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Essay Questions Chapter No: 05


Define and give an example of three integrative strategies.

The three integrative strategies are forward integration, backward integration and
horizontal integration. Forward integration is the gaining of ownership or increased
control over distributors or retailers. An example of forward integration is Gateway
Computer Company opening its own chain of retail computer stores. Backward
integration is the seeking of ownership or increased control of a firms suppliers. J.P.
Morgan outsourcing its technology operations to firms such as EDS and IBM is an
example of backward integration. Horizontal integration is the seeking of ownership
or increased control over competitors. An example of horizontal integration is when
Readers Digest Association acquired Reiman Publications LLC.
Page: 174-177


List some guidelines for when forward integration would be a particularly good
strategy to pursue.
Some guidelines for when forward integration would be an especially effective
strategy are: (1) when an organizations present distributors are especially expensive,
unreliable, or incapable of meeting the firms distribution needs; (2) when the
availability of quality distributors is so limited as to offer a competitive advantage to
those firms that integrate forward; (3) when an organization competes in an industry
that is growing and is expected to continue to grow markedly; (4) when an
organization has both the capital and human resources needed to manage the new
business of distributing its own products; (5) when the advantages of stable
production are particularly high; and (6) when present distributors or retailers have
high profit margins.
Page: 175


Define and give an example of three intensive strategies.

Market penetration, market development and product development are the three
types of intensive strategies. Seeking increased market share for present products or
services in present markets through marketing efforts is called market penetration.
An example of this is when American Express launched a $100 million +
advertising campaign in 2002 to boost its lead over Citigroup in the credit card
industry. Market development is introducing present products or services into new
geographic areas. South African Breweries PLC trying to acquire Miller Brewing
Company for about $5 billion is an example of market development. Product
development is seeking increased sales by improving present products or services or


developing new ones. An example of product development is Miller Brewing

Company developing the new Skyy Blue citrus and vodka-flavored malt beverage.
Page: 177-179

List some guidelines for when market development would be a particularly

good strategy to pursue.
Market development would be an effective strategy in all of the following situations:
(1) when new channels of distribution are available that are reliable, inexpensive and
of good quality; (2) when an organization is very successful at what it does; (3)
when new untapped or unsaturated markets exist; (4) when an organization has the
needed capital and human resources to manage expanded operations; (5) when an
organization has excess production capacity; and (6) when an organizations basic
industry is becoming rapidly global in scope.
Page: 178


Define and give an example of the two diversification strategies.

Related and unrelated are the two types of diversification strategies. Businesses are
said to be related when their value chains posses competitively valuable crossbusiness strategic fits; businesses are said to be unrelated when their value chains are
so dissimilar that no competitively valuable cross-business relationships exist. An
example of related diversification is Inc.s recent move to sell personal
computers though its online store. An example of unrelated diversification is Trump
Entertainment Resorts starting Trump university, an online business university.
Pages: 181-183


List some guidelines for when related diversification would be a particularly

good strategy to pursue.
Six guidelines for when related diversification may be an effective strategy are: (1)
when an organization competes in a no-growth or a slow-growth industry; (2) when
adding new, but related, products would significantly enhance the sales of current
products; (3) when new, but related, products could be offered at highly competitive
prices; (4) when new, but related, products have seasonal sales levels that
counterbalance an organizations existing peaks and valleys; (5) when an
organizations products are currently in the declining stage of the products life
cycle; and (6) when an organization has a strong management team.
Page: 181



Define and give examples of joint venture, retrenchment, divestiture and

A joint venture is when two or more companies form a temporary partnership or
consortium for the purpose of capitalizing on some opportunity. An example of this
is when Dell Computer and EMC Corporation created a sales and development
alliance. Retrenchment is regrouping through cost and asset reduction to reverse
declining sales and profit. Net2Phone cutting 110 jobs in 2002 as part of its
restructuring plan is an example of retrenchment. Selling a division or part of an
organization is called divestiture. An example of this is Tyco International selling off
its plastics department, which accounts for about 4 percent of Tycos sales.
Liquidation is the selling off of a companys assets, in parts, for their tangible worth.
When Service Merchandise liquidated in 2002, it closed all of its 216 stores in 32
Page: 184-188


Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and

Chapter 7 bankruptcy is a liquidation procedure used only when a corporation sees

no hope of being able to operate successfully or to obtain the necessary creditor
agreement. Chapter 9 bankruptcy applies to municipalities. Chapter 11 bankruptcy
allows organizations to reorganize and come back after filing a petition for
protection. Chapter 12 bankruptcy provides special relief to family farmers with debt
equal to or less than $1.5 million. Chapter 13 bankruptcy is a reorganization plan
similar to Chapter 11, but it is available only to small businesses owned by
individuals with unsecured debts of less than $100,000 and secured debts of less
than $350,000.
Page: 185

Discuss Michael Porters five generic strategies.

According to Porter, strategies allow organizations to gain competitive advantage
from three different bases: cost leadership, differentiation and focus. Porter calls
these bases generic strategies. Cost leadership emphasizes producing standardized
products at a very low per-unit cost for consumers who are price-sensitive. Two
alternative types of cost leadership strategies can be defined. Type 1 is a low-cost
strategy that offers products or services to a wide range of customers at the lowest
price available on the market. Type 2 is best-value strategy that offers products or
services to a wide range of customers at the best price-value available on the
market.; the best value strategy aims to offer customers a range of products or
services at the lowest price available compared to a rivals products with similar
attributes. Differentiation is a strategy aimed at producing products and services


considered unique industrywide and directed at consumers who are relatively

price-insensitive. A low-cost focus strategy offers products or services to a small
range of customers at the lowest price available on the market. A best-value focus
strategy offers products or services to a small range of customers at the best pricevalue available on the market.
Page: 188

What are the characteristics of a firm that is successfully pursuing a cost

leadership strategy?
A successful cost leadership strategy usually permeates the entire firm, as evidenced
by high efficiency, low overhead, limited perks, intolerance of waste, intensive
screening of budget requests, wide spans of control, rewards linked to cost
containment and broad employee participation in cost control efforts.
Page: 190


Discuss four common problems that cause joint ventures to fail.

One problem that causes joint ventures to fail is that managers who should
collaborate daily in operating the venture are not involved in forming or shaping
the venture. A second problem is if the venture benefits the partnering companies
but may not benefit customers who then complain about poorer service or criticize
the companies in other ways. A third problem occurs if the venture is not
supported equally by both partners, which creates problems. A final problem that
can cause a joint venture to fail is that the venture may begin to compete more
with one of the partners than the other.
Page: 196


Name at least six reasons for performing mergers or acquisitions.

Reasons include: 1) to provide improved capacity utilization; 2) to make better
use of the existing sales force; 3) to reduce managerial staff; 4) to gain economies
of scale; 5) to smooth out seasonal trends in sales; 6) to gain access to new
suppliers, distributors, customers, products and creditors; 7) to gain new
technology; and 8) to reduce tax obligations.
Page: 198


Essay Questions Chapter No:06


Explain the concept of matching in the strategy formulation framework. Give

at least three examples of matching.
Matching external and internal critical success factors is the key to effectively
generating feasible alternative strategies. See Table 6-1 on page 220 for examples of
Page: 220


If you construct a SPACE Matrix and the directional vector points to the lower
left quadrant, what type of strategies would you recommend? Give several
If the directional vector points to the lower-left quadrant of the SPACE Matrix,
students should suggest defensive strategies. Defensive strategies include
retrenchment, divestiture, liquidation and concentric diversification.
Page: 225-227


Give five coordinates of a SPACE Matrix directional vector that would suggest
conservative strategies to be most appropriate.
Student answers will vary. However, five examples they may suggest are (-1,1),
(-2,2), (-3,3), (-4,4), and (-5,5).
Page: 225-227


In a BCG Matrix, all divisions are called question marks, stars, cash cows or
dogs. Define each of these terms.
Question Marks have a low relative market share position, yet they compete in a
high-growth industry.
Stars represent the organizations best long-run opportunities for growth and
Cash Cows have a high relative market share position but compete in a low-growth
Dogs have a low relative market share position and compete in a slow- or nomarket-growth industry.
Page: 230-231



Compare and contrast the IE Matrix with the BCG Matrix.

The IE Matrix is similar to the BCG Matrix in that both tools involve plotting
organizational divisions in a schematic diagram. Also, the size of each circle
represents the percentage sales contribution of each division, and pie slices reveal
the percentage profit contribution of each division in both the BCG and IE Matrix.
Some important differences between the IE Matrix and the BCG Matrix include: 1)
different axes; 2) the IE Matrix requires more information about the divisions than
the BCG Matrix; and 3) the strategic implications of each matrix are different.
Page: 233


Explain the benefits and limitations of developing a Boston Consulting Group

The BCG Matrix has one major benefit: draws attention to the cash flow, investment
characteristics and needs of an organizations various divisions.
The BCG Matrix has some limitations: 1) Viewing every business as either a star,
cash cow, dog or question mark is an oversimplification; many businesses fall right
in the middle of the BCG Matrix and thus are not easily classified, 2) the BCG
Matrix does not reflect whether or not various divisions or their industries are
growing over time; that is, the matrix has no temporal qualities, but rather it is a
snapshot of an organization as any given point in time; and 3) other variables besides
relative market share position and industry growth rate in sales are important in
making strategic decisions about various divisions.
Page: 232


Using a Grand Strategy Matrix approach, what strategies are recommended

for a firm that is a weak competitor in a slow-growing market? Elaborate on
what these strategies could mean for a college or university.
A firm that is a weak competitor in a slow-growing market would be located in
Quadrant III. Quadrant III strategies include retrenchment, concentric
diversification, horizontal diversification, conglomerate diversification, divestiture
and liquidation.
Student answers will vary when elaborating on what these strategies could mean for
a college or university. However, students should mention that the college or
university could possibly have to be closed or facility and staff may have to be
drastically reduced which leads to unhappy students in very large classes.
Page: 237-238



Describe the positive features and limitations of QSPM.

There are three positive features of QSPM: 1) Sets of strategies can be examined
sequentially or simultaneously; 2) there is no limit to the number of strategies that
can be evaluated or the number of sets of strategies that can be examined at once
using the QSPM; and 3) the last positive feature is that it requires strategists to
integrate pertinent external and internal factors into the decision process.
The QSPM is not without some limitations: 1) It always requires intuitive judgments
and educated assumptions; 2) The ratings and attractiveness scores require
judgmental decisions, even though they should be based on objective information;
and 3) it can be only as good as the prerequisite information and matching analyses
upon which it is based.
Page: 239-244


Describe the tactics that have been used by politicians that can also aid
EquifinalityIt is often possible to achieve similar results using different means
or paths. Strategists should recognize that achieving a successful outcome is more
important than imposing the method of achieving it. It may be possible to
generate new alternatives that give equal results but with far greater potential for
gaining commitment.
SatisfyingAchieving satisfactory results with an acceptable strategy is far better
than failing to achieve optimal results with an unpopular strategy.
GeneralizationShifting focus from specific issues to more general ones may
increase strategists options for gaining organizational commitment.
Focus on Higher-Order IssuesBy raising an issue to a higher level, many
short-term interests can be postponed in favor of long-term interests. For instance,
by focusing on issues of survival, the auto and steel industries were able to
persuade unions to make concessions on wage increases.
Provide Political Access on Important IssuesStrategy and policy decisions
with significant negative consequences for middle managers will motivate
intervention behavior from them. If middle managers do not have an opportunity
to take a position on such decisions in appropriate political forums, they are
capable of successfully resisting the decisions after they are made. Providing such
political access provides strategists with information that otherwise might not be
available and that could be useful in managing intervention behavior.
Page 246



Discuss the appropriate role of a board of directors in an organization.

Some principles are: No more than two directors are current or former company
executives. No directors do business with the company or accept consulting or legal
fees from the firm. The audit, compensation and nominating committees are made
up solely of outside directors. Each director owns a large equity stake in the
company, excluding stock options. At least one outside director has extensive
experience in the companys core business and at least one has been CEO of an
equivalent-sized company. Fully employed directors sit on no more than four boards
and retirees sit on no more than seven. Each director attends at least 75 percent of
all meetings. The board meets regularly without management present and evaluates
its own performance annually. The audit committee meets at least four times a year.
The board is frugal on executive pay, diligent in CEO succession oversight
responsibilities, and prompt to act when trouble arises. The CEO is not also the
Chairperson of the Board. Shareholders have considerable power and information to
choose and replace directors. Stock options are considered a corporate expense.
There are no interlocking directorships (where a director or CEO sits on another
directors board).

Essay Questions chapter no 07


What are five differences between strategy formulation and strategy

Strategy formulation is positioning forces before the action, whereas strategy
implementation is managing forces during the action. Strategy formulation
focuses on effectiveness, whereas strategy implementation focuses on efficiency.
Strategy formulation is primarily an intellectual process, whereas strategy
implementation is primarily an operational process. Strategy formulation requires
good intuitive and analytical skills, whereas strategy implementation requires
special motivation and leadership skills.
Strategy formulation requires
coordination among a few individuals, whereas strategy implementation requires
coordination among many individuals.
Page: 242


List four major reasons annual objectives are essential for strategy
Annual objectives are essential for strategy implementation because they (1)
represent the basis for allocating resources, (2) are a primary mechanism for
evaluating managers, (3) are the major instrument for monitoring progress toward
achieving long-term objectives and (4) establish organizational, divisional and
departmental priorities.
Page: 264



Name at least ten examples that may require a management policy.

Possible answers include: 1) To offer extensive or limited management
development workshops and seminars. 2) To centralize or decentralize employeetraining activities. 3) To recruit through employment agencies, college campuses
and/or newspapers. 4) To promote from within or to hire from the outside. 5) To
promote on the basis of merit or on the basis of seniority. 6) To tie executive
compensation to long-term and/or annual goals. 7) To offer numerous or few
employee benefits. 8) To negotiate directly or indirectly with labor unions. 9) To
delegate authority for large expenditures or to retain this authority centrally. 10)
To allow much, some, or no overtime work. 11) To establish a high- or lowsafety stock of inventory. 12) To use one or more suppliers. 13) To buy, lease, or
rent new production equipment. 14) To stress quality control greatly or not. 15)
To establish many or only a few production standards. 16) To operate one, two,
or three shifts. 17) To discourage using insider information for personal gain. 18)
To discourage sexual harassment. 19) To discourage smoking at work. 20) To
discourage insider trading. 21) To discourage moonlighting.
Page: 267


There are three major approaches for minimizing and resolving conflict in an
organization. Define these three approaches and give an example of each.
Various approaches for managing and resolving conflict can be classified into three
categories: avoidance, diffusion and confrontation. Avoidance includes such actions
as ignoring the problem in hopes the conflict will resolve itself, or physically
separating the conflicting individuals. Diffusion can include playing down
differences between conflicting parties while accentuating similarities and common
interests, compromising so there is neither a clear winner nor loser, resorting to
majority rule, appealing to a higher authority, or redesigning present positions.
Confrontation is exemplified by exchanging members of conflicting parties so each
can gain an appreciation of the others point of view, or holding a meeting at which
conflicting parties present their views and work through their differences.
Student answers will vary on the examples given for each approach.
Page: 269-270


What are the advantages and disadvantages of a divisional organizational

A divisional structure has some clear advantages. The first is that accountability is
clear. Also, it creates career development opportunities for managers, allows local


control of local situations, leads to a competitive climate within an organization and

allows new businesses and products to be added easily.
A divisional structure does have its limitations. A divisional structure is costly
because each division requires functional specialists who must be paid, there exists
some duplication of staff services, facilities and personnel, and better-qualified
individuals require higher salaries. It is also costly because it requires an elaborate
headquarters-driven control system. Finally, certain religions, products, or customers
may sometimes receive special treatment, and it may be difficult to maintain
consistent, company-wide practices.
Page: 272-274

There are four basic ways a divisionally structured firm could be organized.
What are these four ways? Give an example of each.
The four basic ways a divisionally structured firm could be organized are 1) by
geographic area. An example of this would be any organization with similar branch
facilities located in widely dispersed areas; 2) by product or service. Huffy is an
example of divisional structure by product; 3) by customer. Book publishing
companies often organize their activities around customer groups as college,
secondary schools and private commercial schools; and 4) by process. An example
of this is a manufacturing business organized into six divisions: electrical work,
glass cutting, welding, grinding, painting and foundry work. Each division would be
responsible for generating revenues and profits.
Page: 273-274


Compare and contrast restructuring and reengineering.

Restructuring involves reducing the size of the firm in terms of number of
employees, number of divisions or units and number of hierarchical levels in the
firms organizational structure. Restructuring is concerned primarily with
shareholder well-being rather than employee well-being.
In contrast, reengineering is concerned more with employee and customer wellbeing than shareholder well-being. Reengineering involves reconfiguring or
redesigning work, jobs and processes for the purpose of improving cost, quality,
service and speed. Whereas restructuring is concerned with eliminating or
establishing, shrinking or enlarging, and moving organizational departments and
divisions, the focus of reengineering is changing the way work is actually carried
out. Reengineering is characterized by many tactical decisions, whereas
restructuring is characterized by strategic decisions.


Discuss the dos and donts in developing organizational charts.


Students analyzing strategic management cases are often asked to revise and
develop a firms organizational structure. This section provides some basic
guidelines for this endeavor. There are some basic dos and donts in regard to
devising or constructing organizational charts, especially for midsize to large
firms. First of all, reserve the title CEO for the top executive of the firm. Dont
use the title president for the top person; use it for the division top managers if
there are divisions within the firm. Also, do not use the title president for
functional business executives. They should have the title chief, or vice
president, or manager, or officer, such as Chief Information Officer, or
VP of Human Resources. Further, do not recommend a dual title (such as CEO
and President) for just one executive. The Chairman of the Board and CEO of
Bristol-Myers Squibb, Peter Dolan, gave up his title as chairman in 2005.
Actually, chairperson is much better than chairman for this title. Directly
below the CEO, it is best to have a COO (chief operating officer) with any
division presidents reporting directly to the COO. On the same level as the COO
and also reporting to the CEO, draw in your functional business executives, such
as a CFO (chief financial officer), VP of Human Resources, a CSO (Chief
Strategy Officer), a CIO (Chief Information Officer), a CMO (Chief Marketing
Officer), a VP of R&D, a VP of Legal Affairs, a Investment Relations Officer,
Maintenance Superintendent, etc. Note in Figure 7-6 that these positions are
labeled and placed appropriately. Note that a controller and/or treasurer would
normally report to the CFO.
Page 277

What are the three commonly used strategies or approaches for implementing
changes in an organization? Give an advantage and/or disadvantage for each
type of approach.
Although there are various approaches for implementing changes, three commonly
used strategies are a force change strategy, an educative change strategy and a
rational or self-interest change strategy. A force change strategy involves giving
orders and enforcing those orders; this strategy has the advantage of being fast, but
low commitment and high resistance plague it. An educative change strategy is one
that presents information to convince people of the need for change; the
disadvantage of an educative change strategy is that implementation becomes slow
and difficult. However, this type of strategy evokes greater commitment and less
resistance than does the force change strategy. Finally, a rational or self-interest
change strategy is one that attempts to convince individuals the change is to their
personal advantage. When this appeal is successful, strategy implementation can be
relatively easy.
Page: 283-285



List 10 special natural environment issues.

Students can choose any 10 from the following 12 special natural environment
issues: (1) ozone depletion, (2) global warming, (3) depletion of rain forests, (4)
destruction of animal habitats, (5) protecting endangered species, (6) developing
biodegradable products and packages, (7) waste management, (8) clean air, (9) clean
water, (10) erosion, (11) destruction of natural resources and (12) pollution control.


Explain the nature and role of ESOPs in strategic management.

An ESOP is a tax-qualified, defined-contribution employee-benefit plan whereby
employees purchase stock of the company through borrowed money or cash
contributions. ESOPs empower employees to work as owners. Besides reducing
worker alienation and stimulating productivity, ESOPs allow firms other benefits,
such as substantial tax savings. Principal, interest and dividend payments on ESOPfunded debt are tax-deductible. Banks lend money to ESOPs at interest rates below
prime. This money can be repaid in pretax dollars, lowering the debt service as much
as 30 percent in some cases. Research confirms ESOPs can have a dramatically
positive effect on employee motivation and corporate performance, especially if
ownership is coupled with expanded employee participation and involvement in
decision-making. Market surveys indicate customers prefer to do business with firms
that are employee-owned.
Page: 294-295


List eight benefits of a diverse workforce.

Students may choose any eight of the following 13 major benefits of having a
diverse workforce: (1) improves corporate culture, (2) improves employee morale,
(3) leads to a higher retention of employees, (4) leads to an easier recruitment of new
employees, (5) decreases complaints and litigation, (6) increases creativity, (7)
decreases interpersonal conflict between employees, (8) enables the organization to
move into emerging markets, (9) improves client relations, (10) increases
productivity, (11) improves the bottom line, (12) maximizes brand identity and (13)
reduces training costs.
Page: 297