Chapter 6: Organizational Strategy
TRUE/FALSE
1. 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.
2. A nonsubstitutable resource is a resource that is impossible or extremely costly or difficult for other
firms to duplicate.
3. A competitive advantage becomes a sustainable competitive advantage when other companies have
found it very expensive to duplicate the value a firm is providing to customers.
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 constantly re-examining strategies or competitive practices that have been
successful in the past in order to ascertain their probable future success.
7. Strategic myopia is a discrepancy between a company’s intended strategy and the strategy actually
implemented by management.
8. According to the What Really Works, “Strategy Making for Firms, Big and Small,” the probability
that the strategy-making process will increase a firm’s profits and growth is the same for both large
firms and small firms.
9. An analysis of an organization’s external environment begins with an assessment of the company’s
distinctive competencies and core capabilities.
10. 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.
11. When scanning the environment for strategic threats and opportunities, managers tend to categorize
the different companies in their industries into core firms, secondary firms, and transient firms.
12. The goal of a shadow-strategy task force is to actively seek out its own company’s weaknesses. Once
those weaknesses are found, the group is to think like a competitor and decide how those weaknesses
could be exploited to achieve a competitive advantage.
13. When companies are performing above or better than their strategic reference points, top management
is more likely to choose a daring, risk-taking strategy.
14. Corporate-level strategy is the overall organizational strategy that addresses the question “What
business or businesses are we in or should we be in?”
15. Portfolio strategy is a corporate-level strategy that minimizes risk by diversifying investment among
various businesses or product lines.
16. In contrast to a single, undiversified business, related diversification reduces risk,
17. If retrenchment works, it is typically followed by a stability strategy.
18. Companies often choose a stability strategy when their external environment doesn’t change much, or
after they have struggled with periods of explosive growth.
19. Companies can grow either externally or internally.
20. Industry-level strategy is a corporate strategy that addresses the question “How should we compete
against a particular firm in our industry?”
21. Character of the rivalry is a measure of the intensity of competitive behavior between companies in an
industry.
22. The threat of substitute products is a measure of the ease with which customers can find substitutes for
an industry’s goods or services.
23. The three positioning strategies are cost leadership, differentiation, and niche.
24. 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.
25. Differentiation is the positioning strategy of producing a product or service of acceptable quality at
consistently lower production costs than competitors can, so that the firm can offer the product or
service at the lowest price in the industry.
26. The four kinds of adaptive strategies are defenders, analyzers, prospectors, and reactors.
27. Reactors follow the consistent strategy of anticipating and reacting to potential external opportunities
and threats prior to their occurrence.
28. Most companies compete directly with all the firms in their industry.
29. The two factors that determine the extent to which firms will be in direct competition with each other
are market commonality and resource similarity.
30. The greater the market commonality, the less intense the direct competition between two companies.
31. Intrapreneurship refers to entrepreneurship within an existing organization.
32. An entrepreneurial orientation is the set of processes, practices, and decision-making activities that
lead to new market entry. The three key dimensions of an entrepreneurial orientation are
innovativeness, risk taking, and competitive aggressiveness.
33. Based on the BCG matrix, the invention of battery-free cell phones might turn companies that produce
cell phone batteries into question marks.
34. According to the text, Hormel Foods, the maker of deli meats and SPAM, is an example of related
diversification.
35. The mergers and acquisitions of Roche acquiring Genentach (pharmaceuticals) and Mars acquiring
Wrigley (candy) are examples of growth strategy, a type of grand strategy.
36. The Home Depot, the world’s largest home improvement retailer, spent years developing a business in
which it sold wholesale construction supplies. In 2007, the store admitted that its retail business had
suffered as a result of this effort and implemented a stability strategy to stem retail losses.
37. The Carl Zeiss Company is the leading manufacturer of optical systems, industrial measurements, and
medical devices. In 2006, competitor Optovue introduced RTVue FD-OCT to the U.S. market.
RTVue is a high-speed, high resolution OCT scanner used for retina imaging and analysis. In 2007,
Optovue won the coveted Medical Design Excellence Award for this innovative technology. Zeiss
should use an attack strategy to defend its market share.
MULTIPLE CHOICE
1. An organization that has __________ has 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. In 2010, Apple fans waited outside stores in anticipation of the release of the iPad, the latest device in
a series of innovations that have had phenomenal sales. Other firms have launched similar devices, but
Apple’s customers perceive its products to be better designed. Apple devices seem to have a:
a.
strategic stance
b.
synergistic role
c.
competitive advantage
d.
competitive window
e.
differential challenge
3. Author J. K. Rowling has had phenomenal sales with her Harry Potter books. Others have attempted to
write similar books, but Rowling’s audience perceives hers to be better written and more enjoyable.
Rowling’s Harry Potter series has a:
a.
strategic stance
b.
synergistic role
c.
competitive advantage
d.
competitive window
e.
differential challenge
4. A situational analysis for a manufacturer of pet food might reveal:
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.
all of these
5. 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
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. There are numerous competitive brands of cosmetics, perfumes, hair-care, and skin-care products on
the market. One such brand is Aveda. To differentiate its products from other similar brand, 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 imitable resources
d.
eliminate the need for nonsubstitutable resources
e.
create a competitive advantage
9. Top-Flite manufactures Strata golf balls and prices these balls at about three times what ordinary golf
balls costs. The Strata ball is selling exceptionally well because customers perceive the ball’s 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
10. While QVC was not the first home shopping television show, it has become the most successful. The
company has had a 14 percent growth rate since 1996. The company attributes its success to its
inimitable ability to blend entertainment and retailing. This ability gives QVC:
a.
a strategic orientation
b.
a value-based advantage
c.
strategic myopia
d.
a sustainable competitive advantage
e.
diversification capabilities
11. Bill Gates, in a talk at the Computer History Museum in Mountain View, California, said to the
interviewer, “Microsoft has had competitors in the past. It’s a good thing we have museums to
document this stuff.” If this were really the case, Microsoft would:
a.
believe that it had a permanent sustainable competitive advantage
b.
never experience competitive inertia
c.
never need to conduct a situation analysis
d.
operate as if competitive advantages were unnecessary
e.
locate more imitable resources
12. Which of the following is a condition that 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.
diversification
d.
entrepreneurial orientation
e.
a matrix organizational structure
13. Bank of America is the largest commercial bank in the United States. Would this give it a sustainable
competitive advantage?
a.
yes, because it would make its operations synergistic
b.
no, because size is not a criterion for sustainable competitive advantage
c.
no, because large institutions make less effective use of resources
d.
no, because large organizations are always targeted for antitrust activities
e.
yes, because size is directly and positively related to efficiency
ANS: B
14. 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
15. When making travel plans, many tourists have selected Thomas Cook, a British tour operation,
because they perceive the tour company as being superior to all others. No other tour service 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
16. While QVC was not the first home shopping television show, it has become the most successful. The
company has had a 14 percent growth rate since 1996. The company attributes its success to its
inimitable ability to create blend entertainment and retailing. Other cable television networks have
tried unsuccessfully to recreate QVC’s ability to make retailing entertainment. This ability indicates
that QVC uses _____ resources to its advantage.
a.
synergistic
b.
valuable
c.
tangible
d.
nonsubstitutable
e.
rare
17. Sherre McMahon is the inventor and manufacturer of Shooks—a product that extends the length of
any necklace. Her method is patented, which means she has a _____ resource.
a.
synergistic
b.
valuable
c.
tangible
d.
nonsubstitutable
e.
rare
18. 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
19. 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 the company more flexibility and to
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
20. Royal Dutch Shell stunned Wall Street in 2005 when it suddenly announced it was missing more than
$60 billion in oil and gas reserves. Industry analysts were not surprised because they have continually
criticized the company’s accounting techniques. In terms of the strategy-making process, Royal
Dutch Shell would have discovered this shortage when it:
a.
looked at its strategic alternatives
b.
sought to develop more competitive advantages
c.
conducted a situational analysis
d.
assessed the need for strategic changes
e.
created a strategy to avoid competitive myopia
21. When you’re a bike-lock maker whose slogan is “Tough World, Tough Locks,” it doesn’t get much
tougher than finding out that most of the locks you’ve been making for the last 30 years can be picked
with a Bic pen. That, sadly, is what happened to Ingersoll-Rand subsidiary Kryptonite, after bloggers
begin posting videos showing just how easy it is to pop open the company’s U-shaped locks. A
spokeswoman for the company said that the locks nonetheless provide “an effective deterrent against
theft.” This reluctance to change how the lock was made is known as:
a.
competitive dissonance
b.
strategic apathy
c.
competitive inertia
d.
strategic inertia
e.
competitive apathy
22. Revlon was once the world’s biggest cosmetics company. But over the past few years, its brands have
lost sales and struggled through a series of management setbacks, but still it was reluctant to give up
policies that were no longer operational. For example, its top management wanted to manage such
minutiae as whether a lipstick perfectly matched a nail polish. Revlon was experiencing:
a.
competitive dissonance
b.
strategic apathy
c.
competitive inertia
d.
strategic inertia
e.
competitive apathy
23. Abercrombie & Fitch paid $50 million to settle claims that it discriminated against minorities in hiring
salespeople for its “all–American” line of clothing. This policy was an example of an:
a.
strength
b.
weakness
c.
threat
d.
opportunity
e.
none of these
24. U.S. residents accounted for over 75 percent of cruise ship passengers, and U.S. ports had 8 million
passengers leaving on cruises in 2004. The growth in cruise travel was phenomenal after the terrorist
attacks on September 11, 2001. According to a situational analysis, this event created an _____ for
the industry.
a.
internal strength
b.
internal weakness
c.
internal threat
d.
external weakness
e.
external opportunity
25. According to the What Really Works, “Strategy Making for Firms, Big and Small,” the
strategy-making process:
a.
is done more frequently by smaller companies than by larger ones
b.
can benefit both small and large companies
c.
is done annually at the beginning of each fiscal year
d.
can only benefit large companies
e.
only examines the external environment
26. 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
27. One of the reasons why the highly fragmented chemical industry in Europe has experienced decreasing
profits is due to an industry reluctance to change the way it conducts business—especially in how it
competes against the 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
28. 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
29. An organization is experiencing __________ when there is a discrepancy between the company’s
intended strategy and the strategic actions actually implemented by management.
a.
competitive myopia
b.
character of the rivalry
c.
strategic dissonance
d.
competitive inertia
e.
an organizational roadblock
30. The Thomas Cook travel agency has experienced financial setbacks due to the Iraq war, the SARS
epidemic, and unusually hot weather in Europe. A situational analysis would conclude that its
setbacks were due to:
a.
threats in its external environment
b.
opportunities in its environmental environment
c.
weaknesses in its external environment
d.
the absence of strengths in its internal environment
e.
weaknesses in its internal environment
31. 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
32. In a situational analysis, a strategic group is a group of __________ that top managers choose for
comparing, evaluating, and benchmarking strategic threats and opportunities.
a.
non-industry-specific companies
b.
expert managers
c.
trade journals and other relevant periodicals
d.
companies within an industry
e.
consulting firms that use the Delphi technique
33. Several years ago QVC, the home shopping cable network, rang up $5.7 billion in sales and $760
million in operating profit, making it nearly as big and roughly twice as profitable as Amazon.com at
the time. It was the most profitable of all the home shopping networks. This gave it a(n):
a.
customer sustainability
b.
organizational advantage
c.
relative competence
d.
distinctive competence
e.
superlative advantage
34. By selling mostly independent-label titles on CDs and vinyl, Insound.com has won a following among
music snobs nationwide. The kind of hard-core fan that Insound attracts buys 21 records a year while
a typical consumer’s annual purchases can be counted on one hand. The company was slowly built
by forging partnerships with distributors, labels, and artists. In return, the labels and distributors
directed their customers to Insound. The source of Insound’s distinctive competencies is its:
a.
imperfectly imitable resources
b.
valuable resources
c.
reference-point strategies
d.
core capabilities
e.
sources of innovation
35. Top managers at Reebok looked at what Nike, New Balance, and smaller athletic shoe manufacturers
like Majestic were doing to reach their chosen target markets and decided upon comparison that it
wanted to risk targeting the hip-hop market. For Reebok, the athletic shoe manufacturers are:
a.
part of its strategic group
b.
the source of its competitive myopia
c.
companies without distinctive competencies
d.
companies that use a similar matrix strategy
e.
the source of its sustainable core competency
36. 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
37. 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.
shadow-strategy task forces
d.
benchmarking
e.
a situation analysis
38. 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 bikes and bike
accessories and an organizational culture that encourages innovation. This technological leadership as
well as its organizational culture is the company’s:
a.
customer sustainabilities
b.
organizational advantages
c.
relative competencies
d.
core capabilities
e.
superlative advantages
39. 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
40. In any organization, the __________ are the less visible, internal decision-making routines,
problem-solving processes, and organization 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
41. 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.
transient firm
d.
core firm
e.
secondary firm
42. In categorizing companies into strategic groups, __________ are companies whose strategies are
changing from one strategic position to another.
a.
core firms
b.
secondary firms
c.
pioneering firms
d.
transient firms
e.
tertiary firms
43. Polaroid and Kodak are two companies in the film-based imaging industry that use similar strategies
and would likely have been __________ in each other’s strategic groups until Polaroid declared
bankruptcy, and Kodak took the leadership role in developing digital technology.
a.
core firms
b.
rival firms
c.
primary firms
d.
defender firms
e.
advantageous rivals
44. Polaroid and Kodak are two companies in the film-based imaging industry that once used similar
strategies. Now Kodak is changing its strategy and adopting a leadership role in the development of
digital technology. If Polaroid were to conduct a situational analysis, in which strategic group would
it most likely place Kodak?
a.
core firms
b.
rival firms
c.
primary firms
d.
defender firms
e.
transient firms
45. When Kraft Foods decided to reorganize itself, it chose to follow the same model that Procter &
Gamble, another consumer products manufacturer, was using as it dissolved its country–by-country
organizational structure and created three global business structures. In terms of Kraft’s strategic
group, Procter & Gamble was a:
a.
secondary firm
b.
tertiary firm
c.
role model
d.
transient firm
e.
transformational firm
46. Top managers at Reebok looked at what Nike, New Balance, and smaller athletic shoe manufacturers
like Majestic were doing to reach their chosen target markets and decided upon comparison that it
wanted to risk targeting the hip–hop market. Reebok’s strategy is much more like the one
implemented by New Balance. Unlike Nike, neither Reebok nor New Balance uses athletes as
spokespeople for its products. Therefore, Nike would be an example of a _____, and New Balance
would be an example of a _____ for Reebok.
a.
transient firm; secondary firm
b.
secondary firm; core firm
c.
transient firm; core firm
d.
core firm; secondary firm
e.
secondary firm; transient firm
47. 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
48. A _____ is a committee within a company that analyzes the company’s own weaknesses to determine
how competitors could exploit them for competitive advantage.
a.
special-purpose SWOT team
b.
functional task force
c.
shadow-strategy task force
d.
new-product development committee
e.
self-managed strategic team
49. Reebok hopes to change the rules of sneaker marketing, abandoning high-priced celebrity-athlete
endorsements in favor of the harder–to-control world of high fashion. It must also convince consumers
that a company that was once decidedly unhip is producing cool shoes through its marriage of hip-hop
and Japanese fashion. In terms of the Strategic Reference Point Theory, Reebok has adopted a _____
strategy.
a.
risk-seeking
b.
diversification
c.
core competency
d.
risk-avoiding
e.
focus
50. 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 not change strategic reference points.
e.
None of these statements about the Strategic Reference Point Theory is true.
51. When scanning the environment for strategic threats and opportunities, managers use secondary firms,
core firms, and __________ to categorize strategic groups.
a.
transient firms
b.
transformational firms
c.
advantageous rivals
d.
tertiary firms
e.
pioneering firms
52. The goal of a __________ is to actively seek out its own company’s weaknesses and then, thinking
like a competitor, determine how other companies could exploit them for competitive advantage.
a.
shadow-strategy task force
b.
strategy follower
c.
transient firm analysis
d.
corporate-level strategy
e.
guerrilla marketer
53. __________ are the strategic 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
54. According to Strategic Reference Point Theory, managers have two basic strategic alternatives. They
are:
a.
risk-avoiding strategy and pioneering strategy
b.
risk-avoiding strategy and risk-seeking strategy
c.
risk-maintenance strategy and conflict-avoidance strategy
d.
frontal attack strategy and guerrilla strategy
e.
none of these
55. 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
56. 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