets where a company operates. C) all the relevant forces and factors outside a company's boundariesgeneral economic conditions, population demographics, societal values and lifestyles, technological factors, governmental legislation and regulation, and closer to home, the industry and competitive arena in which it operates. D) the competitive market environment that exists between a company and its competitors. E) the dominant economic features of a company's industry. Answer: C Page: 56 - 57 Learning Objective: 1 Difficulty: Easy Taxonomy: Knowledge AACSB: Domestic/Global Economic Environments 8.Thinking strategically about industry and competitive conditions in a given industry involves evaluating such considerations as A) the forces driving change in the industry. B) the dominant economic features of the industry in which the company operates. C) the kinds of competitive forces industry members are facing and the strength of each competitive force. D) the key factors influencing future competitive success in the industry. E) All of the above.

Answer: E Page: 58 Learning Objective: 1 Difficulty: Easy Taxonomy: Comprehension AACSB: Domestic/Global Economic Environments 9. Using the five-forces model of competition to determine what competition is like in a given industry involves A) building the picture of competition in three steps: (1) identifying the specific competitive pressures associated with each of the five competitive forces; (2) evaluating how strong the pressures comprising each competitive force are; and (3) determining whether the collective impact of all five competitive forces is conducive to earning attractive profits. B) building the picture of competition in two steps: (1) determining which rival has the biggest competitive advantage and (2) assessing whether the competitive advantages possessed by various industry members allow most industry members to earn above-average profits. C) evaluating whether competition is being intensified or weakened by the industrys driving forces and key success factors. D) assessing whether the collective impact of all five forces is weak enough to allow industry members to go on the offensive or use a defensive strategy to insulate against fierce competitive pressures. E) gauging the overall strength of competition based on how many industry rivals are operating with a competitive advantage and how many are operating at a competitive disadvantage. Answer: A Page: 60 Learning Objective: 2 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 10.What makes the marketplace a competitive battlefield is A) the race of industry members to build strong defenses against the industrys driving forces. B) the constant jockeying of industry members to strengthen their standing with buyers and win a competitive edge over rivals. C) the ongoing race among rival sellers to have the highest quality product. D) the ongoing efforts of industry members to introduce new and improved products/services at a faster rate than their rivals. E) the ongoing race among rivals to achieve the fastest rate of growth in revenues and profits. Answer: B Page: 61 Learning Objective: 2 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 11.Factors that cause the rivalry among competing sellers to be weak include A) low buyer switching costs and rival sellers that are relatively equal is size and capability. B) rapid growth in buyer demand and high buyer switching costs. C) few industry rivals that any one companys actions can easily be anticipated and countered by its rivals. D) low barriers to entry and weakly differentiated products among rival sellers. E) slow growth in buyer demand and strongly differentiated products. Answer: B Page: 63 Learning Objective: 2 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 12.The competitive force of rival firms' jockeying for better market positions, higher sales and market shares, and competitive advantage A) is stronger when firms strive to be low-cost producers than when they use differentiation and focus strategies.

B) is typically a weaker competitive force than is the threat of entry of new rivals. C) is largely unaffected by whether industry conditions tempt rivals to use price cuts or other competitive weapons to boost unit sales. D) tends to intensify when strong companies outside the industry acquire weak firms in the industry and launch aggressive, well-funded moves to transform the acquired companies into strong market contenders. E) is weaker when more firms have weakly differentiated products, buyer demand is growing slowly, and buyers have moderate switching costs. Answer: D Page: 65 Learning Objective: 2 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 13.The spotlight in analyzing a companys resources, internal circumstances, and competitiveness includes such questions/concerns as A) whether the company's present strategy is better than the strategies of its closest rivals based on such performance measures as earnings per share, ROE, dividend payout ratio, and average annual increase in the common stock price. B) whether the company's key success factors are more dominant than the key success factors of close rivals. C) whether the company has the industry's most efficient and effective value chain. D) what are the companys resource strengths and weaknesses and its external opportunities and threats. E) what new acquisitions the company would be well advised to make in order to strengthen its financial performance and overall balance sheet position.

Answer: D Page: 101 Learning Objective: 1 Difficulty: Easy Taxonomy: Knowledge AACSB: Value Creation 14.One important indicator of how well a company's present strategy is working is whether A) it has more core competencies than close rivals. B) its strategy is built around at least two of the industry's key success factors. C) the company is achieving its financial and strategic objectives and whether it is an aboveaverage industry performer. D) it is customarily a first-mover in introducing new or improved products (a good sign) or a late-mover (a bad sign). E) it is subject to weaker competitive forces and pressures than close rivals (a good sign) or stronger competitive forces and pressures (a bad sign). Answer: C Page: 103 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 15.The best example of a company strength is A) having higher earnings per share and a higher return on shareholders equity investment than key rivals. B) being totally self-sufficient such that the company does not have to rely in any way on key suppliers, partnerships with outsiders, or strategic alliances. C) having proven technological expertise and ability to churn out new and improved products on a regular basis. D) having a larger number of competitive assets than competitive liabilities. E) having more built-in key success factors than rivals.

Answer: C Page: 106 Learning Objective: 1 Difficulty: Medium Taxonomy: Application AACSB: Value Creation 16.When a company has real proficiency in performing a competitively important value chain activity, it is said to have A) a distinctive competence. B) a core competence. C) a key value chain proficiency. D) a competitive advantage over rivals. E) a company competence. Answer: B Page: 107 Learning Objective: 1 Difficulty: Easy Taxonomy: Comprehension AACSB: Value Creation 17.The difference between a company competence and a core competence is that A) a company competence refers to a company's best-executed functional strategy and a core competence refers to a company's best-executed business strategy. B) a company competence refers to a company's strongest resource whereas a core competence refers to a company's lowest-cost and most efficiently performed value chain activity. C) a company competence is a competitively relevant activity which a firm performs especially well relative to other internal activities, whereas a core competence is an activity that a company has learned to perform proficiently. D) a company competence represents real proficiency in performing an internal activity whereas a core competence is a competitively relevant activity which a firm performs better than other internal activities. E) a core competence usually resides in a company's technology and physical assets whereas a company competence usually resides in a company's human assets and intellectual capital. Answer: D Page: 107 - 108 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 18. Sizing up a companys overall resource strengths and weaknesses A) essentially involves constructing a strategic balance sheet where the company's resource strengths represent competitive assets and its resource weaknesses represent competitive liabilities. B) is called benchmarking. C) is called competitive strength assessment. D) is focused squarely on ascertaining whether the company has more/less resource strengths than weaknesses. E) is called company resource mapping. Answer: A Page:111 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 19.The biggest and most important differences among the competitive strategies of different companies boil down to A) how they go about building a brand name image that buyers trust and whether they are a risktaker or risk-avoider. B) the different ways that companies try to cope with the five competitive forces. C) whether a companys market target is broad or narrow and whether the company is pursuing a competitive advantage linked to low cost or differentiation.

D) the kinds of actions companies take to improve their competitive assets and reduce their competitive liabilities. E) the relative emphasis they place on offensive versus defensive strategies. Answer: C Page: 140 Learning Objective: 1 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 20.How valuable a low-cost leader's cost advantage is depends on A) whether it is easy or inexpensive for rivals to copy the low-cost leaders methods or otherwise match its low costs. B) how easy it is for the low-cost leader to gain the biggest market share. C) the aggressiveness with which the low-cost leader pursues converting the cost advantage into the absolute lowest possible costs. D) the leader's ability to combine the cost advantage with a reputation for good quality. E) the low-cost leader's ability to be the industry leader in manufacturing innovation so as to keep lowering its manufacturing costs. Answer: A Page: 141 Learning Objective: 3 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 21.The major avenues for achieving a cost advantage over rivals include A) revamping the firm's value chain to eliminate or bypass some cost-producing activities and/or out-managing rivals in the efficiency with which value chain activities are performed. B) having a management team that is highly skilled in cutting costs. C) being a first-mover in adopting the latest state-of-the-art technologies, especially those relating to low-cost manufacture. D) outsourcing high-cost activities to cost-efficient vendors. E) paying lower wages and salaries than rivals. Answer: A Page: 141 Learning Objective: 3 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 22. In which one of the following market circumstances is a broad differentiation strategy generally not well-suited? A) When buyer needs and preferences are too diverse to be fully satisfied by a standardized product B) When few rivals are pursuing a similar differentiation approach C) When the products of rivals are weakly differentiated and most competitors are resorting to clever advertising to try to set their product offerings apart D) When there are many ways to differentiate the product or service and many buyers perceive these differences as having value E) When technological change is fast-paced and competition revolves around rapidly evolving product features Answer: C Page: 152 Learning Objective: 2 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 23. The two best reasons for investing company resources in vertical integration (either forward or backward) are to A) expand into foreign markets and/or control more of the industry value chain. B) broaden the firm's product line and/or avoid the need for outsourcing.

C) gain a first mover advantage over rivals in revamping the industry value chain. D) strengthen the company's competitive position and/or boost its profitability. E) achieve product differentiation and/or lengthen the companys value chain to include more activities performed in-house and thereby gain greater ability to reduce internal operating costs. Answer: D Page: 175 Learning Objective: 3 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 24.A good example of vertical integration is A) a global public accounting firm acquiring a small local or regional public accounting firm. B) a large supermarket chain getting into convenience food stores. C) a crude oil refiner purchasing a firm engaged in drilling and exploring for oil. D) a hospital opening up a nursing home for the aged. E) a railroad company acquiring a trucking company specializing in long-haul freight. Answer: C Page: 176 Learning Objective: 3 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 25.Which one of the following is not likely to be a suitable strategy option for companies competing in rapid-growth industries? A) Driving down costs per unit so as to enable price reductions that attract droves of new customers B) Pursuing rapid product innovation, both to set a companys product offering apart from rivals and to incorporate attributes that appeal to growing numbers of customers C) Gaining access to additional distributional channels and sales outlets D) Vertically integrating forward and backward to enable greater control of the industry value chain E) Expanding the product line to add models/styles that appeal to a wider range of buyers Answer: D Page: 184 - 185 Learning Objective: 5 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 26.In a maturing market where the rates of growth are on the decline, rival firms can often improve their competitive position in the marketplace by A) pursuing backward and/or forward vertical integration to capture greater control over the industry value chain and shifting to standardized product offerings. B) concentrating on adding new models and performance features, emphasizing product innovation, and spending heavily on advertising to achieve much stronger product differentiation vis--vis rivals. C) shifting to focus or market niche strategies so as to concentrate exclusively on those buyers and models/styles where demand is continuing to grow at above-average rates. D) pruning marginal products and models, improving value chain efficiency, trimming costs, acquiring rival firms at bargain prices, and building new or more flexible competitive capabilities, and expanding internationally. E) competing aggressively on the basis of superior customer service and adding new models and styles to broaden the product offering. Answer: D Page: 186 - 187 Learning Objective: 5 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation

27. Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when A) all of the potential acquisition candidates are losing money. B) it is impractical to outsource most of the value chain activities that have to be performed in the target business/industry. C) there is ample time to launch the new business from the ground up and entry barriers can be hurdled at acceptable cost. D) the company has built up a hoard of cash with which to finance a diversification effort. E) none of the companies already in the industry are attractive strategic alliance partners. Answer: C Page: 243 Learning Objective: 1 Difficulty: Easy Taxonomy: Comprehension AACSB: Value Creation

28.Diversification becomes a relevant strategic option in all but which one of the following situations? A) When a company spots opportunities to expand into industries whose technologies and products complement its present business. B) When a company is only earning a low profit margin in its principal business C) When a company has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such businesses. D) When a company can open up new avenues for reducing costs by diversifying into closely related businesses. E) When a company can leverage existing competencies and capabilities by expanding into industries where these same resource strengths are key success factors and valuable competitive assets. Answer: B Page: 241 Learning Objective: 1 Difficulty: Easy Taxonomy: Comprehension AACSB: Value Creation 29. Businesses are said to be "related" when A) they have several key suppliers and several key customers in common. B) their value chains have the same number of primary activities. C) their products are both sold through retailers. D) their value chains possess competitively valuable cross-business relationships that present opportunities to transfer resources from one business to another, combine similar activities and reduce costs, share use of a well-known brand name, and/or create mutually useful resource strengths and capabilities. E) many consumers buy the products/services of both businesses. Answer: D Page: 244 - 245 Learning Objective: 2 Difficulty: Medium Taxonomy: Comprehension AACSB: Value Creation 30.One strategic fit-based approach to related diversification would be to A) diversify into new industries that present opportunities to transfer competitively valuable expertise, technological know-how, or other capabilities from one business to another. B) diversify into those industries where the same kinds of driving forces and competitive forces prevail, thus allowing use of much the same competitive strategy in all of the business a company is in. C) acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups.

D) acquire companies in forward distribution channels (wholesalers and/or retailers). E) expand into foreign markets where the firm currently does no business. Answer: A Page: 244 - 245 Learning Objective: 2 Difficulty: Easy Taxonomy: Comprehension AACSB: Value Creation

II. Short- Answer Question.

1. What are the strategic disadvantages of a backward vertical integration strategy? (2marks) 2. Explain the difference between a cash cow business and a dog business. Take example of a cash cow business and a dog business in reality. (3 marks) 3. Describe the strategy of striving to be the industry's overall low cost provider. Take one company that you know to reveal how it achieves low-cost provider status?