ESSENTIALS OF STRATEGIC MANAGEMENT, 3RD EDITION
CHAPTER 8
Strategic Change: Implementing Strategies to
Build and Develop a Company
Name: __________________________ Date: _____________
1. T F Strategic change refers to the movement of a company away from its present state toward
some desired future state to increase competitive advantage and profitability.
2. T F Reengineering is a process in which managers focus on business processes underlying the
value-creation process.
3. T F A business process is any activity that takes place within a functional area (i.e., marketing,
operations, R&D, etc.).
4. T F Business processes are the responsibility of one organizational function.
5. T F Reengineering and TQM are both approaches to improving effectiveness, but they are
incompatible with each other.
6. T F Restructuring usually involves flattening the organizational hierarchy and downsizing the
work-force.
7. T F The second step in the change process is for strategic managers to recognize the need for
change.
8. T F Managers seldom have trouble determining that something is going wrong in their
organization.
70 Chapter 8: Strategic Change: Implementing Strategies to Build and Develop a Company
9. T F Managers are the only ones that can recognize that there is a gap between desired company
performance and actual performance.
10. T F Obstacles to change can be found at four levels in the organization: functional, corporate,
divisional, and business unit.
11. T F At the corporate level, changing strategy even in seemingly trivial ways will not significantly
affect a company‘s behavior.
12. T F Change is difficult at the divisional level if divisions are highly interrelated, because a shift in
one division’s operations affects other divisions.
13. T F Individual resistance reinforces the tendency of each function and division to oppose changes
that may have uncertain effects on it.
14. T F Even when companies have been forced to change frequently, managers often do not have the
ability to handle change easily.
15. T F Although internal managers may have the most experience or knowledge about a company’s
operations, they may lack perspective because they are too close to the situation.
16. T F When companies promote CEOs from within, they get the benefits of both inside information
and external perspective.
17. T F Bottom-up change is generally slower than top-down change.
18. T F The emphasis in bottom-up change is on employee participation and keeping people informed
about the situation so that uncertainty is minimized.
19. T F The third step in the change process is to evaluate the effects of the changes in strategy on
organizational performance.
Chapter 8: Strategic Change: Implementing Strategies to Build and Develop a Company 71
20. T F According to Hamel and Prahalad, a core competency is a central value creation capability of
a company, this is, a core skill.
21. T F Hamal and Prahalad maintain that identifying current core competencies is the first step a
company should take in deciding which business opportunities to pursue.
22. T F Internal new ventures involve creating the value-chain functions necessary to start a new
business from scratch.
23. T F Research evidence suggests that large-scale entry into a new business is the best way for an
internal venture to succeed.
24. T F To increase the probability of commercial success, a company should foster close links
between R&D and marketing personnel.
25. T F A company should foster close links between R&D and marketing personnel to ensure that the
company has the capability to manufacture any proposed new products.
26. T F An advantage of project teams is that they can significantly reduce the time it takes to develop
a new product.
27. T F Evidence suggests that the most important criterion for evaluating a venture during its first
four to five years is market share.
28. T F A company can increase the probability of success of an internal venture by constructing
efficient scale production facilities ahead of demand.
29. T F An advantage of internal ventures over acquisitions as a mode of entering a new business area
is that internal ventures involve lower risks.
30. T F Acquisitions take longer to be executed than an internal new venture.
72 Chapter 8: Strategic Change: Implementing Strategies to Build and Develop a Company
31. T F Internal new ventures are the preferred entry mode when the industry to be entered is well–
established and incumbent companies enjoy significant protection from barriers to entry.
32. T F By acquiring an established enterprise, a company can circumvent most entry barriers.
33. T F Ample evidence suggests that many acquisitions do add value for the acquiring company, and
indeed, often end up increasing value.
34. T F Many acquisitions create value rather than destroy it.
35. T F After an acquisition, acquired companies experience high management turnover.
36. T F One reason for acquisition failure is management’s inadequate attention to preacquisition
screening.
37. T F A joint venture involves two companies jointly creating a new separate company to enter a
new business area.
38. T F The parties to an alliance may be actual or potential competitors.
39. T F Short-term outsourcing agreements are a type of strategic alliance.
40. T F The failure rate for strategic alliances is quite high.
41. Which of the following actions would you expect to see in a company that is undergoing a
reengineering?
a) Hiring more managers
b) Hiring more workers
c) Examining business processes to better serve customers
d) Investing more in product R&D
e) Centralizing decision-making authority
42. A hospital examines its processes closely and then changes them to become more patient-centered.
Among the changes are new ways of doing tasks and new groupings of workers. This is an example of
a) restructuring.
b) reengineering.
c) TQM.
d) benchmarking.
e) downsizing.
43. Which of the following statements concerning reengineering and TQM is correct?
a) Reengineering is more important than TQM.
b) After reengineering has taken place TQM takes over.
c) After TQM has taken place, reengineering takes over.
d) Reengineering and TQM usually take place after a company restructures.
e) TQM is more important than reengineering.
44. Which of the following steps should managers take if the change process is to succeed?
a) Determining the need to change
b) Determining the obstacles to change
c) Managing change
d) Evaluating the effects of change on organizational performance
e) All of these are steps that strategic managers must follow if the change process is to succeed.
45. Which of the following is not one of the organizational levels where obstacles to change may be
found?
a) Enterprise
b) Divisional
c) Corporate
d) Functional
e) Individual
46. Which of the following statements about approaches to implementing and managing change is
incorrect?
a) Top-down change is driven by a strong CEO and top management team.
b) Top-down change is faster than bottom-up change.
c) Bottom-up change requires participation and keeping people informed.
d) An advantage of bottom-up change is involving managers at all levels to reveal problems.
e) All of these statements are correct.
47. Hamel and Prahalad have developed a model that can help managers assess how and when they
should expand beyond their current market or industry. They find that it is useful to view a company
as a
a) portfolio of resources.
b) portfolio of situational advantages.
c) portfolio of strategies.
d) portfolio of core competencies.
e) portfolio of strategic intent.
48. Internal new ventures are likely to be preferred when
a) entry barriers are high.
b) exit barriers are high.
c) a company possesses a set of valuable competencies in its existing businesses that can be
leveraged to enter new business.
d) the company needs more mega-opportunities.
e) the industry is in the mature stage of the industry life cycle.
49. Internal new ventures
a) should be killed if they don’t make a profit within three years.
b) are faster than acquisitions.
c) are preferred to acquisitions when entry barriers are high.
d) are often preferred by science-based companies.
e) are best when the company is entering the industry on a small scale.
50. Even if it lacks the competencies required to compete in a new business, a company may pursue an
internal venturing strategy if the industry it is entering is a(n) ________________ industry.
a) mature
b) declining
c) stagnant
d) growing
e) emerging
51. Which of the following is not an explanation for the relatively high failure rate of internal new
ventures?
a) Entering on too small a scale
b) Poor commercialization of the new product
c) Trying to establish too many new ventures simultaneously
d) Not allowing new ventures ample time to turn a profit
e) All of these are explanations for the relatively high failure rate of internal new ventures.
52. An internal new venture is the most appropriate strategic choice when
a) an industry is mature.
b) the firm will enter on a small scale.
c) there is strong pressure for quick profitability.
d) speed of entry is the most important consideration.
e) a firm has competencies that can be leveraged.
53. Which of the following seems to be a major determinant of a new venture’s success?
a) Large-scale entry into the target industry designed to build market share, even when such entry
involves significant short-term losses
b) Cautious small-scale entry into the target industry so that the company can assess the probable
outcome of the venture without losing too much money
c) A low level of integration between the marketing and R&D functions of the venturing company
d) Supporting many new venture projects in the hope that one will succeed
e) Killing the new venture if it does not show a profit after the end of the third year
54. Research indicates that the uncertainty surrounding new ventures to be so great that it usually took a
company ______________ years after launching the venture to reasonably estimate the venture’s
future profitability.
a) one to two
b) two to three
c) ten
d) seven to eight
e) four to five
55. Evidence suggests that the most important criterion for evaluating a venture during its first four to
five years is
a) profitability
b) cash flow.
c) stock price.
d) market share growth.
e) investor ROI.
56. Which of the following entry strategies should be used when speed is an important consideration?
a) Internal new venture
b) Related diversification
c) Joint venture
d) Unrelated diversification
e) Acquisition
76 Chapter 8: Strategic Change: Implementing Strategies to Build and Develop a Company
57. A company considering entering an industry that is in the mature stage of its life cycle would
generally prefer which of the following entry strategies?
a) Joint ventures
b) New ventures
c) Taper integration
d) Long-term contracting
e) Acquisitions
58. Which of the following is not a reason for the failure of an acquisition to generate the gains originally
expected of it?
a) Poor postacquisition integration
b) Overestimation of the potential gains to be derived from synergy
c) The high cost of making acquisitions
d) Lack of preacquisition screening
e) Overestimation of the potential costs of realizing synergies
59. Acquisitions often fail because of
a) poor commercialization.
b) differences in corporate culture.
c) large-scale entry.
d) too much preacquisition screening, which increases the time it takes to enter a market.
e) slowness in establishing significant market presence.
60. Which of the following is not a guideline for a successful acquisition?
a) Good bidding strategy
b) A clear strategic rationale for making the acquisition
c) Completing the acquisition quickly
d) Thorough preacquisition screening
e) A good plan to integrate the acquired company into the acquired one
61. Which of the following is not one of the criteria for evaluating potential acquisition candidates?
a) Age
b) Product market position
c) Financial position
d) Management capabilities
e) Competitive environment
Chapter 8: Strategic Change: Implementing Strategies to Build and Develop a Company 77
62. The objective of bidding strategy is to
a) complete the acquisition quickly.
b) reduce the target population of potential acquisition candidates.
c) reduce the price that a company must pay for an acquisition candidate.
d) make sure that the acquired company‘s management does not remain after the acquisition is
completed.
e) avoid companies that are undervalued by the stock market.
63. Which of the following is not a potential advantage of strategic alliances?
a) Facilitating entry into a market
b) Sharing the costs of developing new products
c) Bringing together complementary skills and assets that neither company could easily develop on
its own
d) Providing access to valuable low-cost manufacturing knowledge
e) All of these are potential advantages of strategic alliances
64. Which of the following is not a potential drawback to joint ventures?
a) Profits of the new business must be shared.
b) Partners share costs and risks of the new business.
c) Shared control results in conflicts.
d) Critical know-how may be given away
e) All of these are potential joint venture drawbacks.
65. The success of a strategic alliance includes all of the following except
a) partner selection
b) alliance structure
c) the way the alliance is managed
d) a, b, & c above
e) none of the above
66. In a strategic alliance, a good partner
a) has capabilities that the company values but that it lacks.
b) helps the company achieve its strategic goals.
c) shares the firm’s vision for the purpose of the alliance.
d) is unlikely to opportunistically exploit the alliance.
e) has all of these advantages listed.
67. Pertinent information about potential alliance partners is available from
a) informed third parties.
b) investment bankers who have had dealings with the firm.
c) former employees.
d) face-to-face meetings with senior managers.
e) all of these
78 Chapter 8: Strategic Change: Implementing Strategies to Build and Develop a Company
68. Which of the following is not a safeguard against opportunism by alliance partners?
a) Designing the alliance to “wall off” sensitive technologies
b) Realizing the goals of the alliance
c) Partners swapping important proprietary skills and technology
d) Contractual arrangements that limit partner exploitation
e) Obtaining credible commitments
69. Which of the following best illustrates a credible commitment from an alliance partner?
a) CEO agreement to work together
b) Developing mutually agreeable output controls
c) Exchanging lower-level employees
d) Taking a significant equity stake in the alliance partner
e) All of these equally illustrate credible commitments.
70. Which of the following is not a consideration in terms of managing a strategic alliance to maximize its
potential benefits?
a) Sensitivity to cultural differences
b) Learning from a partner
c) Building interpersonal relationships between the partners’ managers
d) Selecting the right bidding strategy
e) All of these are considerations for managing a strategic alliance to maximize potential benefits.
71. A key to making a strategic alliance work is
a) having one partner handle daily operations.
b) reducing investment in the alliance to a minimum.
c) sharing all knowledge.
d) enforcing one culture for both partners.
e) selecting the right partner.
72. Attaining a credible commitment from a potential partner
a) is a step in partner selection.
b) is a way to safeguard against the opportunism of cheating.
c) requires the ability to learn from alliance partners.
d) requires the ability to share skills with partners
e) requires the ability to share skills with and learn from alliance partners.
73. Describe what is meant by the terms “restructuring” and “reengineering,” and discuss when and why
they would be used.
74. Under what conditions should a firm that is facing the need to diversify consider the use of an
internal new venture strategy, an acquisition strategy, or a joint venture strategy?
75. Give an example of a firm that has diversified with an internal new venture. Was the strategy
successful? Why or why not? Now answer the above questions for a firm that has diversified through
acquisitions, and through a joint venture.
76. What are the potential benefits and risks of strategic alliances? What actions can a firm take to
minimize the risks and fully exploit the benefits?
