Chapter 5—Organizational Strategy
TRUE/FALSE
1. Companies use their resources to improve organizational efficiency and effectiveness.
2. A competitive advantage becomes a sustainable competitive advantage when other companies have
found it very expensive to duplicate the what the firm is providing to customers.
3. There are four conditions that must be met if a firm’s resources are to be used to achieve a sustainable
competitive advantage. The resources must be valuable, rare, imperfectly imitable, and
nonsubstitutable.
4. The three steps of the strategy-making process are (1) assess the need for strategic change, (2) conduct
a situational analysis, and (3) choose the strategic alternatives.
5. Companies face very little uncertainty in their strategic business environments.
6. Companies that succeed are often constantly re-examining strategies or competitive practices that have
been successful in the past in order to ascertain their probable future success.
7. Strategic dissonance is a discrepancy between upper management’s intended strategy and the strategy
actually implemented by the lower levels of management.
8. An analysis of an organization’s external environment begins with an assessment of the company’s
distinctive competencies and core capabilities.
9. A strategic group is a group of other companies, within an industry, that top managers choose for
comparing, evaluating, and benchmarking their company’s strategic threats and opportunities.
10. When companies are performing above or better than their strategic reference points, top management
is more likely to choose a daring, risk-taking strategy.
11. Corporate-level strategy is the overall organizational strategy that addresses the question “What
business or businesses are we in or should we be in?”
12. Portfolio strategy is a corporate-level strategy that minimizes risk by diversifying investment among
various businesses or product lines.
13. Based on the research evidence, related diversification appears to be a better strategy for portfolio
management than unrelated diversification.
14. Companies often choose a stability strategy when their external environment doesn’t change much or
after they have struggled with periods of explosive growth.
15. If retrenchment works, it is typically followed by a stability strategy.
16. Industry-level strategy is a corporate strategy that addresses the question “How should we compete
against a particular firm in our industry?”
17. Character of the rivalry is a measure of the intensity of competitive behavior between companies in an
industry.
18. The threat of substitute products or services is a measure of the ease with which customers can find
substitutes for an industry’s goods or services.
19. Bargaining power of buyers tends to be higher when a company sells a popular product to multiple
buyers than when a company is dependent on just a few high-volume buyers.
20. The three positioning strategies are cost leadership, differentiation, and focus.
21. Differentiation is the positioning strategy of producing a product or service of acceptable quality at
consistently lower production costs than competitors.
22. A focus strategy entails using either a cost leadership or a differentiation approach to producing a good
or service.
23. The only kinds of adaptive strategies are defending, analyzing, and reacting.
24. Reactors follow the consistent strategy of anticipating and reacting to potential external opportunities
and threats prior to their occurrence.
25. Most companies compete directly with all the firms in their industry.
26. The two factors that determine the extent to which firms will be in direct competition with each other
are market commonality and resource similarity
27. The greater the market commonality, the less intense the direct competition between two companies.
28. From a competitive standpoint, resource similarity means that the strategic actions your company takes
could probably be matched by your direct competitors.
MULTIPLE CHOICE
1. _______ are the assets, capabilities, processes, information, and knowledge that an organization uses
to improve its effectiveness and efficiency, to create and sustain competitive advantage, and to fulfill a
need or solve a problem.
a.
grand strategies
b.
distinctive competencies
c.
competitive advantages
d.
resources
e.
strategic stances
2. A sustainable competitive advantage exists for an organization when other companies have tried
unsuccessfully to duplicate the advantage and ____.
a.
those companies have been prohibited from duplicating the advantage by federal law
b.
those companies have, for the moment, stopped trying to duplicate the advantage
c.
the organization is able to implement exclusive distribution
d.
the organization operates in the international marketplace
e.
the organization has a follower strategic stance
3. Which of the following must be met if a firm’s resources are to be used to achieve a sustainable
competitive advantage?
a.
differentiation
b.
imperfectly imitable resources
c.
related diversification
d.
unrelated diversification
e.
a matrix organizational structure
4. When making travel plans, many tourists have selected Thomas Cook, a British tour operation,
because they perceive that no other tour company can duplicate the customer service and satisfaction
that Thomas Cook has provided over its years of operation. Thomas Cook has apparently created a
sustainable competitive advantage by using ____ resources.
a.
synergistic
b.
valuable
c.
tangible
d.
nonsubstitutable
e.
rare
5. Deutsche Bank is the largest bank in the world. Would this give it a sustainable competitive
advantage?
a.
yes, because it would make its operations synergistic
b.
no, because size is not a criteria for sustainable competitive advantage
c.
no, because large institutions make more effective use of resources
d.
no, because large organizations are always targeted for anti-trust activities
e.
yes, because size is directly and positively related to efficiency
6. A(n) ____ resource is a resource that is not controlled or possessed by many competing firms.
a.
rare
b.
imperfectly imitable
c.
nonsubstitutable
d.
strategically dissonant
e.
permanent
7. A(n) ____ is a resource that is impossible or extremely costly or difficult for other firms to duplicate.
a.
rare
b.
imperfectly imitable
c.
nonsubstitutable
d.
strategically dissonant
e.
reliable
8. Aveda is a manufacturer and marketer of cosmetics, perfumes, hair-care, and skin-care products. To
differentiate its products from other similar brands, Aveda focuses on educating its customers on
general skin and hair care. Its salespeople are trained to answer questions and help customers find
solutions. Aveda has used customer education and employee training to ____.
a.
create synergy through relationship marketing
b.
prevent product duplication
c.
make efficient use of imitative resources
d.
eliminate the need for nonsubstitutable resources
e.
create a competitive advantage
9. According to the text, valuable, rare, imperfectly imitable resources can produce sustainable
competitive advantage only if they are ____ resources.
a.
nonsubstitutable
b.
substitutable
c.
reliable
d.
expensive
e.
imitable
10. The first step in the strategy-making process is to ____.
a.
assess the need for strategic change
b.
conduct a situation analysis
c.
choose strategic alternatives
d.
evaluate the impact of changes on the internal environment
e.
create a strategic budget
11. NTL is the largest cable company in the United Kingdom. The company has recently declared
bankruptcy and needs to engage in restructuring in order to give it more flexibility and allow it to raise
capital. Since it has identified the need for strategic change, what would be the organization’s next step
in this strategy-making process?
a.
finding the optimal strategic solution
b.
brainstorming
c.
conducting focus groups
d.
assessing the need for strategic change
e.
conducting a situation analysis
12. Top-Flite manufactures Strata golf balls and prices these balls at about three times what ordinary golf
balls cost. The Strata ball sells exceptionally well because customers perceive its patented three-layer
construction to improve handling and increase distance. The patent on these golf balls gives Top-Flite
a(n) ____.
a.
sustainable competitive advantage
b.
aggregate marketing strategy
c.
reliable differentiation
d.
strategic stance
e.
differential stance
13. An organization is experiencing ____ when it is reluctant to change strategies or competitive practices
that have been successful in the past.
a.
strategic dissonance
b.
strategic inertia
c.
competitive dissonance
d.
competitive inertia
e.
sustained competitive disarray
14. The highly fragmented chemical industry in Europe has experienced decreasing profits in an industry
reluctance to change the way it conducts business, especially in how it competes against lower-priced
U.S. imports. This is an example of ____.
a.
competitive dissonance
b.
strategic apathy
c.
competitive inertia
d.
strategic inertia
e.
competitive apathy
15. An organization is experiencing ____ when there is a discrepancy between upper management’s
intended strategy and the strategy actually implemented by the lower levels of management.
a.
horizontal conflict
b.
character of the rivalry
c.
strategic dissonance
d.
competitive inertia
e.
an organizational roadblock
16. While ____ is a problem strongly associated with top managers, ____ is a problem more likely to be
associated with middle and lower-level managers.
a.
competitive dissonance; strategic inertia
b.
differentiation discrepancy; strategic dissonance
c.
strategic inertia; competitive dissonance
d.
strategic dissonance; competitive discrepancy
e.
competitive inertia; strategic dissonance
17. A ____, also called a SWOT analysis for strengths, weaknesses, opportunities, and threats, is an
assessment of the strengths and weaknesses in an organization’s internal environment and the
opportunities and threats in its external environment.
a.
market audit
b.
firm-level strategy
c.
competitive advantage
d.
differentiation analysis
e.
situational analysis
18. Companies in the chemical industry are struggling to attract the most talented college graduates. One
of the biggest challenges facing these companies is attracting new talent to organizations with an “old
economy” image. A situational analysis would term this challenge a(n) ____.
a.
internal threat
b.
external opportunity
c.
internal weakness
d.
internal opportunity
e.
external strength
19. Specialized Bicycle Components, Inc. introduced the first major production mountain bike in 1980.
Two-thirds of its profits come from the sale of mountain bikes. It is recognized worldwide for its
ability to design and produce superior mountain bikes. This ability is its ____.
a.
customer sustainability
b.
organizational advantage
c.
relative competence
d.
distinctive competence
e.
superlative advantage
20. While ____ are tangible, ____ are not.
a.
core capabilities; distinctive competencies
b.
competitive advantages; differential advantages
c.
strengths and weaknesses; opportunities and threats
d.
opportunities and threats; strengths and weaknesses
e.
distinctive competencies; core capabilities
21. In any organization, the ____ are the less visible, internal decision-making routines, problem-solving
processes, and organizational cultures that determine how efficiently inputs can be turned into outputs.
a.
imperfectly imitable resources
b.
valuable resources
c.
distinctive competencies
d.
core capabilities
e.
sources of innovation
22. Which of the following is a mechanism used to examine external threats and opportunities facing a
firm as well as its internal strengths and weaknesses?
a.
organizational scanning
b.
internal marketing
c.
corporate strategy
d.
benchmarking
e.
a situational analysis
23. In a situational analysis, a strategic group is a group of ____ that top managers choose for comparing,
evaluating, and benchmarking their company’s strategic threats and opportunities.
a.
non–industry specific companies
b.
expert managers
c.
trade journals and other relevant periodicals
d.
other firms within an industry
e.
consulting firms that use the Delphi technique
24. Imagine Dow Chemical is conducting a situational analysis. According to its sales, Dow is the second
largest chemical company in the world. BASF is the largest. Both companies use a similar strategy.
Within Dow’s situational analysis, BASF would be classified as a ____.
a.
cash cow
b.
primary firms
c.
unrelated firm
d.
core firm
e.
secondary firm
25. Specialized Bicycle Components, Inc. introduced the first major production mountain bike in 1980.
Since then, the company has maintained a technological leadership in the production of bike and bike
accessories and an organizational culture that encourages innovation. Technological leadership, as well
as its organizational culture, are the company’s ____.
a.
customer sustainabilities
b.
organizational advantages
c.
relative competencies
d.
core capabilities
e.
superlative advantages
26. For companies whose main products will not be seen by consumers and whose skills lie in productivity
anonymity, a ____ could be to create a brand image to create a distinctive competence.
a.
strategic reference point
b.
tactical benchmark
c.
strategic mission
d.
core advantage
e.
competitive sustainability
27. Which of the following statements about the strategic reference point theory is true?
a.
The theory does not consider risk factors.
b.
The theory is deterministic.
c.
The theory may lead to bureaucratic management.
d.
This theory recommends that managers do not change strategic reference points.
e.
None of these statements about the Strategic Reference Point Theory is true.
28. When doing an analysis of strategic groups to assess external environmental threats and opportunities,
____ firms are firms that use related but somewhat different strategies than ____ firms.
a.
secondary; pioneering
b.
secondary; core
c.
transient; core
d.
pioneering; secondary
e.
core; transient
29. A situational analysis for a manufacturer of pet food might reveal which of the following facts____.
a.
a growing dog and cat population in the United States
b.
scientific research that indicates dogs need less calcium in their diet
c.
a less expensive, more nutritious imported brand of pet food
d.
a growing demand for gourmet pet food
e.
A SWOT analysis might reveal all of the listed issues.
30. According to strategic reference point theory, managers have two basic strategic alternatives. They are
____.
a.
risk-avoiding strategy and pioneering strategy
b.
risk-maintenance strategy and conflict-avoidance strategy
c.
risk-avoiding strategy and risk-seeking strategy
d.
frontal attack strategy and guerilla strategy
e.
none of these
31. ____ are the targets that managers use to measure whether their firm has developed the core
competencies that it needs to achieve a sustainable competitive advantage.
a.
Strategic reference points
b.
Strategic focus points
c.
Differentiation targets
d.
Imperfectly imitable resources
e.
Strategic monitors
32. The term ____ refers to the overall organizational strategy that addresses the question “What business
or businesses are we in or should we be in?”
a.
firm-level strategy
b.
corporate-level strategy
c.
industry-level strategy
d.
portfolio strategy
e.
vision
33. The two major approaches to corporate-level strategy are ____.
a.
portfolio strategies and secondary strategies
b.
grand strategies and temporal strategies
c.
grand strategies and the portfolio strategy
d.
the Boston matrix strategy and the Maslow strategy
e.
major strategies and minor strategies
34. Which of the following is an example of a common approach to corporate-level strategy?
a.
positioning strategies
b.
adaptive strategies
c.
ROI strategies
d.
grand strategies
e.
attacking strategies
35. Which of the following statements is true about how the portfolio strategy can be used to help
managers acquire companies that fit well with the rest of their corporate portfolio?
a.
The fewer businesses in which a corporation competes, the smaller its overall chances of
failing.
b.
Risk can be reduced through related diversification (creating or acquiring companies in
related businesses).
c.
Invest the profits and cash from mature, slow-growth businesses into newer, faster
growing businesses.
d.
The most significant advantage of the portfolio strategy is the ability to categorize
businesses as stars, exclamation points, question marks, and dogs.
e.
All of these statements about how the portfolio strategy can be used to help managers
acquire companies that fit well with the rest of their corporate portfolio are true.
36. Starbucks, the operator of Starbucks coffeehouses, also markets a line of compilation CDs and other
non-coffee items. The making and marketing of the CDs and other non-coffee products would be an
example of ____.
a.
related differentiation
b.
related diversification
c.
an integrated acquisition
d.
competency acquisition
e.
unrelated diversification
37. When Clorox Corporation, a manufacturer of bleach and bleach-based cleaning products, acquired
Kingsford Charcoal and Prime Choice brand steak sauce; it was an example of ____.
a.
related differentiation
b.
related diversification
c.
an integrated acquisition
d.
competency acquisition
e.
unrelated diversification
38. The ____ is a portfolio strategy that managers use to categorize their corporation’s businesses by
growth rate and relative market share. This strategy helps them to decide how to invest corporate
funds.
a.
investment matrix
b.
SWOT matrix
c.
BCG matrix
d.
portfolio management matrix
e.
Maslow grid
39. Specialized Bicycle Components, Inc. introduced the first major production mountain bike in 1980.
Two-thirds of its profits come from the sale of mountain bikes. Specialized bikes have a large share of
a fast-growing market. According to the BCG matrix, specialized mountain bikes would be classified
as ____.
a.
problem children
b.
cash cows
c.
exclamation points
d.
stars
e.
question marks
40. Deutsche Bank became the world’s largest bank through mergers with Bankers Trust, a transatlantic
banking operation. Since both banking companies had similar core capabilities, this would be
classified as an example of ____.
a.
related differentiation
b.
related diversification
c.
an integrated acquisition
d.
competency acquisition
e.
unrelated diversification
41. Which of the following statements about portfolio strategy is true?
a.
The evidence supports the usefulness of acquiring unrelated businesses.
b.
Dysfunctional consequences can occur when companies are categorized.
c.
The strategy may weaken the strongest performer in the corporate portfolio, the problem
child.
d.
Labeling a top performer as a cash cow will strengthen employee morale.
e.
Maslow’s hierarchy can be used to determine the level of motivation needed to acquire and
make a success of portfolio strategy.
42. The research on diversification in portfolio management indicates that the best approach is probably
____.
a.
related differentiation
b.
related diversification
c.
unrelated diversification
d.
repositioning
e.
no diversification
43. A ____ strategy is a broad corporate-level strategic plan used to achieve strategic goals and guide the
strategic alternatives that managers of individual businesses or subunits may use.
a.
grand
b.
growth
c.
stability
d.
retrenchment/recovery
e.
repositioning.
44. In an attempt to stop declining profitability, ICI, a British chemical company, deleted petrochemical
products from its production and concentrated on specialty chemicals, a less capital-intensive, less
cyclical business. What type of a grand strategy was ICI using?
a.
retrenchment
b.
stability
c.
growth
d.
maturity
e.
cutback
45. McDonald’s uses a ____ strategy (a kind of grand strategy) as it increases its profits in France by
offering uniquely French products such as Croque McDo, the McDonald’s version of a popular French
grilled sandwich.
a.
growth
b.
decline
c.
retrenchment/recovery
d.
repositioning
e.
pioneering
46. When Coca-Cola acquired a water-treatment and bottling plant so it could produce and market Dasani
brand bottled water, it was an example of ____.
a.
a repositioning strategy
b.
external growth
c.
niche marketing
d.
a retrenchment strategy
e.
internal growth
47. When Clorox Corporation, the manufacturer of bleach and bleach-based cleaning products, acquired
Kingsford Charcoal and Prime Choice brand steak sauce; it was an example of ____.
a.
internal growth
b.
a stability strategy
c.
a pioneering strategy
d.
external growth
e.
a repositioning strategy
48. Companies can achieve growth mainly by ____.
a.
shrinking the scope of their business
b.
growing internally through direct expansion or creating new businesses
c.
deleting all cash cows from their portfolios
d.
only maintaining stars in their portfolios
e.
doing all of these
49. Companies that are following a ____ strategy would be most likely to try to improve the way in which
they sell the same goods or services to the same customers.
a.
growth
b.
pioneering
c.
retrenchment/recovery
d.
portfolio
e.
stability
50. Companies often choose a ____ strategy when their external environment doesn’t change much or after
they have struggled with periods of explosive growth.
a.
stability
b.
growth
c.
pioneering
d.
portfolio
e.
retrenchment
51. The purpose of a ____ strategy is to turn around very poor company performance by shrinking the size
or scope of the business.
a.
growth
b.
stability
c.
retrenchment
d.
maturity
e.
repositioning
52. The ____ strategy is analogous to pruning flowers.
a.
growth
b.
stability
c.
retrenchment/recovery
d.
portfolio
e.
repositioning
53. Significant cost reductions, layoffs of employees, closing of poorly performing stores, offices, or
manufacturing plants, or closing or selling entire lines of products or services would be characteristic
of a ____ strategy.
a.
portfolio
b.
retrenchment
c.
stability
d.
firm-level
e.
grand
54. In an attempt to stop declining profitability, ICI, a British chemical company, deleted petrochemical
products from its production and concentrated on specialty chemicals, a less capital-intensive, less
cyclical business. If ICI is successful in making the needed changes, it will more than likely implement
a ____ strategy.
a.
harvesting
b.
revitalization
c.
diversification
d.
revival
e.
recovery
55. If successful, which strategy is often followed by a growth strategy?