Target’s brand promise “Expect More. Pay Less” and appeal to higher-income,
fashion-conscious discount shoppers illustrates the strategy.
a. cost leadership
b. differentiation
c. focused differentiation
d. integrated cost leadership/differentiation
In Porter’s model, a specialized factor of production would include
a. abundant natural resources.
b. a large workforce.
c. an extensive highway transportation system.
d. workers with advanced engineering skills.
Which of the statements about CEO duality is FALSE?
a. CEO duality is associated with high CEO power.
b. CEO duality has been blamed for slow response to change by the organization.
c. CEO duality is relatively rare in the U.S. except in large Fortune 500 firms.
d. If the CEO acts a steward, CEO duality facilitates effective decisions and actions.
The ______ structure is an organizational structure that combines both functional
specialization and business product or project specialization.
a. functional
b. worldwide geographic area
c. network
d. matrix
Without strict governance mechanisms, the majority of executives will act in their own
self-interest rather than acting as positive stewards of firm resources.
a. True
b. False
An agency relationship exists when one party delegates
a. decision-making responsibility to a second party.
b. financial responsibility to employees.
c. strategy implementation actions to functional managers.
d. ownership of a company to a second party.
Agency costs reflect all of the following EXCEPT costs.
a. monitoring
b. enforcement
c. opportunity
d. incentive
First movers are
a. entrepreneurs who lead in the establishment of new industries.
b. firms that are first to exit a declining industry.
c. firms that take an initial competitive action.
d. individuals who move frequently as employment opportunities change in a locale.
The basic types of operational economies through which firms seek value from
economies of scope are
a. synergies between internal and external capital markets.
b. the leveraging of individual tangible resources.
c. the sharing of value chain activities and support functions.
d. joint ventures and outsourcing.
An example of a government policy barrier to entry would be a situation in which the
Antitrust Division of the Department of Justice disallows a merger because it creates a
firm that is too dominant and would thus create unfair competition.
a. True
b. False
Criteria for reevaluating internal business processes using the balanced scorecard
include all of the following
EXCEPT
a. asset utilization improvements.
b. improvements in employee morale.
c. increases in employee skills.
d. changes in turnover rates.
Export, licensing, and the strategic alliance entry modes are all appropriate for early
market development.
a. True
b. False
Backward integration occurs when a company
a. produces its own inputs.
b. owns its own source of distribution of outputs.
c. is concentrated in a single industry.
d. is divesting unrelated businesses.
The level of entrepreneurial activity in a nation is the nation’s level of economic
development.
a. negatively related to
b. independent of
c. positively related to
d. weakly related to
External social capital is increasingly critical to firm success as few if any companies
have all the resources to successfully compete against their rivals.
a. True
b. False
Research evidence suggests that ownership concentration is associated with lower
levels of firm diversification, which conforms to the interests of stockholders.
a. True
b. False
An acquisition of a firm in a highly related industry is referred to as a horizontal
acquisition.
a. True
b. False
What are barriers to entry and how do they affect competition in the industry?
Describe the factors that raise the competitive nature of an industry’s rivalry.
CaseScenario2:Raptec
Raptec was incorporated in 1991 and went public on the Nasdaq Stock Market in 1996.
Raptec’s strategy is to become the global leader in innovative storage solutions. Raptec
is an S&P 500 and a Nasdaq Stock Market 100 member. The company’s hardware and
software solutions for eBusiness and Internet applications move, manage, and protect
critical data and digital content. Raptec operates in three principal business segments:
Direct Attached Storage (“DAS”), Storage Networking Solutions (“SNS”) and
Software. These hardware and software products are found in high-performance
networks, servers, workstations, and desktops from the world’s leading OEMs, and are
sold through distribution channels to Internet service providers, enterprises, medium
and small businesses, and consumers. Since the time it went public, Raptec has
experienced rapid growth and consistently profitable operations. In early 2007, the
company announced its plan to spin-off the software segment, subsequently
incorporated as Axio, Inc., in the form of a fully independent and separate company.
Software was Raptec’s most profitable and fastest growing segment. By mid-2007
Raptec had completed the initial public offering of approximately 15 percent of Axio’s
stock, and then distributed the remaining Axio stock to Raptec’s stockholders in a
tax-free distribution.
Leveraged buyouts such as the Axio spinoff is a form of restructuring strategy that is
only used to correct for managerial mistakes or because the firm’s managers were
making decisions that only served their own interests rather than those of the
shareholders.
CaseScenario1:NorningInternational
Norning International (NI) states that both its past successes and future growth
strategies are based on an evolving network of wholly owned businesses and joint
ventures around its core competency in glass making. Through their alliances and
owned divisions they compete in four global business sectors: Specialty Glass and
Materials (including materials for HDTV and LCD displays), Consumer Housewares
(including microwavable dishware), Laboratory Sciences Products and Services (test
tubes, testing equipment, and drug trials testing), and Communications (fiber optics and
related technologies). Per the company’s annual report, “binding all four sectors
together is the glue of a commitment to leading edge glass making technologies, shared
resources, and dedication to total quality.” Each sector is composed of divisions,
subsidiaries, and alliances. However, the central role played by alliances is
demonstrated by the fact that the combined revenue of its 30-some alliances is more
than double that of NI on its own. Most of the alliances provide NI with access to
particular geographic markets, industries, or channels, although an increasing number
of alliances involve both market access and technological development.
Why would a company like NI place such emphasis on alliances as a growth vehicle?
CaseScenario2:WaltDisneyCompany.
Walt Disney Company is famed for its creativity, strong global brand, and uncanny
ability to take service and experience businesses to higher levels. In the early 1990s,
then-CEO Michael Eisner looked to the fast-food industry as a way to draw additional
attention to the Disney presence outside of its theme parks-its retail chain was highly
successful and growing rapidly. A fast-food restaurant made sense from Eisner’s
perspective since Disney’s theme parks had already mastered rapid, high-volume food
preparation, and, despite somewhat undistinguished food and high prices (or perhaps
because of), all its in-park restaurants were extremely profitable. From this inspiration,
Mickey’s Kitchen was launched. The first two locations were opened in California and
in a suburb of Chicago, adjacent to existing Disney stores. Menu items included
healthy, child-oriented fare like Jumbo Dumbo burgers and even a meatless Mickey
Burger. Eisner thought that locating each restaurant next to existing Disney stores was
sure to increase foot traffic through both venues. Less than 2 years later Disney closed
down the California and Chicago stores and shuttered further expansion plans. Eisner
cited overwhelming competition from McDonalds and general oversaturation in the
fast-food industry as the primary reasons for closing down the failing Mickey’s Kitchen.
Why do you think that Mickey’s Kitchen failed?
What are organizational controls? Why are strategic controls and financial controls
important aspects of the strategic management process?
CaseScenario3:BarracudaInc.
Barracuda Inc. has diversified beyond its early base as a lamp fixture manufacturer into
multiple hardware and plumbing fixture products that it sells to professionals (i.e.,
plumbers and electricians) and through the large volume do-it-yourself (DIY) stores
like The Home Depot and Lowe’s. While this successful growth has been achieved
primarily through acquisition, the company tends to let the acquired businesses run
independently. It has done so by looking to fragmented industries to acquire small firms
with efficient operations and good management teams. It then grows these businesses
through a combination of internal cash flow and debt, and directs new sales to the
professional and DIY channels. Barracuda has been particularly successful in the faucet
segment, which it practically reinvented though such technological innovations as the
washerless faucet, and marketing innovations like branding and good-better-best
merchandising. Barracuda has leveraged this merchandising strategy across its
businesses and, coupled with the explosive growth of the DIY channel, is spectacularly
profitable with a net profit after tax (NPAT) of 18 percent. The firm’s management is
looking to broaden its revenue base and has identified the home furnishings business as
sharing many characteristics with faucets, prior to Barracuda’s entry into faucets. It
plans to enter this industry through large-scale acquisitions. The landscape of the U.S.
home furnishings manufacturing industry consists of many players, none with
controlling share, and serious issues of overcapacity. There are presently 2500 home
furnishings firms, and only 600 of those have over 15 employees. Average NPAT is
between 4 and 5 percent, which also reflects the fact that few firms have good
managers. While the industry is still primarily composed of single-business family-run
firms, which manufacture furniture domestically, imports are increasing at a fairly rapid
rate. Some of the European imports are leaders in contemporary design. Relatively large
established firms are also diversifying into the home furnishings industry via
acquisition. Supplier firms to the home furnishings industry are in relatively
concentrated industries (like lumber, steel, and textiles), and therefore typically offer
fewer accommodations to the small furniture manufacturers. Retailers, the intermediate
customer of the home furnishings industry, are becoming increasingly concentrated and
the few large, successful furniture companies actually have their own stores or have
dedicated showrooms in the larger department stores. Customers have many products to
choose from, at many different price points, and few home furnishing products beyond
those of the larger companies have established brands. Also, customers can switch
easily among high and low-priced furniture and other discretionary expenditures
(spanning plasma TVs to the choice of postponing any furniture purchase
entirely).Given Barracuda’s history, what threats does Barracuda face in entering the
furniture industry through acquisition?