The CEO is the individual with primary responsibility for effective strategic leadership
within an organization.
a. True
b. False
A firm pursuing an unrelated diversification strategy will utilize a structure.
a. network
b. cooperative form multidivisional
c. competitive form multidivisional
d. functional
Walmart’s same store sales have been declining and those of rivals Family Dollar and
Amazon have been increasing. What could explain this recent change?
a. Walmart was too aggressive with its low-cost position and lost customers who
wanted more upscale products.
b. Walmart changed its strategy to focused differentiation.
c. Amazon and Family Dollar changed their strategies to attract more upscale
customers.
d. Walmart changed its strategy to attract more upscale customers.
The collaboration between Volvo Aero (a subsidiary of Sweden’s AB Volvo) and
U.S.-based Pratt & Whitney to produce a new jet engine would be characterized as a(n)
a. collusive tactic.
b. merger.
c. cross-border strategic alliance.
d. international acquisition.
CaseScenario3:Bunnywac.
Bunnywac is a global producer and seller of batteries for consumer electronics products
(radios, flashlights, toys, etc.), and competes primarily with its larger rivals by
providing battery products equal in performance at a lower price. The worldwide
battery industry suffers from issues of overcapacity and commoditization, brand
segmentation and proliferation, the growing strength of global retailers, and the
low-cost threat of new entrants from Asia. Thus, the ability to provide dependable
batteries at a very low cost is essential to survival in this industry. Bunnywac has grown
quickly into one of the leading players in the battery industry primary through
horizontal acquisitions financed by a recent successful IPO, and is now counted among
the top four companies in North and Latin America. Its presence in Europe and Latin
America is negligible. While its market presence and brand is generally strong and
market share is growing, Bunnywac has entered into an alliance to obtain the core
technologies of its batteries. Bunnywac does not actually own the technology that
makes its batteries work. This approach has provided Bunnywac a cost advantage since
it has not had to invest in basic R&D and has very little R&D infrastructure.
This technology is licensed from Mats (which has 200 engineers dedicated to moving
the technology forward), one of Japan’s largest technology-based holding companies
(like Sharp or Canon). Mats also sells batteries under the Pandemonium brand and
commands over 50 percent of the market share of Asian countries. Mats’ market share
in other global markets is negligible and its efforts at growing its branded battery share
in the North America, Latin America, and Europe has been severely frustrated in recent
years. While Mats is very large compared to Bunnywac, the battery technology and
battery business are relatively tiny relative to Mats’ other technology-based businesses.
Bunnywac’s decade-long licensing agreement with Mats for the essential battery
technology expires in 1 year; there are no obvious substitute providers of this
technology.
What should be Bunnywac’s primary concerns about its lapsing technology contract
with Mats?
Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same
industry in Ireland. It plans to move one of its key managers from its plant in St. Louis
to Ireland. This can be considered a method of transferring corporate-level core
competencies.
a. True
b. False
Competitive aggressiveness, proactiveness, risk aversion, innovativeness, and
autonomy are the five dimensions characterizing the entrepreneurial mind-set.
a. True
b. False
One reason why a long-tenured top-level manager may hesitate to conclude the firm’s
structure is a problem is that doing so
a. indicates to competitors that the firm is vulnerable to a hostile takeover.
b. will only lead to inefficiencies.
c. requires that the firm undertake a multi-year restructuring period that will delay
retirement.
d. suggests that the firm’s previous choices were not the best ones.
After years of negotiating short-term contracts with its suppliers, Icon Images has
decided to agree to longer-term contracts. In doing this, Icon Images is hoping to
a. reduce transaction costs.
b. increase negotiating leverage with suppliers.
c. become less dependent on its suppliers.
d. move toward horizontal alliances with its suppliers.
Complete the following: In small firms, managers often own a ________ percentage of
the firm, which means there is ______ separation between ownership and managerial
control.
a. small; small
b. small; large
c. large; small
d. large; large
An interior decorator has moved his business from Los Angeles to St. Paul, Minnesota,
because his spouse’s company transferred her to St. Paul. The decorator is distressed
because the customers in his target market have, in his words, “banal and bourgeois
taste.” What is the decorator’s problem?
a. The decorator does not understand that customer needs are neither right nor wrong,
good nor bad.
b. The decorator has no core competencies that will transfer to his new geographic
market.
c. The decorator should choose a strategy of cost leadership in this environment.
d. The decorator is highly affiliated with the new target market and understands how he
can create value for it.
Identify the three types of corporate-level cooperative strategies.
CaseScenario1:FeaNot.
Wim Vijkland was trained as an engineer in the Netherlands and, after college, worked
several years in the Chinese operations of Philips Electronics and then Unilever.
Between employers he returned home for several years to complete an MBA from
Tiburg University in the southern Netherlands. His work gave him hands-on experience
with overseas production, and rich sets of contacts in Mainland China and distribution
channels in Europe and the United States. Wim has noted that many small and
mid-sized European and U.S. manufacturers are interested in and would benefit from
the low-cost Chinese production environment. Contrary to external stereotypes, he also
believes that a Chinese factory can produce products that meet the most demanding
technical and quality specifications met by manufacturers in more developed
economies. At the same time, Vijkland understands that “foreigners” are generally
reluctant to manufacture precision products in China for fear that the underlying
proprietary technologies will be bootlegged and sold to competitors or outright copied.
In an attempt to capitalize on this opportunity, Wim quit his job with Unilever and
entered into a partnership with Sulin “Cathy” Liu, a local Beijing entrepreneur with
whom Wim has worked extensively in the past. Cathy has a Ph.D. in physics from
CalTech in California and an MBA from Hong Kong University of Science and
Technology. They have dubbed their partnership FearNot, and organized it as a limited
liability corporation (LLC). Their plan is to set up duty-free manufacturing zones in
which they develop mini-factories that operate under their ownership and production
guidance, while at the same time creating a firewall between the clients’ proprietary
production processes and the open Chinese market. It is the partners’ hope that this
combination of intellectual property protection and low-cost overseas production will
provide U.S. and European firms an incentive to enlist FearNot’s services.
What should FearNot focus on in its first months of operation?
CaseScenario2:ERPInc
ERP, Inc., (ERPI) is a leading provider of enterprise integration software (EIS). EIS
essentially allows a firm to connect and integrate processes across all aspects of its
business. To fuel its dramatic growth, ERPI has focused its organization entirely on
product development (software programming for a suite of EIS products) and selling
(making the sale and then moving onto a new target) while outsourcing the installation
and consulting aspects to the world’s largest accounting firms. This also makes ERPI
basically a “product company,” whereas most competitors like Oracle and PeopleSoft in
its market space operate as ‘solutions companies.” One benefit of this focused strategy
is that ERPI’s product is generally recognized as being 200 percent to 300 percent better
than competitors’ software, and thus adopters are thus likely to have a 1- to 2-year
advantage. In further contrast to the competition, ERPI has used its partnerships with
the accounting firms to deliver a turn-key solution, and has focused this solution on a
market comprised of the world’s largest, global manufacturers and consumer product
companies. The accounting firms, in turn, coordinate a comprehensive collection of
hardware, operating systems, and complementary software firms. Installation and
related consulting for EIS typically cost between $100 and $200 million, with the ERPI
software component accounting for only about 20 percent of the installed cost (the
remaining 80 percent is spent on the actual installation, not counting the value of the
customer’s time). To incentivize the accounting firms to help sell its product (since, at
least initially, the accounting firms had better reputations and controlled access to the
target customers), ERPI told its partners that it will never enter the installations and
consulting side of the business (aside from installation and consulting that ERPI does as
part of its software support). Dangling such a large carrot in front of the accounting
firms provided the continuing benefit of encouraging their continued support of ERPI
with their customers.
After managing this network of alliances for several years, what new strategic assets
has ERPI developed?
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).Barracuda’s acquisitions have been driven by the need to increase market
power and hence have been mostly horizontal and vertical acquisitions.
What are the attributes of a successful acquisition program?