CH 06

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CHAPTER 06
STRATEGY FORMULATION: SITUATION ANALYSIS AND BUSINESS STRATEGY
True/False
1.
A(N) is an acronym that stands for Strategy, Weaknesses, Opportunities, and Threats.
Answer: F
2.
A propitious niche is a need in the marketplace that is currently unsatisfied.
Answer: T
The TOWS Matrix illustrates how the external opportunities and threats facing a particular
corporation can be matched with that companys internal strengths and weaknesses to result in
four sets of possible strategic alternatives.
Answer: T
(p.109)
(p.112)
3.
Differentiation is the ability of a company or business unit to design, produce, and market a
comparable product more efficiently than its competitors.
Answer: F
(p.114)
4.
Differentiation concentrates on a particular buyer group, product line segment, or geographic

market.
Answer: T
(p.118)
5.
6.
One risk of a cost leadership strategy is that the technology may change.
Answer: T
Based on the eight dimensions of quality discussed in the text, reliability is defined as the
products ease of repair.
Answer: F
(p.118)
(p.120)
7.
The strategic rollup was developed in the mid-1990s as an efficient way to quickly consolidate a
fragmented industry.
Answer: T
(p.121)
8.
(p.122)
9.
Timing tactics answer the question where.
Answer: F
(p.124)
10.
The first company to manufacture and sell a new product or service is called the ground breaker.
Answer: F
(p.124)
11.
One skill of the cost leadership strategy is a strong marketing ability.
Answer: F
(p.124)
12.
Differentiation strategies require creative flair.
Answer: T
(p.124)
13.
Encirclement occurs as an attacking company or unit encircles the competitors positioning in

terms of products or markets or both.
Answer: T
(p.125)
14.
Collusion is the active cooperation of firms within an industry to reduce output and raise prices in
order to get around the normal economic law of supply and demand.
Answer: T
(p.126)
15.
(p.128)
Joint ventures are a rarely chosen strategic alliance.
164
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Answer: F
16.
A licensing arrangement is an agreement in which the licensing firm grants rights to another firm
in another country or market to produce and/or sell a product.
Answer: T
17.
A value chain partnership is a strong alliance with only one distributor.
Answer: F
One success factor to a strategic alliance is the ability to identify likely partnering risks and deal
with them when the alliance is formed.
Answer: T
(p.129)
(p.129)
18.
19.
B2B described the many dot-com start-ups selling items directly to consumers via their web sites.
Answer: F
B2B describes the launching of web portals aimed at electronically connecting buyers with
suppliers, strengthening collective purchasing activities, and auctioning inventory.
Answer: T
(p.130)
(p.131)
20.
Multiple Choice
21.
The strategy formulation process includes all but one of the following.
a.
b.
c.
d.
e.
22.
23.
24.
(p.109)
distinctive competencies.
differentiating capabilities.
situational proficiency.
core competencies.
distinctive characteristics.
An acronym for the assessment of the external and internal environments of the business
corporation in the process of strategy formulation/strategic planning is
a.
b.
c.
d.
(p.109)
environmental analysis.
position analysis.
strategic analysis.
objective analysis.
situational analysis.
The particular capabilities and resources a firm possesses and the superior way in which they are
used is called
a.
b.
c.
d.
e.
(p.109)
Strategic planning or long-range planning.

Primarily analytical, not action oriented.
Concerned with developing a corporation's mission, objectives, strategy, and policies.
Developing long-range programs.
Analyze corporation's strategic factors in light of current situation.
The concept that advocates management's attempt to find a strategic fit between external
opportunities and internal strengths while working around external threats and internal
weaknesses is called
a.
b.
c.
d.
e.
(p.131)
P.E.T.
M.B.O.
S.W.O.T.
S.B.U.
165
(p.109)
e.
25.
According to a survey in the United Kingdom, the top tool used in strategic analysis is
a.
b.
c.
d.
e.
26.
28.
29.
(p.109)
use of no weights to reflect priorities.

its only requirement is one single level of analysis.
a rational link to strategy implementation.
ambiguity in words and phrases.
generation of lengthy lists.
(p.110)
SFAS Matrix.
IFAS Table.
EFAS Table.
TOWS Matrix.
TOPS Table.
In the development of a SFAS matrix, the first step is to

a.
(p.109)
opportunity divided by capacity.

strength divided by opportunity.
threat divided by capacity.
threat divided by opportunity.
opportunity divided by threat.
One way to summarize a corporation's strategic factors is to combine the external factors with the
internal factors into a
a.
b.
c.
d.
e.
31.
tactic.
threat.
tautology.
temporal.
time.
All of the following reflect criticisms of the A(N) analysis EXCEPT

a.
b.
c.
d.
e.
30.
(p.109)
The text authors note that strategy can be defined as

a.
b.
c.
d.
e.
(p.109)
spreadsheet analysis.
BTU analysis.
A(N) analysis.
financial analysis of competitors.
analysis of critical success factors.
The T in A(N) represents

a.
b.
c.
d.
e.
(p.109)
A(N) analysis.
spreadsheet analysis.
analysis of critical success factors.
financial analysis of competitors.
core capabilities analysis.
According to a survey in the United Kingdom, all of the following represent tools and techniques
used in strategic analysis EXCEPT
a.
b.
c.
d.
e.
27.
R.O.I.
enter the ratings of how the companys management is
166
(p.111)
32.
responding to each of the strategic factors.

b.
calculate the weighted scores.
c.
list the most important EFAS and IFAS items.
d.
indicate short-term for the duration.
e.
enter the weights for all of the internal factors.
SFAS is an acronym that represents
a.
b.
c.
d.
e.
33.
e.
37.
b.
(p.115)
IFAS Table.
EFAS Table.
SFAS Table.
TOWS Matrix.
Issues Priority Matrix.
In a TOWS Matrix, SO Strategies

a.
(p.114)
Inappropriate mission statement may cause performance problems.

A corporation's objectives could be inappropriately stated or outdated.
The mission statement can be too narrow, thus limiting its effectiveness.
Changing the mission or objectives could interrupt the continuity of the
organization's operation.
Objectives and strategies might conflict with one another.
The technique that illustrates how management can match the external opportunities and threats
with its strengths and weaknesses to yield four sets of strategic alternatives is called a (an)
a.
b.
c.
d.
e.
(p.112)
situational occasions.
critical openings.
business opportunisms.
strategic windows.
crucial moments.
Which of the following is NOT one of the reasons why the corporation's current mission and
objectives should be periodically reexamined?
a.
b.
c.
d.
36.
propitious niche.
strategic fit
common thread
business screen
implicit strategy
According to the text, market opportunities that management must always be on the look out for
are called
a.
b.
c.
d.
e.
35.
Strategy Factors Analysis Strategy.

Strategic Factors Analysis Summary.
Strength Factors Alliance Strategy.
Summary Factors Alliance Strategy.
Strategic Factoring Analysis Summary.
A corporation's specific competitive role which is so well-suited to the firm's internal and external
environment that other corporations are NOT likely to challenge or dislodge it.
(p.112)
a.
b.
c.
d.
e.
34.
(p.110)
(p.115)
are generated by thinking of ways in which a company or business unit could use its
strengths to take advantage of opportunities.
attempt to take advantage of opportunities by overcoming weaknesses.
167
c.
d.
e.
38.
In a TOWS Matrix, ST Strategies

a.
b.
c.
d.
e.
39.
b.
c.
d.
e.
b.
c.
d.
e.
are basically defensive and primarily act to minimize weaknesses and avoid threats.
consider a company's or unit's strengths as a way to avoid threats.
are ways to get strategists to think "out of the box."
(p.115)
(p.115)
strengths and opportunities.

strengths and threats.
strengths and weaknesses.
opportunities and threats.
opportunities and weaknesses.
In a TOWS matrix, SW is the attempt by the company to combine

a.
b.
c.
d.
e.
43.
(p.115)
In a TOWS Matrix, SO is the attempt by the company to combine

a.
b.
c.
d.
e.
42.
In a TOWS Matrix, WT Strategies

a.
41.
(p.115)
In a TOWS Matrix, WO Strategies

a.
40.
(p.115)
strengths and opportunities.

strengths and threats.
strengths and weaknesses.
opportunities and threats.
SW is not a valid combination.
Business strategy focuses on

(p.115)
a.
b.
c.
ensuring that the company maintains the existing market share that it has historically
enjoyed.
improving the competitive position of a corporation's products or services within
the industry or market segment served.
providing adequate shareholders' return on investment.
168
d.
e.
44.
Business strategy is composed of

a.
b.
c.
d.
e.
45.
49.
(p.118)
competitive scope.
differentiation.
concentration.
diversification.
lower cost.
(p.118)
competitive scope.
differentiation.
concentration.
diversification.
lower cost.
What are the two generic competitive strategies that Porter promotes as the means for
outperforming other corporations in a particular industry?
a.
(p.118)
competitive scope.
differentiation.
concentration.
diversification.
lower cost.
According to Porter, the term that applies to the breadth of a company's target market is called
a.
b.
c.
d.
e.
(p.117)
Should we compete on a cost basis?

Should we compete head-to-head with major competitors?
Should we compete through differentiation of our products or services?
Should we compete by garnering political support of influential leaders?
Should we compete by finding a niche market that we can satisfy which is superior to
that of the competition?
According to Porter, the competitive strategy that applies to the ability to provide unique and
superior value to the buyer in terms of product quality, special features, or after-sale service is
called
a.
b.
c.
d.
e.
48.
corporate and competitive strategy.

functional and divisional strategy.
competitive and cooperative strategy.
corporate and cooperative strategy.
divisional and competitive strategy.
According to Porter, the competitive strategy that applies to the ability of the corporation or its
business unit to design, produce, and market a comparable product more efficiently than its
competitors is called
a.
b.
c.
d.
e.
47.
(p.117)
Which of the following is NOT one of the questions that development of a competitive strategy
should raise?
a.
b.
c.
d.
e.
46.
preventing the competition from gaining a competitive edge by undermining their

marketing plan.
recovering the competitive lead by using all available resources that the company can
provide.
competitive scope and differentiation
169
(p.118)
b.
c.
d.
e.
50.
When lower cost and differentiation strategies have a broad mass-market target, they are simply
called
a.
b.
c.
d.
e.
51.
53.
54.
(p.119)
differentiation
cost leadership
differentiation focus
competitive advantage
cost focus
Which of Porter's competitive strategies supports creating brand loyalty to reduce customer
sensitivity to price?
a.
b.
c.
d.
e.
(p.118)
lower cost and differentiation.

narrow targets and broad targets.
higher cost and focus.
competitive advantage and competitive scope.
competitive advantage and differentiation.
Which of Porter's competitive strategies support a low-cost position to give the company a
defense against rivals while allowing it to earn profits during times of heavy competition?
a.
b.
c.
d.
e.
(p.119)
cost leadership and differentiation.

concentration and differentiation.
cost focus and focused differentiation.
competitive scope and focused differentiation.
diversification and concentration.
Porters model of generic competitive strategies is an attempt to integrate

a.
b.
c.
d.
e.
(p.118)
cost leadership and differentiation.

concentration and differentiation.
cost focus and focused differentiation.
competitive scope and focused differentiation.
diversification and concentration.
When lower cost and differentiation strategies have a narrow focus on a market niche they are
simply called
a.
b.
c.
d.
e.
52.
diversification and concentration

lower cost and competitive scope
concentration and lower cost
lower cost and differentiation
differentiation
cost leadership
cost focus
170
(p.119)
55.
Which of Porter's competitive strategies recommends that a company emphasize a particular buyer
group or geographic market and attempts to serve only this niche market in order to be more
efficient?
(p.119)
a.
b.
c.
d.
e.
56.
Which of Porter's competitive strategies concentrates on a particular buyer group, product line
segment, or geographic market so that a company can serve its market more effectively?
a.
b.
c.
d.
e.
57.
59.
60.
(p.120)
The target segment's structure erodes.

The segment's differences from other segments narrow.
The advantages of a broad line increase.
The exit of focusers from the industry.
Demand disappears for the product in the target segment.
Casey's General Stores successfully follows a strategy of

a.
b.
c.
d.
e.
(p.120)
The technology that the organization has been using changes.

Achieving excessive success causing jealousy amongst competitors.
Competitors can achieve viable imitations.
Cost focusers achieve even lower cost in niche market segments.
Proximity in differentiation is lost.
Which of the following is NOT one of the risks of the focus strategy?
a.
b.
c.
d.
e.
(p.120)
achieving synergy.
practicing innovative leadership.
stuck in the middle.
not goal directed.
last in line.
Which of the following is NOT one of the risks of a cost leadership strategy?
a.
b.
c.
d.
e.
(p.119)
differentiation
cost leadership
cost focus
According to Porter, a business unit in a competitive marketplace with no competitive

advantage is
a.
b.
c.
d.
e.
58.
differentiation
cost leadership
cost focus
cost leadership.
cost focus.
differentiation.
focused differentiation.
cost differentiation.
171
(p.119)
61.
A differentiation strategy used by some companies is known as

a.
b.
c.
d.
e.
62.
66.
67.
(p.120)
serviceability
durability
performance
value
features
According to the eight dimensions of quality, bells and whistles is another name for
a.
b.
(p.119)
analyzer.
reactor.
defender.
prospector.
subordinate.
Which of the following is NOT one of the eight dimensions of quality?

a.
b.
c.
d.
e.
(p.120)
distinction.
cost leadership.
focus.
differentiation.
being stuck in the middle.
A corporation consistently following a cost leadership or cost focus strategy in all of its business
units is likely to be a(n)
a.
b.
c.
d.
e.
(p.120)
focus
cost leadership
differentiation
distinction
strength
When a company is concerned that cost proximity is lost, this company is worried about the risk
of
a.
b.
c.
d.
e.
65.
low-cost differentiation.
cost leadership.
cost proximity.
basic differentiation.
price fixing.
The risk of a strategy being imitated is characteristic of a risk derived from a _____ strategy.
a.
b.
c.
d.
e.
64.
cost proximity.
low-cost.
cost leadership.
stuck in the middle.
basic differentiation.
When a company following a differentiation strategy ensures that the higher price it charges for its
higher quality is not priced too far above, the company is using the process of
(p.120)
a.
b.
c.
d.
e.
63.
(p.120)
performance.
features.
172
(p.120)
68.
c.
reliability.
d.
durability.
e.
aesthetics.
According to the eight dimensions of quality, a products overall reputation is referred to as
a.
b.
c.
d.
e.
69.
70.
72.
73.
(p.122)
united industry.
consolidated industry.
isolated industry.
integrated industry.
A method developed in the mid-1990s as a means to quickly consolidate a fragmented industry

can be referred to as a(n)
a.
b.
c.
d.
e.
(p.121)
united industry.
consolidated industry.
isolated industry.
integrated industry.
As an industry matures while overcoming fragmentation and becomes dominated by a small

number of large companies, it tends to become a(n)
a.
b.
c.
d.
e.
(p.120)
conformance.
aesthetics.
durability.
reliability.
dependability.
The focus strategies will likely predominate when many small and medium sized local companies
compete for relatively small shares of the total market in a(n)
a.
b.
c.
d.
e.
(p.120)
performance.
conformance.
serviceability.
aesthetics.
reliability.
According to the eight dimensions of quality, the degree to which a product will continue to
function without any significant maintenance is also called
a.
b.
c.
d.
e.
71.
performance.
status.
durability.
perceived quality.
reliability.
According to the eight dimensions of quality, the degree to which a product meets certain
standards is known as
a.
b.
c.
d.
e.
(p.120)
strategic plan.
strategic rollup.
cost strategy.
differentiation strategy.
focus strategy.
173
(p.122)
74.
As an industry becomes hypercompetitive, firms initially respond by

a.
b.
c.
d.
e.
75.
76.
78.
79.
b.
c.
d.
(p.124)
focus
differentiation
overall cost leadership
vertical growth
concentration
A tactic is defined by the text as

a.
(p.124)
focus
differentiation
overall cost leadership
vertical growth
concentration
If it is to be successful, Porter advises that a division with strong marketing abilities, product
engineering, a creative flair, strong capability in basic research and a corporate reputation for
quality or technological leadership, should use which one of the following generic competitive
strategies?
a.
b.
c.
d.
e.
(p.123)
raise entry barriers.

move into untapped markets.
attack the strongholds of other firms.
compete on cost and quality.
work their way to a situation of perfect competition.
Porter recommends that a division with tight cost control, frequent detailed control reports, a well
structured organization, and quantitatively-based incentives should use which of the following
generic competitive strategies?
a.
b.
c.
d.
e.
(p.122)
Porter.
Drucker.
Mintzberg.
Maslow.
DAveni.
The last stage of a hypercompetitive industry is reached when the remaining large global
competitors
a.
b.
c.
d.
e.
77.
raising entry barriers.

moving into untapped markets.
attacking the strongholds of other firms.
competing on cost and quality.
working their way to a situation of perfect competition.
The book Hypercompetition was written by

a.
b.
c.
d.
e.
(p.123)
(p.123)
a specific operating plan specifying how a strategy is to be implemented in terms of

how, when, and where it is to be put into action.
the first company to manufacture and sell a new product or service.
any action by a company or business unit that provides a direct or indirect indication of
its intentions, motives, goals, or internal situation.
policies which link formulation and implementation of the strategy.
174
e.
80.
Timing tactics answer the question

a.
b.
c.
d.
e.
81.
85.
(p.124)
tight cost control.

frequent, detailed control reports.
structured organization and responsibilities.
incentives based on meeting strict quantitative targets.
subjective measurement and incentives.
(p.125)
flanking maneuver
bypass attack
encirclement
frontal assault
guerilla warfare
Telecommunications companies like MCI Worldcom were able to compete against AT&T by
using the tactic
a.
b.
c.
d.
e.
(p.124)
strong coordination among functions.

amenities to attract highly skilled labor.
subjective measurement and incentives.
efforts to target price insensitive customers.
tight cost control.
Which offensive tactic utilizes a head-to-head approach with the firm's competitor by matching
every category of competition from price to promotion to distribution channel?
a.
b.
c.
d.
e.
(p.124)
opportunist.
first mover.
cost leader.
power broker.
ground breaker.
In order for a company to use a generic strategy of differentiation, the organization must have
a.
b.
c.
d.
e.
84.
who.
where.
what.
when.
why.
In order for a company to use a generic strategy of overall cost leadership, the organization must
have
a.
b.
c.
d.
e.
83.
(p.124)
The first company to manufacture and sell a product or service is called a(n)
a.
b.
c.
d.
e.
82.
the ability to adapt a product or delivery system more closely to buyers' needs.
flanking maneuver.
frontal assault.
encirclement.
bypass attack.
guerilla attack.
175
(p.125)
86.
Which offensive tactic utilizes a "hit and run" approach characterized by the use of small,
intermittent assaults on different market segments?
a.
b.
c.
d.
e.
87.
88.
90.
91.
(p.126)
guerilla warfare
lower the inducement for attack
encirclement
raise structural barriers
increase expected retaliation
Which defensive tactic acts to block a challenger's logical avenues of attack such as exclusive
agreements with distributors or an increase scale of economies to reduce unit costs?
a.
b.
c.
d.
e.
(p.125)
flanking maneuver
bypass attack
encirclement
frontal assault
guerilla warfare
Which defensive tactic acts to increase the perceived threat of retribution for an attack?
a.
b.
c.
d.
e.
(p.125)
flanking maneuver
bypass attack
encirclement
frontal assault
guerilla warfare
Which offensive tactic proposes an indirect approach against the established competitor such as
changing the rules of the game?
a.
b.
c.
d.
e.
(p.125)
telecommunications.
Internet software.
computer software.
alcohol beverages.
microprocessors.
Which offensive tactic advocates attacking a part of the market where the competitor is weak?
a.
b.
c.
d.
e.
89.
flanking maneuver
bypass attack
encirclement
frontal assault
guerilla warfare
According to the text, the industry that has been affected by the tactic of guerilla warfare is
a.
b.
c.
d.
e.
(p.125)
guerilla warfare
encirclement
176
(p.126)
92.
According to the text, a rivalry that was based on a competition strategy of flanking maneuver
occurred with
a.
b.
c.
d.
e.
93.
94.
96.
97.
(p.126)
competitive and functional.

collusion and competitive.
strategic alliances and collusion.
strategic alliances and competitive.
competitive and collusive alliances.
The kind of strategic alliance in which there is a partnership of similar companies in similar
industries who pool their resources to gain a benefit that is too expensive to develop alone is the
a.
b.
c.
d.
e.
(p.126)
tie up suppliers by obtaining exclusive contracts.

avoid suppliers that also serve competitors.
decrease scale economies.
block channel access by signing exclusive agreements.
raise buyer switching costs by offering training to users.
The two general types of cooperative strategies are

a.
b.
c.
d.
e.
(p.126)
guerilla warfare
encirclement
According to Porter, strategies to raise structural barriers include all of the following EXCEPT
a.
b.
c.
d.
e.
95.
Cyrix and Intel.

Microsoft and Netscape.
Anheuser Busch and microbreweries.
Microsoft and Sun Systems.
Maytag and Roper.
Which defensive tactic acts to reduce a challenger's expectation of future profits to discourage
entry into the industry?
a.
b.
c.
d.
e.
(p.125)
(p.128)
joint venture.
licensing agreement.
value-chain partnership.
mutual service consortia.
holding company.
The kind of strategic alliance in which a company forms a strong and close long-term relationship
for mutual advantage with a key supplier or distributor is the
(p.129)
a.
b.
c.
d.
e.
joint venture.
licensing agreement.
mutual service consortia.
holding company.
177
98.
Which of the following is NOT a reason for forming a strategic alliance?

a.
b.
c.
d.
e.
99.
100.
obtain access to specific markets

reduce financial risk
reduce political risk
achieve competitive advantage
develop secret proprietary technology
An agreement in which the licensing firm grants rights to another firm in another country or
market to produce and sell a product is known as a(n)
a.
b.
c.
d.
e.
(p.129)
joint venture.
licensing arrangement.
strategic alliance.
marketing strategy.
The launching of web portals aimed at electronically connecting buyers with suppliers,
strengthening collective purchasing activities, and auctioning inventory is referred to as
a.
b.
c.
d.
e.
(p.127)
business to consumer.
business to financier.
business to business.
business to corporation.
business to customer.
178
(p.130)

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Differentiation concentrates on a particular buyer group, product line segment, or geographic

Encirclement occurs as an attacking company or unit encircles the competitors positioning in

Joint ventures are a rarely chosen strategic alliance.

Strategic planning or long-range planning.

use of no weights to reflect priorities.

In the development of a SFAS matrix, the first step is to

opportunity divided by capacity.

All of the following reflect criticisms of the A(N) analysis EXCEPT

The text authors note that strategy can be defined as

The T in A(N) represents

enter the ratings of how the companys management is

responding to each of the strategic factors.

In a TOWS Matrix, SO Strategies

Inappropriate mission statement may cause performance problems.

Strategy Factors Analysis Strategy.

In a TOWS Matrix, ST Strategies

strengths and opportunities.

In a TOWS matrix, SW is the attempt by the company to combine

In a TOWS Matrix, SO is the attempt by the company to combine

In a TOWS Matrix, WT Strategies

In a TOWS Matrix, WO Strategies

strengths and opportunities.

Business strategy focuses on

Business strategy is composed of

Should we compete on a cost basis?

corporate and competitive strategy.

preventing the competition from gaining a competitive edge by undermining their

competitive scope and differentiation

lower cost and differentiation.

cost leadership and differentiation.

Porters model of generic competitive strategies is an attempt to integrate

cost leadership and differentiation.

diversification and concentration

The target segment's structure erodes.

Casey's General Stores successfully follows a strategy of

The technology that the organization has been using changes.

According to Porter, a business unit in a competitive marketplace with no competitive

A differentiation strategy used by some companies is known as

Which of the following is NOT one of the eight dimensions of quality?

A method developed in the mid-1990s as a means to quickly consolidate a fragmented industry

As an industry matures while overcoming fragmentation and becomes dominated by a small

As an industry becomes hypercompetitive, firms initially respond by

A tactic is defined by the text as

raise entry barriers.

raising entry barriers.

The book Hypercompetition was written by

a specific operating plan specifying how a strategy is to be implemented in terms of

Timing tactics answer the question

tight cost control.

strong coordination among functions.

competitive and functional.

tie up suppliers by obtaining exclusive contracts.

The two general types of cooperative strategies are

Cyrix and Intel.

Which of the following is NOT a reason for forming a strategic alliance?

obtain access to specific markets

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