CHAPTER 2

91) What are the responsibilities of the board of directors?

Answer: The five board of director 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.
Diff: 3
Page Ref: 45
Topic: Role of the Board of Directors
92) Explain the continuum of board involvement.
Answer: 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. The catalyst board
takes the leading role in establishing and modifying the mission, objectives, strategy and
policies. It also has a very active strategy committee.
Diff: 2
Page Ref: 46-47
Topic: Role of the Board of Directors
93) Contrast agency theory and stewardship theory.
Answer: Agency theory states that problems arise in corporations because the agents (top
management) are not willing to bear responsibility for their decisions unless they own a
substantial amount of stock in the corporation. The theory suggests that a majority of a board
needs to be from outside the firm so that top management is prevented from acting selfishly to
the detriment of the shareholders.
Stewardship theory proposed that, because of their long tenure with the corporation, insiders
(senior executives) tend to identify with the corporation and its success. Rather than use the firm
for their own ends, these executives are thus most interested in guaranteeing the continued life
and success of the corporation.
Diff: 3
Page Ref: 48-49
Topic: Role of the Board of Directors
94) Explain the difference between a direct and indirect interlocking directorate.
Answer: 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.
Diff: 3
Page Ref: 52
Topic: Role of the Board of Directors
95) What are the criteria for selecting a good director?

Answer: 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
Available outside meetings to advise management
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
Diff: 2
Page Ref: 53-54
Topic: Role of the Board of Directors
96) Explain the impact of the Sarbanes-Oxley Act on corporate governance.
Answer: 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 fees 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.
Diff: 3
Page Ref: 55
Topic: Role of the Board of Directors
AACSB: Ethical Reasoning

97) What are the responsibilities of top management?

Answer: 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.
Diff: 2
Page Ref: 458-60
Topic: The Role of Top Management

Chapter 5
103) Describe Barney's VRIO framework.
Answer:
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?
104) Discuss the two characteristics that determine the sustainability of a firm's distinctive
competency.
Answer:
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.
105) Define a value chain and the significance of the center of gravity.
Answer:
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.
106) Discuss the three basic organizational structures.
Answer:
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.
107) What are the two distinct attributes of culture?
Answer:
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.
108) What is R & D intensity?
Answer:
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.
109) Distinguish between continuous and intermittent systems providing examples of each.
Answer:
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.

CHAPTER 6

97) What is a propitious niche? Provide an example of a firm that has been able to successfully
occupy a propitious niche.
Answer:
A propitious niche is an extremely favorable niche that is so well suited to the firm's
internal and external environment that other corporations are not likely to challenge or
dislodge it. A niche is propitious to the extent that it currently is just large enough for one
firm to satisfy its demand. After a firm has found and filled that niche, it is not worth a
potential competitor's time or money to also go after the same niche.
One company that has successfully found a propitious niche is Frank J. Zamboni &
Company, the manufacturer of the machines that smooth the ice at ice skating rinks.
Before the machine was invented, people had to clean and scrape the ice by hand to
prepare the surface for skating. So long as Zamboni's company is able to produce the
machines in the quantity and quality desired at a reasonable price, it's not worth another
company's while to go after Frank J. Zamboni's propitious niche.

98) Explain the four combination strategies that may be generated from the TOWS Matrix.
Answer:
The TOWS Matrix results in four combination strategies as follows:
SO Strategies are generated by thinking of ways in which a company or business unit could
use its strengths to take advantage of opportunities.
ST Strategies consider a company's or unit's strengths as a way to avoid threats.
WO Strategies attempt to take advantage of opportunities by overcoming weaknesses.
WT Strategies are basically defensive and primarily act to minimize weaknesses and avoid
threats.

99) What are Porter's four generic strategies?

Answer:
Cost leadership is a lower-cost competitive strategy that aims at the broad mass market
and requires "aggressive construction of efficient facilities, vigorous pursuit of cost
reductions from experience, tight cost and overhead control, avoidance of marginal
customer accounts, and cost minimization in areas like R&D, service, sales force,
advertising, and so on." Because of its lower costs, the cost leader is able to charge a lower
price for its products than its competitors and still make a satisfactory profit.
Differentiation is aimed at the broad mass market and involves the creation of a product or
service that is perceived throughout its industry as unique. The company or business unit

may then charge a premium for its product.

Cost focus is a low-cost competitive strategy that focuses on a particular buyer group or
geographic market and attempts to serve only this niche, to the exclusion of others. In
using cost focus, the company or business unit seeks a cost advantage in its target segment.
Differentiation focus concentrates on a particular buyer group, product line segment, or
geographic market. In using differentiation focus, the company or business unit seeks
differentiation in a targeted market segment.

100) Discuss the difference between a fragmented and a consolidated industry.

Answer:
In a fragmented industry, there are many small- and medium-sized local companies that
compete for relatively small shares of the total market. Focus strategies will likely
predominate in a fragmented industry. Fragmented industries are typical for products in
the early stages of their life cycle. If few economies are to be gained through size, no large
firms will emerge and entry barriers will be low - allowing a stream of new entrants into
the industry.
As an industry matures, fragmentation is overcome and the industry tends to become a
consolidated industry dominated by a few large companies. Although many industries
begin fragmented, battles for market share and creative attempts to overcome local or
niche market boundaries often increase the market share of a few companies. After
product standards become established for minimum quality and features, competition
shifts to a greater emphasis on cost and service. Slower growth, overcapacity, and
knowledgeable buyers combine to put a premium on a firm's ability to achieve cost
leadership or differentiation along the dimensions most desired by the market. Research
and development shifts from product to process improvements. Overall product quality
improves, and costs are reduced significantly.
101) What are timing tactics?
Answer:
A timing tactic deals with when a company implements a strategy. The first company to
manufacture and sell a new product or service is called the first mover (or pioneer). Late
movers may be able to imitate the technological advances of others.

102) Discuss offensive tactics and defensive tactics.

Answer:
An offensive tactic usually takes place in an established competitor's market location. A

defensive tactic usually takes place in the firm's own current market position as a defense
against possible attack by a rival. Offensive tactics include frontal assault, flanking
maneuver, bypass attack, encirclement, and guerrilla warfare.
Defensive tactics aim to lower the probability of attack, divert attacks to less threatening
avenues, or lessen the intensity of an attack. They make a company's or business unit's
competitive advantage more sustainable by causing a challenger to conclude that an attack
is unattractive. The tactics include raising structural barriers, increasing expected
retaliation, and lowering the inducement for attack.

103) What are cooperative strategies?

Answer:
Cooperative strategies are used to gain competitive advantage within an industry by
working with other firms. The two general types of cooperative strategies are collusion and
strategic alliances. 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. A strategic alliance is a partnership of two or more corporations or business units
to achieve strategically significant objectives that are mutually beneficial.

104) What are the types of alliances that business can engage in?
Answer:
The types of alliances that businesses can engage in include a mutual service consortia, a
joint venture, a licensing arrangement, and a value-chain partnership. A mutual service
consortium is a partnership of similar companies in similar industries that pool their
resources to gain a benefit that is too expensive to develop alone. A joint venture is a
"cooperative business activity, formed by two or more separate organizations for strategic
purposes, that creates an independent business entity and allocates ownership, operational
responsibilities, and financial risks and rewards to each member, while preserving their
separate identity/autonomy". 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. The licensee pays compensation to the licensing firm in return for
technical expertise. A value-chain partnership is a strong and close alliance in which one
company or unit forms a long-term arrangement with a key supplier or distributor for
mutual advantage.

CHAPTER 7

94) What are the three key issues that corporate strategy deals with?
Answer: Corporate strategy deals with three key issues:
1. the firm's overall orientation toward growth, stability, and retrenchment (directional strategy).
2. the industries or markets in which the firm competes through its products and business units
(portfolio strategy)
3. the manner in which management coordinates activities and transfers resources and cultivates
capabilities among product lines and business units (parenting strategy).
Diff: 2
Page Ref: 206
Topic: Corporate Strategy
95) Discuss the three general orientations comprising directional strategy?
Answer: The three general orientations comprising directional strategy are growth, stability and
retrenchment. Growth strategies expand the company's activities. Stability strategies make no
change to the company's current activities. Retrenchment strategies reduce the company's level
of activities.
Diff: 2
Page Ref: 207
Topic: Directional Strategy
96) Why is growth a very attractive strategy?
Answer: Growth is a very attractive strategy for two key reasons. First, growth based on
increasing market demand may mask flaws in a company. Second, a growing firm offers more
opportunities for advancement, promotion, and interesting jobs. Growth itself is exciting and
ego-enhancing for CEOs.
Diff: 1
Page Ref: 208
Topic: Directional Strategy
97) Discuss the two basic growth strategies.
Answer: The two basic growth strategies are concentration on the current product line in one
industry and diversification into other product lines in other industries. If a company's product
lines have real growth potential, concentration of resources on those product lines makes sense
as a strategy for growth. Companies begin thinking about diversification when their growth has
plateaued and opportunities for growth in the original business have been depleted.
Diff: 2
Page Ref: 208
Topic: Directional Strategy
98) What are the more popular options for international entry?
Answer: There are several popular options for international entry. Exporting is a good way to
minimize risk and experiment with a specific product. Exporting involves shipping goods
produced in the company's home country to other countries for marketing. Under a licensing
agreement, the licensing firm grants rights to another firm in the host country to produce and/or
sell a product. The licensee pays compensation to the licensing firm in return for technical
expertise. Under a franchising agreement, the franchiser grants rights to another company to
open a retail store using the franchiser's name and operating system. In exchange, the franchisee
pays the franchiser a percentage of its sales as a royalty. Forming a joint venture between a
foreign corporation and a domestic company is the most popular strategy used to enter a new
country. Companies often form joint ventures to combine the resources and expertise needed to
develop new products or technologies. A relatively quick way to move into an international area

is through acquisitions - purchasing another company already operating in that area. If a

company doesn't want to purchase another company's problems along with its assets, it may
choose green-field development - building its own manufacturing plant and distribution system.
Production sharing is the process of combining the higher labor skills and technology available
in the developed countries with the lower-cost labor available in developing countries. Turnkey
operations are typically contracts for the construction of operating facilities in exchange for a
fee. The BOT (Build, Operate, Transfer) concept is a variation of the turnkey operation. Instead
of turning the facility over to the host country when completed, the company operates the facility
for a fixed period of time during which it earns back its investment, plus a profit. Management
contracts offer a means through which a corporation may use some of its personnel to assist a
firm in a host country for a specified fee and period of time.
Diff: 3
Page Ref: 211-214
Topic: Directional Strategy
99) Discuss the more popular stability strategies.
Answer: The more popular stability strategies include the pause-proceed with caution, no
change, and profit strategies. A pause - proceed with caution - strategy is, in effect, a timeout an opportunity to rest before continuing a growth or retrenchment strategy. A no change strategy
is a decision to do nothing new - a choice to continue current operations and policies for the
foreseeable future. A profit strategy is a decision to do nothing new in a worsening situation but
instead to act as though the company's problems are only temporary.
Diff: 2
Page Ref: 217-218
Topic: Directional Strategy

100) Define a retrenchment strategy. Discuss the more popular options.

Answer: A retrenchment strategy may be used when a company has a weak competitive position
in some or all of its product lines resulting in poor performance - sales are down and profits are
becoming losses. The more popular options are turnaround, becoming a captive company,
selling out, bankruptcy, and liquidation. Turnaround strategy emphasizes the improvement of
operational efficiency and is probably most appropriate when a corporation's problems are
pervasive, but not yet critical. The two basic phases of a turnaround strategy are contraction and
consolidation. A captive company strategy is the giving up of independence in exchange for
security. If a corporation with a weak competitive position in this industry is unable either to pull
itself up by its bootstraps or to find a customer to which it can become a captive company, it may
have no choice but to sell out. Bankruptcy involves giving up management of the firm to the
courts in return for some settlement of the corporation's obligations. Liquidation is the
termination of the firm.
Diff: 2
Page Ref: 219-220
Topic: Directional Strategy
101) What is portfolio analysis?
Answer: In portfolio analysis, top management views its product lines and business units as a
series of investments from which it expects a profitable return. The product lines/business units
from a portfolio of investments that top management must constantly juggle to ensure the best
return of the corporation's invested money.
Diff: 1
Page Ref: 220
Topic: Portfolio Analysis
102) Describe the four categories of the BCG Growth Share Matrix.
Answer: The four categories of the BCG Growth Share Matrix are question marks, stars, cash
cows, and dogs. Question marks are new products with the potential for success, but they need a
lot of case for development. Stars are market leaders typically at the peak of their product life
cycle and are usually able to generate enough cash to maintain their high share of the market.
Cash cows typically bring in far more money than is needed to maintain their market share. In
this declining stage of their life cycle, these products are "milked" for cash that will be invested
in new question marks. Dogs have low market share and do not have the potential to bring in
much cash. Dogs should be either sold off or managed carefully for the small amount of cash
they can generate.
Diff: 3
Page Ref: 222-223
Topic: Portfolio Analysis
103) Define corporate parenting.
Answer: Corporate parenting views the corporation in terms of resources and capabilities that
can be used to build business unit value as well as generate synergies across business units.
Corporate parenting generates corporate strategy by focusing on the core competencies of the
parent corporation and on the value created from the relationship between the parent and its
businesses.
Diff: 1
Page Ref: 227
Topic: Corporate Parenting

104) What are the benefits of strategic management?

Answer: 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.
Diff: 2
Page Ref: 6
Topic: The Study of Strategic Management
TOPIC 1
105) Define globalization and identify the role of strategic management in globalization.
Answer: 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.
Diff: 1
Page Ref: 7-8
Topic: Globalization and Environmental Sustainability: Challenges to Strategic Management
106) What are the four main activities of a learning organization?
Answer: 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.
Diff: 2
Page Ref: 14
Topic: Creating a Learning Organization
107) Briefly describe the four basic elements of strategic management.
Answer: Strategic management consists of four basic elements. 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.
Diff: 3
Page Ref: 14-22
Topic: Basic Model of Strategic Management
108) What is a triggering event? List some possible examples.
Answer: 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.
Diff: 3
Page Ref: 24
Topic: Initiation of Strategy: Triggering Events
109) What is a strategic decision and what are its three characteristics.

Answer: A strategic decision deals with the long-run future of an entire organization. There are
three characteristics of a strategic decision: rare, consequential, and directive. Strategic
decisions are unusual and typically have no precedent to follow. They commit substantial
resources and demand a great deal of commitment from people at all levels. And they set
precedents for lesser decisions and future actions throughout the organization.
Diff: 2
Page Ref: 25
Topic: Strategic Decision Making