6. The immediacy of the resulting threat to company survival posed by the turnaround
a) Severity is the governing factor in estimating the speed with which the
7. Turnaround responses among successful firms typically include two stages of
strategic activities: retrenchment and the recovery response.
a) Retrenchment consists of cost-cutting and asset-reducing activities.
b) The primary objective of the retrenchment phase is to stabilize the firm’s
financial condition.
8. The primary causes of the turnaround situation have been associated with the second
phase of the turnaround process, the recovery response.
a) For firms that declined primarily as a result of external problems, turnaround
b) For firms that declined primarily as a result of internal problems, turnaround has
c) Recovery is achieved when economic measures indicate that the firm has
K. Divestiture
1. A divestiture strategy involves the sale of a firm or a major component of a firm.
2. When retrenchment fails to accomplish the desired turnaround, or when a
a) However, because the intent is to find a buyer willing to pay a premium above
b) Prospective buyers must be convinced that because of their skills and resources
3. The reasons for divestiture vary.
a) They often arise because of partial mismatches between the acquired firm and
the parent corporation.
L. Liquidation
1. When liquidation is the grand strategy, the firm typically is sold in parts, only
occasionally as a whole—but for its tangible asset value and not as a going concern.
a) In selecting liquidation, the owners and strategic managers of a firm are
b) For these reasons, liquidation usually is seen as the least attractive of the grand
c) As a long-term strategy, however, it minimizes the losses of all the firm’s
d) Faced with bankruptcy, the liquidating firm usually tries to develop a planned
M. Bankruptcy
1. Business failures are playing an increasingly important role in the American
economy.
a) In an average week, more than 300 companies fail.
(1) More than 75 percent of these financially desperate firms file for a
assets to creditors, most of whom receive a small fraction of the amount
(2) Liquidation is what the layperson views as bankruptcy: The business
(3) Investors lose their money, employees lose their jobs, and managers lose
b) The other 25 percent of these firms refuse to surrender until one final option is
exhausted.
(1) Choosing a strategy to recapture its viability, such a company asks the
courts for a reorganization bankruptcy.
(2) The firm attempts to persuade its creditors to temporarily freeze their
2. The Bankruptcy Situation
a) Imagine that your firm’s financial reports have shown an unabated decline in
revenue for seven quarters.
3. Chapter 7: The Harshest Resolution
a) If the judgment of the owners of a business is that its decline cannot be reversed,
of the Bankruptcy Code.
(1) The court appoints a trustee, who collects the property of the company,
reduces it to cash, and distributes the proceeds proportionally to creditors
terminates a business.
(3) This type of filing is critically important to sole proprietors or partnerships.
(4) Their owners are personally liable for all business debts not covered by the
b) The shareholders of corporations are not liable for corporate debt and any debt
(1) Corporate shareholders may simply terminate operations and walk away
(2) However, filing a Chapter 7 proceeding will provide for an orderly and fair
4. Chapter 11: A Conditional Second Chance
a) A proactive alternative for the endangered company is reorganization
bankruptcy.
(1) Chosen for the right reasons, and implemented in the right way,
b) A thorough and objective analysis of the company may support the idea of its
(1) If the realistic possibility of long-term survival exists, a reorganization
(2) Reorganization allows a business debtor to restructure its debts and, with
(3) Creditors involved in Chapter 11 actions often receive less than the total
c) A Chapter 11 bankruptcy can provide time and protection to the debtor firm
(1) The Company may restructure debts, close unprofitable divisions or stores,
(2) If the plan is accepted by creditors, the Company will be given another
5. Seeking Protection of the Bankruptcy Court
a) If creditors file lawsuits or schedule judicial sales to enforce liens, the Company
(1) Filing a bankruptcy petition will invoke the protection of the court to
(2) If reorganization is not possible, a Chapter 7 proceeding will allow for the
b) If Chapter 11 proceeding is the required course of action, the Company must
(1) Will sufficient cash be available to pay for the proceedings and
reorganization?
6. Emerging from Bankruptcy
a) Bankruptcy is only the first step toward recovery for a firm.
(1) Many questions should be answered.
(2) How did the business get to the point at which the extreme action of
bankruptcy was necessary?
b) Commitments to “try harder,” “listen more carefully to the customer,” and “be
(1) A recovery strategy must be developed to delineate how the company will
compete more successfully in the future.
c) An assessment of the bankruptcy situation requires executives to consider the
causes of the Company’s decline and the severity of the problem it now faces.
(1) Investors must decide whether the management team that governed the
(2) Creditors must believe that the company’s turn can return the firm to a
(3) Creditors must believe that the company’s managers have learned how to
(4) Alternatively, they must have faith that the company’s competencies can
d) The 12 grand strategies discussed above, used singly and much more often in
combinations, represent the traditional alternatives used by firms in the U.S.
(1) Recently, three new grand types have gained in popularity (thus totaling
(2) Although they do not fit the criterion by which executives retain a high
(3) These three newly popularized grand strategies are joint ventures, strategic
N. Joint Ventures
1. Occasionally two or more capable firms lack a necessary component for success in a
particular competitive environment.
a) The solution is a set of joint ventures, which are commercial companies
2. The particular form of joint ventures discussed above (oil example) is joint
ownership.
a) In recent years, it has become increasingly appealing for domestic firms to join
3. The joint venture extends the supplier-consumer relationship and has strategic
4. It should be noted that strategic managers understandably are wary of joint ventures.
b) On the other hand, joint ventures often limit the discretion, control, and profit
c) Nevertheless, increasing globalization in many industries may require greater
O. Strategic Alliances
1. Strategic alliances are distinguishable from joint ventures because the companies
a) In many instances, strategic alliances are partnerships that exist for a defined
b) For example, one partner provides manufacturing capabilities while a second
c) Many times, such alliances are undertaken because the partners want to develop
d) Such relationships are tricky because, in a sense, the partners are attempting to
2. In other instances, strategic alliances are synonymous with licensing agreements.
a) Licensing involves the transfer of some industrial property right from the U.S.
b) Most tend to be patents, trademarks, or technical know-how that are granted to
3. Another licensing strategy open to U.S. firms is to contract the manufacturing of its
4. Service and franchise-based firms have long engaged in licensing arrangements with
5. Outsourcing is a basic approach to strategic alliances that enables firms to gain a
competitive advantage.
a) Significant changes within many segments of American business continue to
encourage the use of outsourcing practices.
outsourcing.
6. Another successful application of outsourcing is found in human resources.
a) A survey of human resource executives revealed 85 percent have personal
b) In addition, it was found that two-thirds of pension departments have outsourced
P. Consortia, Keiretsus, and Chaebols
1. Consortia are defined as large interlocking relationships between businesses of an
3. A Japanese keiretsu is an undertaking involving up to 50 different firms that are
IV. Selection of Long-Term Objectives and Grand Strategy Sets
A. At first glance, the strategic management model, which provides the framework for study
1. In fact, however, strategic choice is the simultaneous selection of long-range
2. When strategic planners study their opportunities, they try to determine which are
3. Almost simultaneously, they try to forecast whether an available grand strategy can
4. In essence, then, three distinct but highly interdependent choices are being made at
B. A simplified example of this process is shown in Strategy-in-Action Exhibit 7.16, A
Profile of Strategic Choice Options.
1. These options stem from three interactive opportunities.
2. Because each of these interactive opportunities can be approached through different
3. Thus, a firm rarely can make a strategic choice only on the basis of its preferred
4. Instead, these three elements must be considered simultaneously, because only in
C. In an actual decision situation, the strategic choice would be complicated by a wider
D. In the next chapter, the strategic choice process will be fully explained.
1. However, knowledge of long-term objectives and grand strategies is essential to
V. Sequence of Objectives and Strategy Selection
A. The selection of long-range objectives and grand strategies involves simultaneous, rather
1. While it is true that objectives are needed to prevent the firm’s direction and progress
2. In fact, long-term objectives and grand strategies are so interdependent that some
3. Long-term objectives and grand strategies are still combined under the heading of
B. However, the distinction has merit.
1. Objectives indicate what strategic managers want but provide few insights about how
2. Conversely, strategies indicate what types of actions will be taken but do not define
C. Does it matter whether strategic decisions are made to achieve objectives or to satisfy
constraints?
1. No, because constraints are themselves objectives.
3. Likewise, the constraint of an increase in the sales force does not ensure that the
increase will be achieved, given such factors as other company priorities, labor market
conditions, and the firm’s profit performance.
D. The process of combining long-term objectives and grand strategies produces a
2. The following are the suggested business models:
a. Customer development/customer solutions profit model
b. Product pyramid profit model
c. Multicomponent system profit model