Which strategy is appropriate when an organization competes in an industry characterized by rapid technological developments?

MGT603 Solved MCQs from Book by David (chap 5b)

Intensive Strategies
78. Which strategy seeks to increase market share of present products or services in present markets through greater marketing efforts.a. market penetrationb. forward integrationc. market developmentd. backward integratione. product development

Ans: a Page: 167

79. When a domestic company first begins to export to India, it is an example ofa. horizontal integration.b. backward integration.c. forward integration.d. concentric diversification.e. market development.

Ans: e Page: 178

80. Which strategy generally entails large research and development expenditures?a. market penetrationb. retrenchmentc. forward integrationd. product developmente. divestiture

Ans: d Page: 179

81. All of the following situations are conducive to market development except:a. when an organization competes in a high-growth industry.b. when an organization is very successful at what it does.c. when new untapped or unsaturated markets exist.d. when an organization has excess production capacity.e. when an organization’s basic industry is becoming rapidly global in scope.

Ans: a Page: 179

Which strategy is appropriate when an organization competes in an industry characterized by rapid technological developments?a. retrenchmentb. product developmentc. backward integrationd. liquidatione. market penetration

Ans: b Page: 179

Diversification Strategies

83. Adding new, unrelated products or services for present customers is calleda. forward integration.b. related diversification.c. backward integration.d. conglomerate diversification.e. unrelated diversification.

Ans: e Page: 182

84. Which strategy should an organization use if it competes in a no-growth or a slow-growth industry.a. divestitureb. related diversificationc. backward integrationd. unrelated diversificatione. retrenchment

Ans: b Page: 181

85. Which of the following is not an example of when an organization should use an unrelated diversification strategy?a. When revenues derived from an organization’s current products or services would increase significantly by adding the new unrelated, products.b. When an organization’s present channels of distribution can be used to market the new products to current customers.c. When the new products have counter-cyclical sales patterns compared to an organization’s present products.d. When an organization competes in a highly competitive and/or a no-growth industry.e. When the organization has a strong management team.

Ans: e Page: 184

86. Adding new, unrelated products or services is calleda. forward integration.b. related diversification.c. backward integration.d. conglomerate diversification.e. unrelated diversification.

Ans: d Page: 184

Defensive Strategies

87. Win-Dixie closing one-third of its stores and eliminating 22,000 jobs in an attempt to emerge from bankruptcy would be an example of:a. divestiture.b. backward integration.c. liquidation.d. retrenchment.e. forward integration.

Ans: d Page: 184

88. What kind of strategy is retrenchment?a. A turnaround or reorganization strategyb. An expansion strategyc. A conglomerate strategyd. An intensive strategye. An offensive strategy

Ans: a Page: 184

89. Bankruptcya. should never be used as a strategy.b. should be used only when one is legally forced to do so.c. can be an effective type of retrenchment strategy.d. should only be used for large firms.e. should only be used for small, private firms.

Ans: c Page: 185

90. Which chapter of the bankruptcy code applies to municipalities?a. Chapter 7b. Chapter 8

c. Chapter 9

d. Chapter 12e. Chapter 13

91. The Family Farmer Bankruptcy Act of 1986 createda. Chapter 7.b. Chapter 8.c. Chapter 9.d. Chapter 12.e. Chapter 13.

Ans: d Page: 185

92. Retrenchment would be an effective strategy when an organizationa. has shrunk so quickly that major internal reorganization is needed.b. is one of the stronger competitors in a given industry.c. is plagued by inefficiency, low profitability, poor employee morale and pressure from stockholders to improve performance.d. has decided to capitalize on opportunities, maximize threats, take advantage of strengths and overcome weaknesses.e. does not have a clearly distinctive competence and has failed to meet its objectives and goals consistently over time.

Ans: c Page: 185

93. What term refers to selling a division of an organization.a. Joint ventureb. Divestiturec. Concentric diversificationd. Liquidatione. Horizontal integration

Ans: b Page: 186

94. Which strategy should be implemented when a division is responsible for an organization’s overall poor performance?a. backward integrationb. divestiturec. forward integrationd. cost leadershipe. related diversification

Ans: b Page: 186

95. Selling all of a company’s assets in parts for their tangible worth is calleda. joint venture.b. divestiture.c. concentric diversification.d. liquidation.e. unrelated integration.

Ans: d Page: 186

96. Which strategy would be effective when the stockholders of a firm can minimize their losses by selling the organization’s assets.a. integrationb. differentiationc. diversificationd. cost leadershipe. liquidation

Ans: e Page: 188

Michael Porter’s Five Generic Strategies

97. Under which strategy would you offer products or services to a wide range of customers at the lowest price available on the market?a. low-costb. best-valuec. low-cost focusd. best-value focuse. differentiation

Ans: b Page: 188

98. According to Porter, which strategy offers products or services to a small range of customers at the lowest price available on the market?a. low-costb. best-valuec. low-cost focusd. best-value focuse. differentiation

Ans: c Page: 188

99. Under which condition would a cost leadership strategy be especially effective?a. When there are many ways to differentiate the product or service and many buyers perceive these differences as having value.b. When buyer needs and uses are diversec. When few rival firms are following a similar approachd. When technological change is fast paced and competition revolves around rapidly evolving product features.e. When the products of rival sellers are essentially identical and supplies are readily available from any of several eager sellers.

Ans: e Page: 190

100. Under which condition would a differentiation strategy be especially effective?a. When the target market niche is large, profitable and growingb. When technological change is fast paced and competition revolves around rapidly evolving product features.c. When industry leaders do not consider the niche to be crucial to their own success.d. When the industry has many different niches and segments, thereby allowing a company to pick a competitively attractive niche suited to its own resources.e. When few, if any, other rivals are attempting to specialize in the same target segment.

Ans: b Page: 192

Means for Achieving Strategies

101. What occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity.a. Retrenchmentb. A joint venturec. Liquidationd. Forward integratione. Divestiture

Ans: b Page: 193

102. All of the following are cooperative arrangements except:a. R&D partnerships.b. joint-bidding consortia.c. cross-licensing agreements.d. cross-manufacturing agreements.e. marketing plans.

Ans: e Page: 193

103. Which of the following is not a reason joint ventures fail?a. Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture.b. The venture may not be supported equally by both partners.c. The venture may benefit the partnering companies but may not benefit the customers who then complain about poorer service or criticize the companies in other ways.d. Stakeholders from both partners are equally satisfied.e. The venture may begin to compete more with one of the partners than the other.

Ans: d Page: 196

104. Which strategy would be most appropriate when the distinctive competencies of two or more firms complement each other especially well?a. Conglomerate diversificationb. Divestiturec. Joint ventured. Retrenchmente. Integration

Ans: c Page: 196

Merger/Acquisition

105. When two organizations of about equal size unite to form one enterprise, which of these occurs?a. hostile takeover

b. merger

c. acquisitiond. LBO

e. divestiture

106. Mergers and acquisitions are created for all of the following reasons except toa. gain new technology.b. reduce tax obligations.c. gain economies of scale.d. smooth out seasonal trends in sales.

e. increase its number of employees.

107. When companies take over functional operations of other firms, such as human resources, information systems, payroll, accounting, or customer service, this is calleda. marketing.

b. outsourcing.

c. licensing.d. franchising.e. divestiture.

Strategic Management in Small Firms

108. According to journalists’ findings, what is a serious obstacle for many small business owners.a. a lack of business ethicsb. an excess of employees and managerial staffc. a lack of experience in networking

d. a lack of strategic-management knowledge
e. having too many suppliersEssay Questions

109. 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 firm’s 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 Reader’s Digest Association acquired Reiman Publications LLC.Page: 174-177

110. 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 organization’s present distributors are especially expensive, unreliable, or incapable of meeting the firm’s 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

111. 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 ordeveloping 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

112. 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 organization’s basic industry is becoming rapidly global in scope.Page: 178

113. 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 cross-business 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 Amazon.com 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

114. 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 organization’s existing peaks and valleys; (5) when an organization’s products are currently in the declining stage of the product’s life cycle; and (6) when an organization has a strong management team.Page: 181

115. Define and give examples of joint venture, retrenchment, divestiture and liquidation.

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 Tyco’s sales. Liquidation is the selling off of a company’s assets, in parts, for their tangible worth. When Service Merchandise liquidated in 2002, it closed all of its 216 stores in 32 states.Page: 184-188

116. Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and 13.

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

117. Discuss Michael Porter’s 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 rival’s 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 smallrange 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 price-value available on the market.Page: 188

118. 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

119. 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

120. 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