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Capstone Exam 1
Essay Questions Ch 1-5
34
Other
Undergraduate 4
09/19/2012

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Term
Ch 1. What are the benefits of strategic management?
Definition
The three most highly rated benefits of strategic management are:
1. clearer sense of strategic vision for the organization
2. sharper focus on what is strategically important
3. improved understanding of a rapidly changing environment.
Term
Ch 1. Define globalization and identify the role of strategic management in globalization.
Definition
Globalization is the internationalization of markets and corporations. It has changed the way that modern corporations do business. As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and position the company for long-term competitive advantage.
Term
Ch 1. What world-wide trends are caused or accelerated by the Internet?
Definition
The Internet causes or accelerates the following current world-wide trends:
1. The Internet is forcing companies to transform themselves.
2. New channels are changing market access and branding, causing the disintermediation of traditional distribution channels.
3. The balance of power is shifting to the consumer.
4. Competition is changing.
5. The pace of business is increasing drastically.
6. The Internet is pushing corporations out of their traditional boundaries.
7. Knowledge is becoming a key asset and a source of competitive advantage.
Term
Ch 1.What are the four main activities of a learning organization?
Definition
The four main activities of a learning organization are solving problems systematically, experimenting with new approaches, learning from their own experiences and past history as well as from the experiences of others, and transferring knowledge quickly and efficiently throughout the organization.
Term
Ch 1. Briefly describe the four basic elements of strategic management.
Definition
Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. Strategy formulation is the development of long-range plans for effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses. Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets, and procedures. Evaluation and control is the process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance.
Term
Ch 1. What is a triggering event?
Definition
A triggering event is something that acts as a stimulus for a change in strategy. Some possible triggering events are a new CEO, an external intervention, a threat of a change in ownership, a performance gap, and a strategic inflection point.
Term
Ch 2. What are the responsibilities of the board of directors?
Definition
Interviews with board members suggested that the five board of directors responsibilities are setting corporate strategy, overall direction, mission or vision; hiring and firing the CEO and top management; controlling, monitoring, or supervising top management; reviewing and approving the use of resources; and caring for shareholder interests.
Term
Ch 2. Explain the continuum of board involvement.
Definition
The board of directors continuum reflects the degree of involvement (from high to low) in the strategic management process. Boards can range from phantom boards with no real involvement to catalyst boards with a very high degree of involvement. Passive phantom or rubber stamp boards typically never initiate or determine strategy unless a crisis occurs.

Nominal participation reflects a board involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management. An active board approves, questions, and makes final decisions on mission, strategy, policies, and objectives. It also has active board committees and performances fiscal and management audits
Term
Ch 2. Explain the difference between a direct and indirect interlocking directorate.
Definition
A direct interlocking directorate occurs when two firms share a director or when an executive of one firm sits on the board of a second firm. An indirect interlock occurs when two corporations have directors who also serve on the board of a third firm.
Term
Ch 2. What are the criteria for selecting a good director?
Definition
Some of the top criteria provided by a survey for selecting a good director includes the following:
Willing to challenge management when necessary
Special expertise important to the company
Expertise on global business issues
Understand firm’s key technologies and processes
Brings external contacts that are potentially valuable to the firm
Detailed knowledge of the firm’s industry
High visibility in his or her field
Accomplished at representing the firm to stakeholders.
Term
Ch 2. Explain the impact of the Sarbanes-Oxley Act on corporate governance.
Definition
In response to the many scandals uncovered since 2000, the U.S. Congress passed the Sarbanes-Oxley Act in June, 2002. This act was designed to protect shareholders from the excesses and failed oversight that characterized failures at Enron, Tyco, WorldCom, Adelphia Communications, Qwest, Global Crossing, among other prominent firms. Several key elements of Sarbanes-Oxley were designed to formalize greater board independence and oversight. For example, the act required that all directors serving on the audit committees be independent of the firm and receive no feeds other than for services as a director. Additionally, boards may no longer grant loans to corporate officers. The act also established formal procedures for individuals to report incidents of questionable accounting or auditing. Firms are prohibited from retaliating against anyone reporting wrong doing. Both the CEO and CFO must certify the corporation’s financial information. The Act banned auditors from providing both external and internal audit services to the same company. The bill also required that firms identify whether they have a “financial expert” serving on the audit committee who is independent from management.
Term
Ch 2. What are the responsibilities of top management?
Definition
Top management responsibilities involve getting things accomplished through and with others in order to meet the corporate objectives. Top management’s job is thus multidimensional and is oriented toward the welfare of the total organization. Specific top management tasks vary from firm to firm and are developed from an analysis of the mission, objectives, strategies, and key activities of the corporation. Tasks are typically divided among the members of the top management team.

The CEO, with the support of the rest of the top management team, must successfully handle two primary responsibilities crucial to the effective strategic management of the corporation (1) provide executive leadership and a strategic vision, and (2) manage the strategic planning process.
Term
Ch 3. Explain the difference between Milton Friedman’s and Archie Carroll’s approaches to the responsibilities of business.
Definition
Both Milton Friedman and Archie Carroll argue their positions based on the impact of socially responsible actions on a firm’s profits. Friedman says that socially responsible actions hurt a firm’s efficiency. Carroll proposes that a lack of social responsibility results in increased government regulations, which reduce a firm’s efficiency. Friedman argues that profit maximization is the firm’s primary responsibility. Carroll argues that firms have economic, legal, ethical, and discretionary responsibilities.
Term
Ch 3. What is stakeholder analysis? List the three-step process.
Definition
Stakeholder analysis is the identification and evaluation of corporate stakeholders. The first step of the process is to identify the primary stakeholders (those who have a direct connection with the corporation and who have sufficient bargaining power to directly affect corporate activities). The second step is to identify the secondary stakeholders (those who have only an indirect stake in the corporation, but who are also affected by corporate activities). The third step is to estimate the effect on each stakeholder group from any particular strategic decision.
Term
Ch 3. Discuss some reasons for unethical behavior by business people.
Definition
There are a number of reasons proposed for the unethical behavior by business people. It may be that the involved people are not even aware that they are doing something questionable. There is no worldwide standard of conduct for business people. Cultural norms and values vary between countries and even between different geographic regions and ethnic groups within a country.

Another possible reason for what is often perceived to be unethical behavior lies in differences in values between business people and key stakeholders. Some business people may believe profit maximization is the key goal of their firm, whereas concerned interest groups may have other priorities. This difference in values can make it difficult for one group of people to understand another’s actions
Term
Ch 3. What is moral relativism?
Definition
Moral relativism claims that morality is relative to some personal, social, or cultural standard and that there is no method for deciding whether one decision is better than another. Moral relativism could enable a person to justify almost any sort of decision or action, so long as it is not declared illegal.
Term
Ch 3. Discuss Kohlberg’s levels of moral development
Definition
Kohlberg proposes that a person progresses through three levels of moral development. The first level is preconventional. This level is characterized by a concern for self. The second level is the conventional which is characterized by consideration of society’s laws and norms. The principled level is the third. This level is characterized by a person’s adherence to an internal moral code. The individual at this level looks beyond norms or laws to find universal values or principles.
Term
Ch 3. Discuss the three basic approaches to ethical behavior.
Definition
The three basic approaches to ethical behavior are the utilitarian approach, the individual rights approach, and the justice approach. The utilitarian approach proposes that actions and plans should be judged by their consequences. People should therefore behave in such a way that will produce the greatest benefit to society and produce the least harm or the lowest cost. The individual rights approach proposes that human beings have certain fundamental rights that should be respected in all decisions. The justice approach proposes that decision makers be equitable, fair, and impartial in the distribution of costs and benefits to individuals and groups.
Term
Ch 4. Describe the four general forces in the societal environment.
Definition
The four general forces in the societal environment are economic, technological, political-legal, and sociocultural. Economic forces regulate the exchange of materials, money, energy, and information. Technological forces generate problem-solving inventions. Political-legal forces allocate power and provide constraining and protecting laws and regulations. Sociocultural forces regulate the values, mores, and customs of society.
Term
Ch 4. List eight current sociocultural trends in the U.S. that are transforming North America and the world.
Definition
Eight current sociocultural trends in the U.S. that are transforming North American and the world are as follows:
Increasing environmental awareness
Growing health consciousness
Expanding seniors market
Impact of Generation Y boomlet
Decline of the mass market
Changing pace and location of life
Changing household composition
Increasing diversity of workforce and markets
Term
Ch 4. Describe Porter’s approach to industry analysis
Definition
Michael Porter contends that a corporation is most concerned with the intensity of competition within its industry. The level of this intensity is determined by basic competitive forces. These are the threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and relative power of other stakeholders (added later by the authors).

New entrants to an industry typically bring to it new capacity, a desire to gain market share, and substantial resources. The threat of entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors.

A competitive move by one firm can be expected to have noticeable effect on its competitors and thus may cause retaliation or counter efforts. Intense rivalry is related to the presence of the number of competitors, rate of industry growth, product or service characteristics, the amount of fixed costs, capacity, the height of exit barriers, and the diversity of rivals. (continued)

Substitute products are those products that appear to be different but can satisfy the same need as another product.

Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other.

Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services.

The sixth force includes a variety of stakeholder groups from the task environment. The importance of these stakeholder groups varies by industry.
Term
Ch 4. Distinguish between a fragmented and consolidated industry.
Definition
A fragmented industry has no firm with a large market share and each firm serves only a small piece of the total market in competition with others. As new competitors enter the industry, prices drop as a result of competition.

A consolidated industry is dominated by a few large firms, each of which struggles to differentiate its products from the competition. The automobile, petroleum, and major home appliance industries are examples of mature, consolidated industries each controlled by a few large competitors.
Term
Ch 4. What are the two factors that tend to determine whether an industry will be primarily multidomestic or primarily global?
Definition
The factors that tend to determine whether an industry will be primarily multidomestic or primarily global are pressure for coordination within the multinational operations operating in that industry and pressure for local responsiveness on the part of individual country markets.
Term
Ch 4. Describe the four strategic types of the Miles and Snow typology.
Definition
According to Miles and Snow, there are four general types of firms based on a common strategic orientation and a combination of structure, culture, and processes consistent with that strategy. Defenders are companies with a limited product line that focus on improving the efficiency of their existing operations. Prospectors are companies with fairly broad product lines that focus on product innovation and market opportunities. Analyzers are corporations that operate in at least two different product-market areas, one stable and one variable. Reactors are corporations that lack a consistent strategy-structure-culture relationship.
Term
Ch 4. Define competitive intelligence.
Definition
Competitive intelligence is a formal program of gathering information on a company’s competitors. Often called business intelligence, it is one of the fastest growing fields within strategic management.
Term
Ch 4. Discuss the most commonly practiced form of forecasting
Definition
Trend extrapolation is the most widely practiced form of forecasting with over 70% of the world’s largest firms using this technique either occasionally or frequently. Extrapolation is the extension of present trends into the future. It rests on the assumption that the world is reasonably consistent and changes slowly in the short run. Time-series methods are approaches of this type: they attempt to carry a series of historical events forward into the future. The basic problem with extrapolation is that a historical trend is based on a series of patterns or relationships among so many different variables that a change in any one can drastically alter the future direction of the trend. As a rule of thumb, the further back into the past you can find relevant data supporting the trend, the more confidence you can have in the prediction.
Term
Ch 5. Describe Barney’s VRIO framework.
Definition
Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firm’s competencies:
Value: Does it provide competitive advantage?
Rareness: Do other competitors possess it?
Imitability: Is it costly for others to imitate?
Organization: Is the firm organized to exploit the resource?
Term
Ch 5. Discuss the two characteristics that determine the sustainability of a firm’s distinctive competency.
Definition
Two characteristics determine the sustainability of a firm’s distinctive competency: durability and imitability. Durability is the rate at which a firm’s underlying resources, capabilities, or core competencies depreciate or become obsolete. Imitability is the rate at which a firm’s underlying resources, capabilities, or core competencies can be duplicated by others.
Term
Ch 5. Define a value chain and its center of gravity.
Definition
A value chain is a linked set of value-creating activities beginning with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or service, and ending with distributors getting the final goods into the hands of the ultimate consumer. A company’s center of gravity is the part of the chain that is most important to the company and the point where its greatest expertise and capabilities lie – its core competencies. This is usually the point at which the company started
Term
Ch 5. Discuss the three basic organizational structures.
Definition
The three basic organizational structures are the simple, functional, and divisional. The simple structure has no functional or product categories and is appropriate for a small, entrepreneur-dominated company with one or two product lines that operates in a reasonably small, easily identifiable market niche. Employees tend to be generalists and jacks-of-all-trades. The functional structure is appropriate for a medium-sized firm with several product lines in one industry. Employees tend to be specialists in the business functions important to that industry. The divisional structure is appropriate for a large corporation with many product lines in several related industries. Employees tend to be functional specialists organized according to product-market distinctions.
Term
Ch 5. What are the two distinct attributes of culture?
Definition
Corporate culture has two distinct attributes – intensity and integration. Cultural intensity is the degree to which members of a unit accept the norms, values, or other culture content associated with the unit. This shows the culture’s depth. Cultural integration is the extent to which units throughout an organization share a common culture. This is the culture’s breadth.
Term
Ch 5. What is R & D intensity?
Definition
A company’s R & D intensity is the firm’s spending on R & D as a percentage of sales revenue. This is a principal means of gaining market share in global competition. This amount often varies by industry.
Term
Ch 5. Distinguish between continuous and intermittent systems providing examples of each.
Definition
Manufacturing can be intermittent or continuous. In intermittent systems (job shops), the item is normally processed sequentially, but the work and sequence of the process vary. An example is an auto body repair shop. Continuous systems are those laid out as lines on which products can be continuously assembled or processed. A firm using continuous systems invests heavily in fixed investments such as automated processes and highly sophisticated machinery. Continuous systems reap benefits from economies of scale. An example is an automobile assembly line.
Term
Ch 5. What is mass customization?
Definition
Mass customization is the low cost production of individually customized goods and services. Flexible manufacturing permits the low-volume output of custom-tailored products at relatively low unit costs through economies of scope.
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