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Strategic Management Final Review
Final Sample Questions and Key terms
133
Business
Undergraduate 4
12/08/2011

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Term
Chapter 2:
Switching costs refer to the
a. cost to a producer to exchange equipment in a facility when new technologies emerge.
b. cost of changing the firm’s strategic group.
c. one-time costs suppliers incur when selling to a different customer.
d. one-time costs customers incur when buying from a different supplier.
Definition
ANS: D
Term
Chapter 1: The resource-based model of the firm argues that:
a. all resources have the potential to be the basis of sustainable competitive advantage.
b. resources alone can be a source of sustainable competitive advantage.
c. the key to competitive success is the structure of the industry in which the firm competes.
d. resources that are valuable, rare, costly to imitate, and non-substitutable form the basis of a firm’s core competencies.
Definition
ANS: D
Term
Chapter 3:
Which of the following is a true statement about capabilities?
a. Capabilities exist when resources have been purposely integrated to achieve a specific task or set of tasks.
b. Valuable capabilities are based almost entirely on tangible resources.
c. Capabilities based on human capital are more vulnerable to obsolescence than other intangible capabilities because of the tendency for employee knowledge to become outdated.
d. The link between firm financial performance and capabilities is dependent on whether the capabilities are based on tangible or intangible resources.
Definition
ANS: A
Term
Chapter 4:
Business-level strategies detail commitments and actions taken to provide value to customers and gain competitive advantage by exploiting core competencies in
a. the selection of industries in which the firm will compete.
b. specific product markets.
c. primary value chain activities.
d. particular geographic locations.
Definition
ANS: B
Term
Chapter 5:
Sustained competitive advantage is most achievable in a ____ market.
a. slow-cycle
b. medium-cycle
c. standard-cycle
d. fast-cycle
Definition
ANS: A
Term
Chapter 6:
Which acquisition would be considered the LEAST related?
a. a candy manufacturer purchases a chemical laboratory specializing in food flavorings
b. a chain of garden centers acquires a landscape architecture firm
c. a hospital acquires a long-term care nursing home
d. an upscale “white-tablecloth” restaurant chain acquires a travel agency
Definition
ANS: D
Term
Chapter 7:
Currently, the rationale for making an acquisition includes each of the following EXCEPT
a. To increase market power.
b. To decrease taxes paid by shareholders.
c. To overcome entry barriers.
d. To increase diversification.
Definition
ANS: B
Term
Chapter 8:
Which pair of industries would NOT be considered as “related and supporting” under Porter’s diamond model?
a. Japanese cameras and copiers
b. Italian leather-processing and shoes
c. U.S. computers and software
d. Highway systems and the supply of debt capital
Definition
ANS: D
Term
Chapter 9:
A strategic alliance in which the partners own different percentages of the new company they have formed is called a(an)
a. equity strategic alliance.
b. joint venture.
c. nonequity strategic alliance.
d. cooperative arrangement.
Definition
ANS: A
Term
Chapter 10:
A primary objective of corporate governance is to
a. determine and control the strategic direction of an organization, so that the top executives are focused on maximizing corporate profits.
b. ensure that the interests of top-level managers are aligned with the interests of shareholders.
c. lobby legislators to pass laws that are aligned with the organization’s interests.
d. resolve conflicts among corporate employees.
Definition
ANS: B
Term
Chapter 11:
Typically, an organization using a simple structure would be
a. large.
b. small.
c. of any size if the firm is privately held.
d. a family-owned-and-managed firm of any size.
Definition
ANS: B
Term
Chapter 12:
Which of the following is NOT associated with heterogeneous top management teams?
a. higher firm performance
b. innovation and strategic change
c. diminished debate among top managers
d. better strategic decisions
Definition
ANS: C
Term
Chapter 13:
The development of the original personal computer (PC) was a(n) ____ innovation at the time, whereas adding a different kind of whitening agent to a soap detergent in an example of a(n) ____ innovation.
a. incremental; radical
b. radical; incremental
c. concentric; radical
d. radical; concentric
Definition
ANS: B
Term
Define: Strategy
Definition
Integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.
Term
Define: Strategic Management
Definition
Analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.
Term
Porter's Five Forces Model
Definition
[image]
Term
General Environment
Definition
Composed of dimensions in the broader society that influence and industry and the firms within it. Seven environmental segments:
(1)Demographic
(2)Economic
(3)Political/legal
(4)Sociocultural
(5)Technological
(6)Global
(7)Physical
Term
Resource Based View
Definition
VRIN:
Valuable- Contributes value to the customer, source of competitive advantage, neutralizes threats and exploits opportunities.
Rare-Uncommon resources, rare to other competitors. ex-panda poop souvenir
Inimitable (or costly-to-imitate)-Physical uniqueness, path dependancy.
Nonosubstitutable- Must be no strategically equivalent valuable resources that are themselves not rare or inimitable.
Term
Cost Leadership Strategy
Definition
An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors.
Term
Differentiation Strategy
Definition
An integrated set of actions taken to produce goods or services (at an acceptable costs) that customers perceive as being different in ways that are important to them.
Term
Purpose of a business-level strategy
Definition
Choosing to perform activities differently or to perform different activities than rivals.
Term
Focus Strategy
Definition
An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment.

Focus cost vs focused differentiation:
Examples of specific market segments:
1) Particular buyer group (ex youths, seniors)

2)different segment of a product line (ex. products for professional painters or the DIY group)

3)different geographic market (ex. northern vs southern Italy)
Term
Integrated cost leadership/differentiation strategy
Definition
Involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation.
Term
Business-level strategy
Definition
An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.

Five business-level strategies:
1)Cost leadership
2)Differentiation
3)Focused cost leadership
4)Focused differentiation
5)Integrated cost leadership/differentiation
Term
Core Competencies
Definition
Resources and capabilities that serve as a source of competitive advantage for a firm over its rivals.
Term
Industry environment
Definition
The set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors.
Term
Components of the External Environmental Analysis
Definition
-Scanning: Identifying early signals of environmental changes and trends

-Monitoring: Detecting meaning through ongoing observations of environmental changes and trends.

-Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends.

-Assessing: Determining the timing and importance of environmental changes and trends for firm's strategies and their management.
Term
Economic Environment
Definition
The nature and direction of the economy in which a firm competes or may compete.
Term
Political/Legal Segment
Definition
The arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies.
Term
Sociocultural Segment
Definition
Concerned with a society's attitudes and cultural values.
Term
Technological Segment
Definition
Includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.
Term
Global Segment
Definition
Includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets.
Term
Physical Environment Segment
Definition
Refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes.
Term
Economies of Scale
Definition
Derived from incremental efficiency improvements through experience as a firm grows larger; therefore, the cost of producing each unit declines as the quantity of a product produced during a given period increases.
Term
Threat of new entrants
Definition
New entrants can threaten the market share of existing competitors. The likelihood that firms will enter an industry is a function of two factors: (1) barriers to entry and (2) retaliation expected from current industry participants.
Term
Barriers to entry
Definition
This is a factor of threat of new entrants.

Depends on:
-Economies of Scale
-Capital requirements
-Switching Costs
-Access to distribution channels
-Cost Disadvantages independent of scale
-Government Policy
Term
Bargaining power of suppliers
Definition
Increasing prices and reducing the quality of their products are potential means suppliers use to exert power over firms competing within an industry.

Powerful supplier group when:
-dominated by a few large companies and is more concentrated than the industry to which it sells.
-Satisfactory substitute products are not available to industry firms
-Suppliers' goods are critical to buyers' marketplace success.
-Effectiveness of suppliers' products has created high switching costs for firms.
Term
Bargaining Power of Buyers
Definition
Buyers bargain for higher quality, greater levels of service, and lower prices. This is achieved by encouraging competitive battles among industry firms.

Powerful buyers when:
-They purchase a large portion of an industry's total output
-Sales of the product being purchased account for a significant portion of the seller's annual revenues.
-They could switch to another product at little, if any, cost.
-Industry products are undifferentiated or standardized.
Term
Intensity of Rivalry Among Competitors
Definition
Competitive rivalry intensifies when a firm is challenged by a competitor's actions or when a company recognizes an opportunity to improve its market position.

Dependent on:
-Numerous or equally balanced competitors
-Slow industry growth
-High fixed costs or high storage costs
-lack of differentiation or low switching costs
-High strategic stakes
-High exit barriers
Term
Value Chain Analysis
Definition
Tool used by firms to select the value-creating competencies that should be maintained, upgraded, or developed and those that should be outsourced.

Primary Activities: involved with a product's physical creation, its sale and distribution to buyers, and its service after the sale.

Support activities: provide the assistance necessary for the primary activities to take place.
Term
Competitors
Definition
Firms operating in the same market, offering similar products and targeting similar customers.
Term
Competitive Rivalry
Definition
Ongoing set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market position.
Term
Competitive Dynamics
Definition
Total set of actions and responses of all firms competing within a market.
Term
Model of Competitive Rivalry
Definition
[image]
Term
Competitor Analysis
Definition
First step the firm takes to be able to predict the extent and nature of its rivalry with each competitor.

Depends on:
-market commonality: # of markets with which the firm and competitor are jointly involved.
-resource similarity: the extent of the firm's tangible/intangible resources are comparable to a competitor's.
Term
Drivers of competitive actions & responses
Definition
-awareness: when competitors recognize degree of mutual interdependence that results from market commonality and resource similarity.
-motivation: firm's incentive to take action
-ability: firm's resources that allow competitive action and flexibility in responsiveness.
-resource dissimilarity: the greater the resource imbalance between acting firm and competitors, the greater will be the delay in response.
Term
Competitive action
Definition
Strategic or tactical action the firm takes to build or defend its comptitive advantages or improve its market position.
Term
Strategic action/response
Definition
Market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse.
Term
Tactical Action/response
Definition
Market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse.
Term
Likelihood of Attack
Definition
Factors:
-First-mover incentives: First mover=the firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position.
-Organizational Size: affects the likelihood of taking competitive actions.
-Quality: exists when the firm's goods/services meet or exceed customers' expectations.
Term
Likelihood of Response
Definition
Factors:
-Type of competitive action
-Actor's reputation: evaluate the responses that the competitor has taken previously when attacked.
-Dependence on the Market: Denotes the extent to which a firm's revenues/profits are derived from a particular market. Firm's with high market dependence are likely to respond strongly to attacks.
Term
Competitive Dynamics: 3 market cycles
Definition
1)Slow-cycle markets: firm's competitive advantages are shielded from imitation commonly for long periods of time and where imitation is costly.
2)Fast-cycle markets: firm's capabilities that contribute to competitive advantages aren't shielded from imitation and where imitation is often rapid and inexpensive.
3)Standard-cycle markets: firm's competitive advantages are partially shielded from imitation and imitation is moderately costly.
Term
Corporate-Level strategy
Definition
Specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.
Term
Levels and Types of Diversification
Definition
[image]
Term
Reasons for Diversification
Definition
[image]
Term
Economies of Scope
Definition
Cost savings that the firm creates by successfully sharing some of its resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses.
Term
Value-Creating Diversification
Definition
[image]
Term
Market Power
Definition
Exists when firm is able to sell its products above the existing competitive level, to reduce costs of primary and support activities below the competitive level, or both.
Term
Vertical Integration
Definition
Exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration).
Term
Corporate-level core competencies
Definition
Complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise.
Term
Unrelated Diversification
Definition
-Corporate parenting: Add value to acquired businesses by performing activities such as auditing their mfg operations, improving their acctg activities, and centralizing union negotiations.
-Corporate Restructuring: Find poorly performing firms, sell off parts, change strategies, etc.
Term
Synergy
Definition
Exists when the value created by business units working together exceeds the value that those same units create working independently.
Term
Portfolio Management: BCG matrix
Definition
[image]
Term
Value-reducing diversification
Definition
Top-level executives may diversify in order to diversify their own employment risk, as long as profitability does not suffer excessively.
-Adds benefits to managers but not shareholders.
Term
Value-neutral Diversification incentives
Definition
-Antitrust regulation & tax laws
-Low performance
-Uncertain Future cash flows
-Synergy and Firm risk reduction
-Resources and diversification
Term
Means to Achieve Diversification
Definition
1)Merger & Acquisition
2)International Development (new markets)
3)Pooling resources of other companies with a firm's own resource base (joint venture & strategic alliance)
Term
Merger
Definition
Strategy through which two firms agree to integrate their operations on a relatively coequal basis.
Term
Acquisition
Definition
Strategy through which one firm buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio.
Term
Takeover
Definition
Special type of acquisition wherein the target firm does not solicit the acquiring firm's bid; thus, takeovers are unfriendly acquisitions.
Term
Horizontal acquisitions
Definition
Acquirer and acquired companies compete in the same industry
Term
Vertical Acquisitions
Definition
Firm acquires a supplier or distributor of one or more of its goods or services; leads to additional controls over parts of the value chain
Term
Related Acquisitions
Definition
Firm acquires another company in a highly related industry
Term
Problems with achieving acquisition success
Definition
1)Integration difficulties
2)Inadequate evaluation of target
3)Large or extraordinary debt
4)Inability to achieve synergy
5)Too much diversification
6)Managers overly focused on acquisitions
7)Too large
Term
Restructuring
Definition
Strategy though which a firm changes its set of businesses or its financial structure.
Term
Restructuring Strategies
Definition
1)Downsizing: reduce # of firms' employees (& possibly # of operating units)
2)Downscoping: Eliminate bussinesses unrelated to firms' core businesses.
3)Leveraged buyouts (LBOs): One party buys all of a firm's assets.
Term
Types of LBOs
Definition
1)Management buyouts
2)Employee buyouts
3)Whole-firm buyouts
Term
Reasons for International Expansion
Definition
-Increase size of potential markets
-Attain economies of scale
-Extend life cycle of products
-Optimize physical locations for activities in value chain
Term
Opposing Pressures of 4 int'l expansion strategies
Definition
[image]
Term
International Strategy
Definition
-Pressure for both local adaptation and low costs are rather low
-Primary goal is worldwide exploitation of the parent firm’s knowledge and capabilities.
-All sources of core competencies are centralized.
-Susceptible to higher levels of currency and political risks
Term
Global Strategy
Definition
-High pressure to lower costs & low pressure for local adaptation
-Emphasizes economies of scale
Term
Multidomestic Strategy
Definition
-Low pressure to lower costs & high pressure for local adaptation
-Emphasis is differentiating products and services to adapt to local markets
-Authority is more decentralized to accommodate local demand.
Term
Transnational Strategy
Definition
-Optimization of tradeoffs associated with efficiency, local adaptation, and learning
-Firm’s assets and capabilities are dispersed according to the most beneficial location for a specific activity
-Enhance both economics of scale and flexible adoptation
Term
Potential Risks of International Expansion
Definition
-Management risks: culture,customs,language
-Political & economic risk
-Currency risks: currency exchange fluctuations
Term
Entry Modes of International Expansion
Definition
[image]
Term
Strategic Alliance
Definition
Primary type of cooperative strategy in which firms combine resources and capabilities to create a competitive advantage.
Term
Joint venture
Definition
Two or more firms create a legally independent company to share resources and capabilities to develop a competitive advantage
Term
Equity strategic alliance
Definition
Two or more firms own a portion of the equity in the venture they have created, which is not necessarily legally independent.
Term
Nonequity strategic alliance
Definition
Two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage
Term
Types of business-level cooperative strategies
Definition
-Complementary strategic alliances (CSA):Vertical and horizontal
-Competition response strategy
-Uncertainty-reducing strategy
-Competition-reducing strategy
Term
Complementary Strategic alliance (CSA)
Definition
Firms share some of their resources and capabilities in complementary ways to develop competitive advantages

-Vertical=different stages of value chain
-horizontal=same stages of value chain
Term
Corporate-level cooperative strategies (CLCS)
Definition
help firm to diversify itself in terms of products offered, markets served or both.

Types: Diversifying, Synergistic, Franchising
Term
Primary approaches of managing cooperative strategy
Definition
1) cost minimization
2)opportunity maximization
Term
Strategic Control Systems
Definition
-Traditional control system: 'feedback approach'
-Contemporary control system: continual monitoring of the environments (internal/external)
Term
Corporate Governance
Definition
Set of mechanisms used to manage the relationships (and conflicting interests) among stakeholders, and to determine and control the strategic direction and performance of organizations (aligning strategic decisions with company values)
Term
Agency relationship
Definition
Exists when one or more persons (the principal or principals) hire another person or persons (the agent or agents) as decision-making specialists to perform a service.
Term
Managerial Opportunism
Definition
Seeking self-interest with guile (i.e., cunning or deceit)
Term
Problems with agency theory
Definition
1)Conflicting interests and goals of principals and agents
2)Different attitudes and preferences toward risk
Term
Agency costs
Definition
Sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals, because governance mechanisms cannot guarantee total compliance by the agent
Term
Board of directors
Definition
-elected by shareholders
-group of elected individuals whose primary responsibility is to act in the onwers' best interest by formally monitoring and controlling the corporation's top-level managers.
Term
Ownership concentration
Definition
Governance mechanism defined by both the number of large-block shareholders and the total percentage of shares they own
Term
Large Block Shareholders
Definition
Shareholders owning a concentration of at least 5 percent of a corporation’s issued shares
Term
Institutional Owners
Definition
Financial institutions such as stock mutual funds and pension funds that control large-block shareholder positions
Term
Executive Compensation
Definition
Governance mechanism that seeks to align the interests of top managers and owners through salaries, bonuses, and long-term incentive compensation, such as stock awards and stock options
Term
Market for corporate control
Definition
external governance mechanism consisting of a set of potential owners seeking to acquire undervalued firms and earn above-average returns on their investments
Term
Internal Governance Mechanisms (Modern Corporation)
Definition
1)Ownership concentration
2)Board of Directors
3)Executive Compensation
Term
Organizational Structure
Definition
Specifies the firm's' formal reporting relationships, procedures, controls, and authority and decision-making processes.
Term
Simple Structure
Definition
The owner (manager) makes all major decisions and monitors all activities while the staff serves as and extension of the manager's supervisor authority.
Term
Functional Structure
Definition
Consists of a Chief executive officer (CEO) and a limited corporate staff, w/ functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering, and human resources.
Term
Multidivisional structure (M-form)
Definition
Consists of a corporate office and operating divisions, each operating division representing a separate business or profit center in which the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers.
Term
Competitive Form
Definition
M-form structure characterized by complete independence among the firm's divisions which compete for corporate resources.
-Also called holding company structure, congolomerate
Term
Matrix Structure
Definition
A combination of the functional and divisional structures. Individuals who work in a matrix organization become responsible to two managers: the project manager and the functional area manager
Term
Worldwide Geographic area structure
Definition
Emphasizes national interests and facilitates the firm's efforts to satisfy local differences.
Term
Worldwide product divisional structure
Definition
Centralized decision-making authority in the WW division headquarters coordinates and integrates decisions and actions among divisional business units
Term
Strategic Network for Cooperative strategies
Definition
Matches cooperative strategy with network structure.
Term
Strategic Leadership
Definition
the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary
Term
Managerial Succession
Definition
-Preselect and shape skills of tomorrow’s leaders
-Internal managerial labor market:opportunities for managerial positions to be filled from within the firm
-External Managerial Labor Market: opportunities for managerial positions to be filled by candidates from outside of the firm
Term
Top management teams
Definition
Composed of key individuals who are responsible for selecting and implementing firm’s strategies; usually includes officers of the corporation (VP and above) and BOD
Term
Heterogeneous Team
Definition
consists of individuals with varied functional backgrounds, experiences & education
Term
Key Strategic Leadership Actions
Definition
1)Effectively managing firm's resource portfolio
2)Sustaining an effective organizational culture
3)Emphasizing ethical practices
Term
"SMART" criteria for strategic objectives
Definition
-Specific
-Measurable
-Appropriate
-Realistic
-Timely
Term
Balanced Scorecard
Definition
-Provides a meaningful integration of many issues that come into evaluating a firm’s performance
-Four key perspectives:
1)Customer
2)Internal
3)Innovation & learning (growth)
4)Financial
Term
Entrepreneurship
Definition
Process by which individuals or groups identify and pursue entrepreneurial opportunities without the immediate constraint of the resources they currently control
Term
Creative destruction
Definition
Replacing products/production methods with new ones.
Term
Strategic Entrepreneurship
Definition
Entrepreneurial actions (exploiting found opportunities in the external environment) through a strategic perspective (innovation efforts)
Term
Three types of innovation
Definition
1)Invention:create/develop new product
2)Innovation:bring something new into use
3)Imitation:adoption of innovation by similar firms
Term
radical innovation
Definition
-fundamental changes/breakthroughs
-major departure from existing practices
-can be highly disruptive
-typically long term (10+ yrs)
Term
Incremental innovation
Definition
-enhance existing practice
-small improvements in products & processes
-may be 6mos-2yrs
-may use milestone approach driven by goals/deadlines
Term
disruptive innovation
Definition
-create entirely new market through introduction of a new kind of product/service.
Term
sustainable innovation
Definition
-make product/service perform better in ways that customers in mainstream market already value.
Term
product innovation
Definition
-create product design
-apply technology to develop new products for end users
Term
process innovation
Definition
-improve efficiency of organizational process
Term
Induced strategic behavior
Definition
Top-down process whereby the firm’s current strategy and structure foster product innovations that are closely associated with that strategy and structure
Term
autonomous strategic behavior
Definition
Bottom-up process in which product champions pursue new ideas, often through a political process, to develop and coordinate the commercialization of a new good or service
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