Chapter 5 According to Harvard professor Michael Porter, five industry forces

Document Type
Test Prep
Book Title
Effective Management 6th Edition
Authors
Chuck Williams
a.
retrenchment
b.
stability
c.
portfolio
d.
focus
e.
differentiation
56. A(n) ____ strategy is a corporate strategy that addresses the question "How should we compete in this
industry?"
a.
corporate-level
b.
industry-level
c.
firm-level
d.
niche-specific
e.
SBU-level
57. According to Michael Porter, five industry forces determine an industry's overall attractiveness and
potential for long-term profitability. Which of the following is one of those forces Porter identified?
a.
existence of complementary products
b.
organizational structure
c.
existing benchmarks
d.
span of management
e.
bargaining power of suppliers
58. According to Harvard professor Michael Porter, five industry forces (character of rivalry, threat of new
entrants, threat of substitute products or services, bargaining power of suppliers, and the bargaining
power of buyers) determine an industry's overall attractiveness and its ____.
a.
potential for long-term change
b.
potential for short-term profitability
c.
level of risk
d.
potential for long-term profitability
e.
potential for short-term growth
59. ____ is the measure of the intensity of competitive behavior between companies in an industry.
a.
Character of culture
b.
Competitive barrier
c.
Character of the rivalry
d.
Benchmarked rivalries
e.
Product substitutability
60. Which of the following is NOT one of the five industry forces that determine an industry's overall
attractiveness and potential for long-term profitability?
a.
character of the rivalry
b.
existing complementary products
c.
bargaining power of suppliers
d.
threat of substitute products
e.
bargaining power of buyers
61. An ad for a major brand of clothes washer reads, “Since our humble beginnings back in 1950, we have
been dedicated to building machines with superior cleaning power, reliability, and style.” This
manufacturer is more than likely using which kind of positioning strategy?
a.
differentiation
b.
retrenchment
c.
diversification
d.
focus
e.
stability
62. Clorox Corporation controls 60 percent of the bleach market. Imagine you are an entrepreneur who
was considering developing and marketing a new brand of bleach. Which of Michael Porter's industry
forces should you be most concerned about?
a.
bargaining power of buyers
b.
threat of substitute products or services
c.
threat of new entrants
d.
bargaining power of suppliers
e.
character of the rivalry
63. Glassmaker AFG Industries positions itself as the primary supplier of glass used in microwave doors,
shower doors, and patio tables. What type of a positioning strategy does the glass manufacturer use?
a.
adaptive
b.
growth
c.
diversification
d.
differentiation
e.
focus
64. When the bargaining power of suppliers and buyers is high, companies in the industry will ____.
a.
find it more difficult to be profitable
b.
most likely use a growth strategy
c.
divest themselves of all of their cash cows
d.
engage in organizational restructuring
e.
not own any stars
65. Cost leadership, differentiation, and focus are the three types of ____ strategies discussed in the text.
a.
grand
b.
niche
c.
positioning
d.
restructuring
e.
portfolio
66. The positioning strategies identified by Michael Porter are ____.
a.
entrepreneurial, growth, and stability
b.
diversification, acquisition, and divestment
c.
defender strategy; diversification, and cost leadership
d.
focus, cost leadership, and differentiation
e.
divestment; cost leadership, and diversification
67. When The Home Depot opened stores in Canada, it ran a series of ads featuring an animated hammer
that showed that the U.S.-based home improvement store had the lowest prices. According to Michael
Porter, which of the following positioning strategies did The Home Depot adopt to deal with existing
Canadian stores that sold similar products?
a.
cost leadership
b.
diversification
c.
focus
d.
differentiation
e.
repositioning
68. The positioning strategy that is always paired with one of the other two positioning strategies to
produce a specialized product or service is ____.
a.
focus
b.
differentiation
c.
cost leadership
d.
diversification
e.
repositioning
69. An industry-level strategy that is best suited to changes in the organization's external environment is
a(n)____.
a.
positioning
b.
differentiation
c.
growth
d.
adaptive
e.
diversification
70. Hohner is a company that manufactures and markets harmonicas, a product with a steady demand rate.
It is so successful at what it does that the company controls 85 percent of the world's harmonica
industry. In terms of the adaptive strategies, Hohner would most likely be categorized as a(n) ____.
a.
reactor
b.
diversifier
c.
stabilizer
d.
analyzer
e.
defender
71. Because of slowing sales, Arm & Hammer started promoting innovative uses for its baking soda. By
searching for new market opportunities, the manufacturer of Arm & Hammer is using which type of
adaptive strategy?
a.
defending
b.
cost leading
c.
analyzing
d.
reacting
e.
prospecting
72. Among companies who use the adaptive strategies, ____ blend the strategies used by ____.
a.
prospectors; analyzers and reactors
b.
analyzers; defenders and reactors
c.
reactors; prospectors and analyzers
d.
reactors; defenders and prospectors
e.
analyzers; defenders and prospectors
73. An organization which is a ____ in terms of its adaptive strategy would NOT follow a consistent
strategy.
a.
defender
b.
pioneer
c.
analyzer
d.
reactor
e.
prospector
74. Which of the adaptive strategies tends to result in the poorest performance?
a.
niche marketers
b.
analyzers
c.
prospectors
d.
defenders
e.
reactors
75. Resource similarity and ____ are factors that determine the extent to which firms will be in direct
competition with each other.
a.
market commonality
b.
resource quality
c.
related diversification
d.
product differentiation
e.
customer autonomy
76. Which of the following organizations are most directly in competition with each other?
a.
Kmart and Gap
b.
a local flower shop and a grocery store that sells flowers
c.
FedEx and UPS
d.
an independent bookstore and a library
e.
HBO and UPN television network
77. As direct competitors, UPS and FedEx would have ____.
a.
a low degree of resource variability
b.
a high degree of market commonality
c.
a low degree of competitive inertia
d.
a low degree of market commonality
e.
a high degree of resource synergy
78. From a competitive standpoint, ____ means that the strategic actions your company takes can probably
be matched by your direct competitors.
a.
market commonality
b.
resource similarity
c.
character of the rivalry
d.
competitive inertia
e.
competitive autonomy
79. Under conditions of ____, a competitive attack by the stronger rival is more likely to produce
sustained competitive advantage.
a.
high market commonality
b.
high competitive autonomy
c.
high resource similarity
d.
low resource similarity
e.
low market commonality
The Rolling Stones
The Rolling Stones are the most successful act in the music industry largely because they run the band
as a businessthe Rolling Stones, Inc. Since 1989 (the beginning of the modern age of the Rolling
Stone), the band has generated more than $1.5 billion in gross revenues. That total includes sales of
records, song rights, merchandising, sponsorship money, and touring. Unlike some other groups, the
Stones carry no anti-business baggage. The Rolling Stones, Inc. operates on a combustible mix of
talent and intense laborthe product of four decades of trial and error. The company licenses over 50
products from underwear to formalwear. The Voodoo Lounge tour in 1994 grossed $121.2 million,
record earnings for a single tour. Over the past decade, the group’s song writing has made about $56
million. The next time you see Mick Jagger, think of him as the highly successful CEO of a mid-sized
corporation. The goal of the corporation is to continue providing products that differ from its
competitors’ offerings so that fans will continue to pay a premium price for what it sells.
80. Refer to The Rolling Stones. Because other music groups cannot duplicate the value the Rolling
Stones are providing to customers, the band can be said to have a(n) ____.
a.
contingency management style
b.
sustainable competitive advantage
c.
resource diversity
d.
resource munificence
e.
a market aggregation strategy
81. Refer to The Rolling Stones. Prior to 1989, The Stones and all other touring bands would hire a tour
director who would cut individual deals with local promoters in each city to set up the shows. In 1989,
the Stones were the first group to book their tours themselves, dealing with the venues directly and
eliminating the local promoters. The band’s income increased from about $400,000 per show to $1
million per show. Obviously The Stones were not guilty of ____.
a.
competitive autonomy
b.
resource substitution
c.
resource lethargy
d.
strategic lethargy
e.
competitive inertia
82. Refer to The Rolling Stones. When compared to other musicians, The Rolling Stones have
demonstrated that they have a ____ when it comes to operating as a business.
a.
distinctive competence
b.
marginal advantage
c.
contingency style
d.
synergistic hierarchy
e.
resource munificence
83. Refer to The Rolling Stones. What kind of diversification has the Rolling Stones used to grow their
business?
a.
unrelated
b.
investment-specific
c.
autonomous
d.
relative
e.
acquisitive
84. Refer to The Rolling Stones. In recent years, what kind of a grand strategy does Rolling Stones, Inc.
use?
a.
retrenchment
b.
accommodative
c.
participative
d.
reactive
e.
stability
85. Refer to The Rolling Stones. What kind of positioning strategy does Rolling Stones, Inc. use?
a.
accommodative
b.
consultative
c.
differentiation
d.
prospector
e.
growth
WWYD Walt Disney Company
Disney is an entertainment conglomerate that includes films, theme parks, resorts, a cruise line,
consumer products (toys, clothing, books, magazines, and merchandise), media networks (ABC, ESPN
Disney Channels, ABC Family), radio, and the Disney Interactive Media Group (online, mobile, and
video games and products). Over two decades, CEO Michael Eisner accomplished much, but his
strong personality and critical management style created conflict with shareholders, creative partners,
and board members. New CEO Bob Iger quickly repaired relationships with Pixar Studios and its
then-CEO Steve Jobs since Pixar produced profitable computer-animated movies for Disney.
Meanwhile Disney had a number of critical strategic problems to address. Disney was “too old” and
suffering from brand fatigue with aging characters, such as Mickey Mouse and Winnie-the-Pooh.
Disney was also “too young” and suffering from “age compression,” meaning it appealed only to
young children, not preteens and teens. Finally, despite its legendary animated films, over time, Disney
films and DVDs underperformed.
Iger found the company in the midst of a deep, global economic recession. Disney Films,
which had been profitable, saw revenues drop. At Disney’s TV networks, operating income fell, as did
the number of 1849 viewers. Iger was faced with losses and decreasing revenues. With operating
income also down sharply at its parks and resorts, Disney offered voluntary buyouts to 600 executives,
hoping to significantly cut costs. Further savings were achieved by consolidating departments; the
menu planning department at Disney Land in California and the menu planning department at Disney
World in Florida were merged into one department serving both parks.
While the first step of retrenchment includes significant cost reductions, the next step is
recovery, taking strategic actions to return to a growth strategy. After cutting costs, Iger “doubled
down” on investments in theme parks, technology, and construction. He reasoned that in the
long-term, Disney couldn’t afford to pass up significantly lower costs for resort construction and
expensive assets like cruise ships brought about by the recession.
Disney also began acquiring other companies. Disney bought Marvel Entertainment (comic
book heroes) and Playdom, a company that makes games for Facebook users. Disney’s acquisition of
Playdom helps the company in terms of technology and online games, giving it access to technology,
experience, and expertise, an “acquisition,” according to Iger that “would get us there much faster than
doing it organically.”
Disney is an entertainment conglomerate with Walt Disney Studios (films), parks and resorts
(including Disney Cruise lines and vacations), consumer products (i.e., toys, clothing, books,
magazines, and merchandise), and media networks such as TV (ABC, ESPN, shows and channels
(ABC, ESPN, Disney Channels, ABC Family), radio, and the Disney Interactive Media Group (online,
mobile, and video games and products). Given the number of different entertainment areas that Disney
has, what business is Disney really in? Is Disney a content business, creating characters and stories?
Or is it a technology/distribution business that simply needs to find ways to buy content wherever it
can, for example, buying Pixar, and then delivering that content in ways that customers want (i.e.,
DVDs, cable channels, iTunes, Netflix, social media, Internet TV, etc.)?
Disney, says Iger, is in the content business, and that creative content, not distribution, is
Disney’s “heart and soul. “My goal is to make more great content, deliver it to more people, in more
places, more often.” Creating content in the form of storytelling, not technology, is why Disney
bought Pixar Studies. Pixar president Ed Catmull says, “We won’t let anything get ahead of the
quality of the story.”
86. Refer to WWYD Walt Disney. If Disney were to sell off a Web search engine service to Microsoft and
a fast-food restaurant chain that it had acquired in the past, it would be following a(n) __________
strategy.
a.
overgrowth
b.
stability
c.
retrenchment/recovery
d.
grand
e.
positioning
87. Refer to WWYD Walt Disney. According to portfolio theory, Marvel would likely be classified as a
____ in the BCG matrix for Disney.
a.
star
b.
question mark
c.
cash cow
d.
dog
e.
problem child
88. Refer to WWYD Walt Disney. Bob Iger’s initial strategy entailed buy outs of hundreds of Disney
executives. This is indicative of a _____ strategy.
a.
retrenchment
b.
portfolio
c.
growth
d.
attack
e.
All of the choices are correct.
89. Refer to WWYD Walt Disney. After cutting costs, Iger’s strategy of investment reflects his shift into
which kind of strategy?
a.
retrenchment
b.
growth
c.
stability
d.
stars
e.
industry
90. Refer to WWYD Walt Disney. By purchasing Marvel, Disney was engaging in _____ diversification.
a.
high-risk
b.
lateral
c.
related
d.
unrelated
e.
no-risk
91. Refer to WWYD Walt Disney. At the industry level, when Iger commissioned a new Disney cruise
ship during the recession to add to its existing fleet, he likely experienced:
a.
lower barriers to entry
b.
higher bargaining power of suppliers
c.
higher bargaining power of competitors
d.
higher bargaining power of buyers
e.
higher barriers to entry
SHORT ANSWER
1. Briefly identify the four conditions used to achieve a sustainable competitive advantage by companies.
2. Differentiate between competitive inertia and strategic dissonance.
3. How do companies use situational analyses and what are the basic components of a situational
analysis?
4. Explain how the concept of strategic group (and its two sub-types) is used in a situational analysis as
part of an environmental scanning activity to identify specific opportunities and threats that can either
improve or harm the company's ability to sustain its competitive advantage.
5. Briefly describe the BCG Matrix and how it is used. Include in your description the types of
recommendations that result from use of the BCG Matrix.
6. Explain what is meant by a grand strategy and list and define the three types of grand strategies.
7. List the five industry forces that determine overall levels of competition in an industry. Identify what
happens to competition as these forces increase in strength.
ANS:
8. Identify and differentiate between the positioning strategies and the adaptive strategies used at the
industry level.
9. List the four different adaptive strategies. One of them tends to have poorer performance than the
others. Explain why.
ESSAY
1. When videocassette recorders first became popular in the mid-1980s, a new form of mom-and-pop
(i.e., small) business sprang up across the country: the video rental store. At the time, new videotapes
of popular movies cost anywhere from $80-$200, and as the popularity of videocassette recorders
grew, these small, independent video rental stores grew rapidly to meet the demand of consumers for
inexpensive rentals of movies. There was considerable competition among them to be the first to have
expensive, new movies available for rental. However, some stores disappointed customers by not
having enough copies of new films when they were most in demand, i.e., upon their initial release on
video. Within about 5 to 8 years of competition, most of these mom-and-pop video rental stores were
ultimately put out of business by the large regional and national chains such as Blockbuster. Using the
concept of sustainable competitive advantage along with the four conditions required to produce it,
explain how such a transition from hundreds of independent mom-and-pop video stores to a few
national chains could have taken place so quickly.
2. Explain how the concepts of competitive inertia and strategic dissonance are related to the strategy
making process. Explain the importance of gathering input regarding strategic plans from multiple
levels of management.
ANS:
3. Explain the basics of portfolio strategy. Identify the best approach to diversification using this strategy.
Be sure to explain your rationale for arguing that the specified approach to diversification is the best.
4. Identify Porter's five industry forces and their role in industry-level strategy. Identify which one among
these five forces could be considered the central one, with its value impacted by the relative values of
the four other forces.
5. Explain what is meant by direct competition. Identify the factors that determine it, and specify the
basic strategic moves involved in such competition. If you were heading a company engaged in direct
competition with other firms, explain the circumstances under which you would prefer to engage in
direct competition in order to develop a sustained competitive advantage?

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