Document Sample
               KEY FOR CONCEPT EXAM PART B Spring 2004

MULTIPLE CHOICE - Choose Best Answer and Record Below

1.    TRUE
2.    _B____
3.    _A____
4.    _B___
5.    _E____
6.    _C____
7.    _B____
8.    _A____
9.    _E____
10.   _D____
11.   _C____
12.   _C____
13.   _D____
14.   _D____
15.   _E____
16.   _D____
17.   _C____
18.   _D____
19.   _A____
20.   _D____
21.   _A____
22.   _B____
23.   _A____
24.   _D____
25.   _D____
Please select the best answer to each question and place on answer sheet

1.   One reason most mergers fail is that welding two companies is enormously difficult.
      True          False

2.     The mission statement clearly indicates:
       A) employee type desired
       B) primary market
       C) cost structure objectives
       D) profit potential
       E) none of the above

3.   Growth means:
      A) change
      B) stability
      C) effectiveness
      D) efficiency
      E) reciprocity

4.   Which of the following are intended to provide benchmarks for the evaluation of the
     company's progress in achieving its aim?
       A) Mission
       B) Long-term objectives
       C) Grand strategies
       D) Business policies
       E) Functional strategies

5.   Which of the grand strategies is typically lowest in risk?
      A) Horizontal integration
      B) Innovation
      C) Market development
      D) Divestiture
      E) Concentrated growth

6.   A "new" and "improved" product describes:
      A) diversification
      B) concentrated growth
      C) product development
      D) market development
      E) none of the above

7.   Striving to create and market unique products for varied customer groups is called
       A) cost leadership
       B) differentiation
       C) focus
       D) concentrated growth
       E) none of the above
8.    Firms that focus on a specific product and market combination are utilizing a _____ strategy.
        A) Concentrated growth
        B) Turnaround
        C) Product development
        D) Innovation
        E) None of the above

9.    The acquisition of one or more businesses operating at the same stage of the production-
      marketing chain is an example of:
       A) market development
       B) product development
       C) innovation
       D) joint venture
       E) horizontal integration

10.   Occasionally two or more capable companies lack a necessary component for success in a
      particular competitive environment. The optimal strategy in such a case would be:
        A) concentric integration
        B) diversification
        C) concentration
        D) joint venture
        E) conglomerate diversification

11.   Competitive position as a measure of corporate success is typically measured as:
       A) the input-output relationship of the company
       B) the earnings per share of the company
       C) the company's relative dominance in the marketplace
       D) the firm's profitability
       E) the firm's stock value

12.   Concentric diversification may be undertaken as a grand strategy because the acquiring firm
      wishes to:
       A) decrease
       B) sell off unneeded assets quickly
       C) balance or fill out its product line
       D) trim its product line
       E) acquire an investment opportunity

13.   Strategic alliances are distinguished from joint ventures:
        A) Joint ventures do not work in global situations
        B) Joint ventures are synonymous with licensing agreements
        C) Alliances never transfer property rights from U.S. licensor to foreign licensee for
            strategic alliance
        D) Because there are no equity positions taken in strategic alliances
        E) none of the above
14.    Which of the following is a skill or a resource that fosters rapid response (speed)?
       A) Process engineering skills
       B) Excellent inbound and outbound logistics
       C) High levels of automation
       D) All of the above.

15.   Which of the following is a key risk associated with a cost leadership oriented business
        A) Many cost saving activities are easily duplicated
        B) Exclusive cost leadership can become a trap
        C) Obsessive cost cutting can shrink other competitive advantages
        D) Cost differences often decline over time
        E) All of the above

16.   Successful business strategies in emerging industries usually include:
       A) the ability to shape the industry's structure
       B) the ability to rapidly improve product quality
       C) the early acquisition of a core group of loyal customers
       D) all of the above
       E) a and b

17.   "___________" businesses are those that rely on the same or similar capabilities to be
      successful and attain competitive advantage in their respective product-markets.
        A) Unrelated
        B) Strategic
        C) Related
        D) Corporate

18.   A "cash cow" business is one which:
       A) generates very large increases in sales revenues.
       B) produces very high profit after taxes and return on investment.
       C) has very large profit margins.
       D) produces large internal cash flows over and above what is needed to build and maintain
           the business.

19.   According to the BCG approach, a business with a large market share in a rapidly growing
      market is termed a
       A) star
       B) dog
       C) cash cow
       D) question mark.

20.   “___________” theory suggests that managers frequently place their own interests above those
      of their shareholders.
        A) resource
        B) transaction-cost
        C) strategic
        D) agency
21.   A vertical coordination strategy where relationship is characterized by short-term
      relationship, flexible and limited information sharing is called:
      A) Spot market
      B) Specification contract
      C) Relationship based alliance
      D) Vertical integration

22.   In industry role, a large firm with the largest market share and adopts others’ success is
       A) Proactive leader
       B) Adopter
       C) Loner
       D) Adaptive Leader

23.   Tyson is rethinking its business strategic scope, one option is to get multiple business in
      terms of products or markets that are not closely related. This describes:
      A) Conglomerate Diversification
      B) A single business dominant
      C) Concentric Diversification
      D) None of the above

24.   Due to the intense competition in the dairy industry Land O’ Lakes intend to pursue a
      strategy of offering goods with the highest attributes to a broad market: This strategy is
      A) Total innovation
      B) Niche marketing
      C) Cost leadership
      D) Differentiation

25.   After listing down all the potential actions strategies for a given core strategies priority
      should be given to:
      A) Attack gaps between resources and the available resources
      B) Direct resources into priority projects
      C) Collect more essential information that is not currently available
      D) All the above
                   CONCEPT EXAM PART B–ESSAY

Answer the essay questions in the space provided. Please write you name at the top of each page.
The point value of each question is shown in parentheses at the end of the question. There are 50 total
points. You may write on the back side of any page if needed.

Please read the question, think about what the question asks for, think about the answer, and only then
write the answer. Be thorough yet concise. We do not want volumes of response; we want insightful

1. Compare and contrast a spot market with an equity-based alliance as a strategy for vertical
   coordination. Consider, at least, the issues of intensity of control, method of control, and likely
   situation in which each might be used.     (12 pts.)

Spot Market:
- low intensity of control– to the left most position in the vertical coordination continuum
- whatever rules govern the immediate transaction
- situational use– when the costs of coordination errors for both entities are small

Equity-based Alliance

- Moderately high intensity of control where factors from(ex post) the transaction come to
  dominate outcomes of the transaction.
- the method of control is through formal, legal property rights that the entities hold in a limited
  joint entity. Most cooperatives are equity based alliances.
- situational use– when the costs of coordination errors are costly and no single entity has the
  capital and/or skills to unilaterally execute centralize control.
2. Consider the following core strategies (vertical coordination has been deliberately excluded from
   all and should not be considered in your answers):

  Core Strategy I: Best price/cost, grow, horizontal integration, global, external, adopter
  Core Strategy II: Best niche provider, maintain/defend, single business, domestic, internal, leader
  Core Strategy III: Best quality/feature, retrench, dominant product, global, acquisitions, challenger

  A. Are the components of strategy internally consistent for Core Strategy III? Why or why not?
     (7 pts.)

              No they are not. Pursuing an Industry Role as a Challenger means that the firm is
              striving to innovate and create new products, services and processes. A firm taking a
              Strategic Initiative of Retrenchment is intending to get smaller with fewer products
              and markets. A retrenching firm is also not likely to be acquiring firms especially in
              a global context. Therefore, there are several elements of Core Strategy II are

  B. Which of the core strategies above would probably be pursued by a firm in the S/T quadrant of
     the SWOT matrix? What are your reasons for making this choice? (State both the positive
     reasons for your selection and the reasons you did not choice the other two.) (7 pts.)

              The general strategic direction suggested by the S/T quadrant is growth through
              diversification. Only Strategy I has the strategic initiative to grow which is necessary
              to attempt a diversification strategy. Horizontal integration is a key method frequently
              used to diversify and is very consistent with an Industry Role of adopting and adapting
              successful strategies of other firms. The niche strategy combined with a Strategic
              Initiative of maintain/defend in Strategy II suggests an intent to defend the current
              focused, limited market of the firm. This places Strategy II in the W/T quadrant.
              Strategy III is not internally consistent.

(Question 2 continued)
  C. Which of the core strategies is most dependent upon volume as its key to profitability? Why?
     (7 pts.)

              Core Strategy I. Strategy I is a cost leadership strategy designed to generate a
              price/cost advantage which offers the best(lowest) price goods to a broad market of
              price-sensitive customers. This strategy generally requires products carry low margins
              which necessitates high volumes to generate profits.

  D. Because there is no such thing as a perfect strategy, either Core Strategy I or Core Strategy II
     would be equally likely to improve the strategic performance of a specific firm with a specific
     strategic analysis profile. Do you agree? Why or why not? (5 pts.)

              Agree. No core strategy is inherently superior to another in creating improvements
              in performance. All strategies have benefits and costs that must be weighted.
              Therefore, only in the context of a particular firm facing a particular competitive
              environment can a strategy be argued to be superior in improving strategic

E. Select either Strategy I or II. For the selected strategy, comment on the generic pros and cons of
   pursuing such a core strategy. (12 pts.)

STRATEGY II                    PRO                                 CON
Best Niche                      High Margin                    Change in consumer demand/rapid entry
                                                               of other firms

Maintain/Defend              Maintain/enhance                  Complacency
                      Past performance

Single Business                 Clear Focus                    Limits opportunities

Domestic                        Clear Market Focus             Limits Options,Maximizes Threats

Internal Resource               Keeps control in firm          May take to long to develop

Leader(proactive or             Strongest position, first      Everybody’s Target
       Adaptive)                mover, Ability to copy

STRATEGY I                       PRO                                  CON

Best Price/cost                 Attract price sensitive customers     Customers may want quality

Grow                            Increase profits/sales                Lose focus/drain capital

Diversification(Concentric Expand opportunities/minimize              Lose focus/drain capital
or conglomerate)           threats

Global                          Expand opportunities/minimize         Lose focus/drain capital

External Resource               Increased speed/decreased risk        Costly to implement

Adopter                         Minimizes risk of innovation          Lose first mover advantages

There are a number of other generic pros and cons that might have been correctly cited in the
answer and thus gotten you the full points.
                                  BONUS ESSAY QUESTION

Answer the bonus question if you choice. Since the bonus is designed to help those in grade trouble,
no one will be given more than a combined grade of 100 on the total Concept Exam (Part A plus Part

  Draw and label the strategic management process model that we have been using in class. (10 pts.)

The Strategy Process

     & Beliefs                 Development                  Operations
                                                               (Strategy                Performance
     about the                  of Strategy                 Implementation)
   Firm’s World

                                                              Control                  Change?