Strategic Management, Exam 2

Question 1

List the four components (strategies) of a SWOT Matrix.

Answer 1

The SWOT Matrix (different from a SWOT Analysis) is a matching tool which helps managers develop four types of strategies:
1. Strength opportunity (SO) strategies: these strategies use a firm’s internal strengths to take advantage of external opportunities
2. Weakness opportunity (WO) strategies: aim at improving internal weaknesses by taking advantage of external opportunities
3. Strength threat (ST) strategies: these strategies use a firm’s strengths to avoid or reduce the impact of external threats.
4. Weakness threat (WT) strategies: defensive tactics directed at reducing internal weakness and avoiding external threats.

Question 2

List the guidelines for creating a SWOT Matrix.

Answer 2

1. List the firm’s key external opportunities, external threats, internal strengths, and internal weaknesses
   -> These can mirror the factors listed in the EFEM and IFEM
2. Devise strategies for each grouping of internal and external factors
   -> SO, WO, ST, and WT
   -> A minimum of three strategies per grouping is recommended
3. Clearly label which internal and external factors are being addressed by each recommended strategy.
   -> For example: Build 4 new stores in Berlin, Germany (S2, S4, T1, T6)

Question 3

List the four types of strategies for a SPACE Matrix.

Answer 3

Types of strategies include:
Aggressive (upper right quadrant)
Conservative (upper left quadrant)
Defensive (lower left quadrant)
Competitive (lower right quadrant)

Question 4

What’s the meaning of the acronym SPACE.

Answer 4

Strategic Position and Action Evaluation Matrix (SPACE)

Question 5

Describe the axes of a SPACE Matrix

Answer 5

The axes of the SPACE matrix represent internal and external dimensions:
Financial position (FP; internal)
Competitive position (CP; internal)
Stability position (SP; external)
Industry position (IP; external)

Question 6

What’s the function of a SPACE Matrix?

Answer 6

The SPACE Matrix helps to indicate which types of strategies are most appropriate for a given firm.

Question 7

List the four SPACE Matrix Factors.

Answer 7

Internal Strategic Position: Financial Position (FP) & Competitive Position (CP)
External Strategic Position: Stability Position (SP) & Industry Position (IP)

Question 8

List the five guidelines (steps) for creating a SPACE Matrix.

Answer 8

Follow the FACADe sequence:
1. Factor. Select a set of factors to define the positions (FP, CP, SP, IP) of your firm.
2. Assign. Assign numerical values to every factor in all four positions
-> For FP and IP: values range from +1 (worst) to +7 (best)
-> For SP and CP: values range from -1 (best) to -7 (worst)
3. Compute. Compute an average score for each position.
4. Add. Add the scores on the X-axis and Y-axis, then plot that point.
5. Draw. Draw an arrow from the origin through the point
-> This identifies which types of strategies are recommended for the organization (aggressive, competitive, conservative, or defensive).

Question 9

Advantages of a SPACE Matrix?

Answer 9

Not only does the SPACE matrix guide strategy formulation, it can also suggest characteristics of the firm and the firm’s industry.

Question 10

List the four quadrants of the Boston Consulting Group (BCG) Matrix.

Answer 10

1. Question Marks – low relative market share position; high-growth industry
   -> Firms must decide whether to strengthen these divisions through strategic management, or to sell them
2. Stars – high relative market share; high-growth industry
   -> Represent the firm’s best long-run opportunities for growth and profitability
3. Cash Cows – high relative market share; low-growth industry
   -> Generate cash in excess of their needs, and are often milked
4. Dogs – low relative market share; low-growth industry
   -> Often liquidated or divested

Question 11

Define Relative Market Share position in a BCG Matrix

Answer 11

The ratio of a division’s own market share in a particular industry to the market share held by the largest rival firm in that industry.

Question 12

What does a BCG Matrix display?

Answer 12

The BCG Matrix displays the relative market share position of the divisions of a firm’s business portfolio.

Question 13

Describe the axes and quadrants of a BCG Matrix

Answer 13

The horizontal axis is Relative Market Share Position (High = 1.0, Medium = .50, and Low = 0.0).
The vertical axis is Industry Sales Growth Rate (High = +20, Medium = 0, and Low = -20).
Quadrants: Question Marks (Quad 1), Stars (Quad II), Cash Cows (Quad 3), and Dogs (Quad IV)

Question 14

Guidelines for creating a BCG Matrix

Answer 14

Guidelines for creating a BCG Matrix:
1. Determine the major divisions of the firm’s business portfolio.
2. Determine the following for each division:
-> Revenues
-> Percent Revenues (Revenue of division / Total Revenues)
-> Profits
-> Percent Profits (Profit of division / Total Profits)
-> Relative Market Share
-> Industry Growth Rate
3. Using the BCG Template, for each division:
-> Draw a circle where appropriate. The size of the circle indicates the proportion of revenue generated by that division.
-> Within each circle, draw a pie slice which represents the proportion of profits generate by that division. All pie slices should add up to one.
4. Explain the findings of the matrix.

Question 15

Name and describe the three ‘Politics and Governancee’ groups.

Answer 15

Champions – individuals most strongly identified with a strategy which produced a successful product, service, or idea.

Governance – the act of oversight and direction

Board of Directors – an elected group of individuals who guide managerial decisions, keeping shareholder interests in mind

Question 16

List the seven principles of good governance

Answer 16

Never have more than two of the firm’s executives on the board.
Never allow a firm’s executives to be on the board’s audit, compensation, or nominating committees.
Require all board members to own a large amount of the firm’s equity.
Require all board members to attend at least 75% of all meetings.
Require the board to meet annually to evaluate its own performance, without the CEO or other executives present.
Never allow the CEO to be Chairperson of the Board.
Never allow interlocking directorships (where a director or CEO sits on another director’s board).

Question 17

Describe the benefit of a Quantitative Strategic Planning Matrix (QSPM)

Answer 17

The QSPM helps to objectively indicate which strategies are best. The QSPM utilizes information gathered from:
-> EFEM and IFEM
-> SWOT Matrix, SPACE Matrix, BCG Matrix

When deciding between strategies, the strategies with the highest total scores on the QSPM should be implemented.

Question 18

List the steps for creating a QSPM

Answer 18

1. List the firm’s external opportunities and threats, and internal strengths and weaknesses in the left column of the QSPM.
   -> These should be the same as the EFEM and IFEM
2. Assign weights to each factor.
   -> These should also be the same as the EFEM and IFEM
3. Based upon the SWOT, SPACE, and BCG Matrices, identify strategies that the organization should consider implementing.
4. For each of the strategies in step 3, determine attractive scores (AS) for each factor.
   -> Scores range from 1 to 4 (1 = not attractive; 2 = somewhat attractive; 3 = reasonably attractive; 4 = highly attractive)
   -> If a factor is not impacted by a strategy, do not assign attractiveness scores!
5. Compute the total attractiveness score by multiplying AS times weight.
6. Sum the total attractiveness scores for each strategy to achieve grand totals
   -> Higher scores suggest more desirable strategies
   -> Highest possible score is 8

Question 19

List the four Key Factors of a QSPM

Answer 19

Opportunities, Threats, Strengths, and Weaknesses

Question 20

List the five attributes of Strategic Formulation.

Answer 20

Positioning forces prior to action
Focus is on effectiveness
Intellectual process
Requires intuitive and analytical skills
Involves coordination among few

Question 21

What is Resource Allocation?

Answer 21

Resource Allocation is a central strategy implementation activity that entails distributing financial, physical, human, and technological assets to allow for strategy execution.

Question 22

List the responsibilities of managers involved with strategic implementation.

Answer 22

Managers involved with strategy implementation are responsible for:
-> Resource allocation
-> Managing conflict
-> Matching structure with strategy
-> Performance and Pay
-> Production
-> Human Resources

Question 23

List the five attributes of Strategic Implementation.

Answer 23

Managing forces during the action
Focus is on efficiency
Operational process
Requires motivation and leadership skills
Involves coordination among many

Question 24

Describe Organizational Structure.

Answer 24

Organizational Structure varies based on firm size:
-> Small firms tend to be functionally structured (centralized)
-> Medium-sized firms tend to be divisionally structured (decentralized)
-> Large firms tend to use a strategic business unit (SBU) structure

Question 25

Describe Functional Structures

Answer 25

Functional structures group tasks and activities by business function (such as operations, marketing, finance, MIS, etc.). Typically the most simple type of structure.

Question 26

Describe Divisional Structures

Answer 26

Divisional structures group functional activities based upon various profit centers or segments (such as geographic area, products or services, customers, or processes).

Question 27

Define Strategic Unit Structures

Answer 27

Strategic Business Unit Structures (SBUs) group similar divisions together into units.

Question 28

List the guidelines for developing an Effective Organizational Chart

Answer 28

1. Structure should reveal diversity in race, ethnicity, gender, and age
2. CEO should not also be the chair of the board
3. CEO should not also carry the title of president
   -> The title of president should be carried by the heads of each division
4. Make sure the firm has a COO (chief operations officer)
   -> Make sure only division presidents report to COO
5. Make sure executives (CFO, CIO, CSO, etc.) report to the CEO, not the COO
6. Make sure all executives only have one boss
7. Make sure span of control in reasonable (no more than 10 people report to one person)

Question 29

Define Restructuring.

Answer 29

Restructuring – reducing the size of the firm in terms of the number of:
-> employees
-> divisions or units
-> hierarchical levels in the organizational structure

Question 30

Define Reengineering

Answer 30

Reengineering – reconfiguring or redesigning work, jobs, or processes to improve cost, quality, service, and speed.
-> Does not usually affect organizational structure.
-> Does not imply job loss.

Question 31

Describe four strategies for managers which link employee performance to pay.

Answer 31

Profit Sharing – a form of incentive whereby some of a firm’s earning are distributed to employees
Gain Sharing – a form of incentive whereby employees and/or managers receive bonuses when actual results exceed pre-determined targets
Bonus System – a form of incentive whereby employees receive year-end rewards based on firm performance
Work/Life Benefits – a form of incentive aimed at balancing work with family life. For example, elder care assistance, flexible scheduling, or on-site summer camps.

Question 32

Define Just-in-Time (JIT) production

Answer 32

a production approach in which parts and materials are delivered to a production site just as they are needed, rather than being stockpiled

Question 33

List five Production factors/considerations

Answer 33

Availability of resources
Wage rates in the area
Transportation costs of shipping and receiving
Location of major markets
Political risks

Question 34

What is HRM?

Answer 34

HRM is Human Resources Management

Question 35

Describe the two types of HRM decisions that most closely impact employees.

Answer 35

A. Positive HRM for employees:
1. Employee Stock Ownership Plans – tax-qualified, employee benefit plans in which employees buy company stock through borrowed cash or cash contributions.
2. Corporate Wellness Programs
-> Health insurance
-> Counseling programs
B. Negative HRM for employees:
1. Furloughs – temporary layoffs
2. Glass ceiling – an invisible barrier in many firms that prevents women and minorities from top-level management positions

Question 36

Can Research & Development (R&D) policies impact strategic implementation efforts? If so, how?

Answer 36

R&D policies can enhance strategy implementation efforts to:
-> Emphasize product or process improvements.
-> Develop robotics or manual-type processes.
-> Spend a high, medium, or low amount of money on R&D.
-> Perform R&D within the firm or contract R&D to outside firms.
-> Use university researchers or private-sector researchers.

Question 37

Describe two aspects of Marketing of central importance to strategic implementation.

Answer 37

1. market segmentation – marketing technique of subdividing consumers into distinct subsets according to needs and buying habits
   -> Market segmentation decisions directly affect the marketing mix variables:
   -> Product
   -> Place
   -> Promotion
   -> Price
2. product positioning – a marketing tool designed to position a firm versus its rival firms in a diagram which helps to determine effective marketing strategies
   -> also called perceptual mapping

Question 38

Describe the five guidelines for creating a perceptual map

Answer 38

1. Select key criteria that effectively differentiate products or services in the industry.
2. Diagram a two-dimensional perceptual map with specified criteria on each axis.
3. Plot major competitors in the resulting matrix.
4. Identify areas in the perceptual map where products or services could be most competitive.
   -> In other words, look for vacant areas
5. Incorporate findings into the firm’s marketing plan.

Question 39

What are the responsibilities of a social media manager?

Answer 39

Many larger companies hire social media managers. These managers are responsible for:
Responding to problems and comments
Tracking negative or misleading statements
Managing online discussions about the firm
Gathering information about opinions and desires

Question 40

What is a wiki in the context of business organizations?

Answer 40

Wikis: websites that allow employee users to add, delete, and edit content across a firm’s value chain

Question 41

List the aspects of finance/accounting of importance to strategy implementation

Answer 41

Aspects of finance/accounting of importance to strategy implementation:
Acquiring needed capital
Developing projected financial statements
Preparing financial budgets
Evaluating the worth of a business

Question 42

Describe the two basic sources of capital for firms.

Answer 42

Two basic sources of capital for firms:
1. Debt
Too little debt can be bad for a company, particularly if the cost of capital (interest rates) are low. Firms may be missing out on opportunities.
Too much debt can endanger both shareholders’ returns and company survival.
2. Stock
Concerns with stock issuance include dilution of ownership and effect on stock price.

Question 43

How does an organization determine if Debt or Stock should be used to raise capital?

Answer 43

An earnings per share/earnings before interest and taxes (EPS/EBIT) analysis is a technique for determining whether debt, stock, or a combination of both is the best option for raising capital to implement strategies.

Question 44

What is an Initial Public Offering (IPO)?

Answer 44

Initial Public Offering (IPO) – when a private firm goes public by selling its shares of stock to the public in order to raise capital.

Question 45

How does a company decide whether or not to go public?

Answer 45

Deciding Whether or not to Go Public
As firms grow, they often move from being a private company (privately owned) to a public company (owned by various shareholders). Doing so:
-> dilutes owners’ control of the firm.
-> creates costs and obligations associated with reporting and management.
-> allows firms to raise extra capital.

Question 46

What is Projected Financial Statement Analysis?

Answer 46

Projected Financial Statement Analysis – a technique that enables a firm to forecast the expected financial results of various strategies
Involves developing income statements and balance sheets for future periods of time.

Question 47

Steps for creating Projected Financial Statements.

Answer 47

1. Prepare the projected income statement before the balance sheet.
   -> Start by forecasting sales as accurately as possible
2. Use the percentage-of-sales method to project cost of goods sold (COGS).
   -> For example, if COGS is 75% of sales in the previous year, use 75% to forecast.
3. Calculate the projected net income.
4. Subtract any dividends to be paid from net income. This provides retained earnings.
   -> Retained Earnings is the key link between the income statement and the balance sheet.
5. Prepare the projected balance sheet, starting with retained earnings. Use the cash account as a plug figure.
   -> Plug figure – the amount of money placed into (or taken from) the cash account of a balance sheet in order to make total assets equal total liabilities and stockholders’ equity.
6. List comments (remarks) about significant changes due to recommended strategies.

Question 48

What are the basic activities of Strategy Evaluation?

Answer 48

Basic Activities of Strategy Evaluation
-> Examining the underlying reasons of a firm’s strategy.
-> Comparing expected results with actual results.
-> Taking corrective actions to ensure that performance conforms to plans.

Richard Rumelt suggests four criteria which can be used to evaluate strategy:
Consonance
Advantage
Consistency
Feasibility

Question 49

Define Rumelt’s criterion of ‘Consonance’.

Answer 49

Consonance – the need for strategists to examine sets of trends, as well as individual trends, in evaluating strategies

Question 50

Define Rumelt’s criterion of ‘Advantage’.

Answer 50

Advantage – determining if a particular strategy creates or extends a firm’s competitive superiority in a selected area

Question 51

Define Rumelt’s criterion of ‘Consistency’.

Answer 51

Consistency – determining if a particular strategy is supportive of overall objectives of the firm

Question 52

Define Rumelt’s criterion of ‘Feasibility’.

Answer 52

Feasibility – determining if a strategy is capable of being carried out within the physical, human, or financial resources of the firm

Question 53

Describe some ways to examine the underlying reasons of a firm’s strategy.

Answer 53

1. Strategy-Evaluation Assessment Matrix
   -> Consider taking correcting actions based on the answers to the following questions:
   -> Have major changes occurred in the Firm’s Internal Strategic position?
   -> Have major changes occurred in the Firm’s External Strategic position?
   -> Has the firm progressed satisfactorily toward achieving objectives?
2. Revise the IFE matrix
   -> How have functional areas of the business changed as a result of strategy implementation? (Management, Accounting, Operations, etc.)
3. Revise the EFE matrix
   -> How have competitors reacted to our strategies?
   -> Why have competitors strategies been more successful?
   -> How could we more effectively cooperate with our competitors?

Question 54

List the four activities for measuring organizational performance.

Answer 54

Measuring organizational performance involves:
-> Comparing expected results to actual results
-> Investigating deviations from plans
-> Evaluating individual performance
-> Examining progress being made toward meeting stated objectives

Question 55

Describe some aspects of financial ratios when used to quantify organizational performance.

Answer 55

Three critical comparisons result from financial ratios:
-> Comparing the firm’s performance over different time periods
-> Comparing the firm’s performance to the performance of competitors
-> Comparing the firm’s performance to industry averages

Question 56

What does it mean to take corrective action?

Answer 56

Taking corrective action requires making changes to competitively reposition a firm for the future.

Question 57

What are some methods for taking corrective action?

Answer 57

Some methods of corrective action include, but are not limited to:
Altering firm structure
Replacing one or more key individuals
Divestiture
Altering mission or vision
Altering strategies
Installing new performance incentives
Adding or terminating employees
Allocating resources differently
Outsourcing (or reshoring) business functions

Question 58

What is Future Shock?

Answer 58

Strategy evaluation enhances an organization’s ability to adapt successfully to changing circumstances. Future shock often occurs if strategy evaluation is not taken seriously.

Future Shock – high anxiety that results when the nature, types, and speed of changes overpower an individual’s or organization’s ability to adapt

Question 59

What is the Balanced Scorecard?

Answer 59

Balanced Scorecard – a strategy evaluation technique which combines financial measures with non-financial measures to establish objectives.

Question 60

What must be considered for each area in the Balanced Scorecard?

Answer 60

For each area, the following must be considered:
Target
Time expectation
Primary responsibility

Question 61

List the six areas of objectives which can be used on a Balanced Scorecard.

Answer 61

Customers
Managers/employees
Operations/processes
Community/Social Responsibility
Business Ethics/Natural Environment
Financial

Question 62

Define ‘Contingency Plans’.

Answer 62

Contingency Plans – alternative plans that can be put into effect if certain key events do not occur as expected.

Question 63

List four examples of contingency plan prompts.

Answer 63

If a major competitor withdraws from particular markets, what actions should be taken?
If our sales objectives aren’t reached, what actions should our firm take in order to avoid profit losses?
If demand for our new product exceeds plans, what actions should be taken?
If technological advancement makes our new product obsolete sooner than expected, what actions should be taken?

Question 64

Describe the 5-step contingency planning process.

Answer 64

Effective contingency planning involves a five-step process:

Identify both good and bad events that could jeopardize strategies.
Determine when the good and bad events are likely to occur.
Determine the expected pros and cons of each contingent event.
Develop contingency plans for key contingency events.
Determine early warning trigger points.

Question 65

List two advantages of the Top-Down Approach in Strategic Management.

Answer 65

Advantages to Top-Down Approach:
Top Executives typically have more experience.
Top Executives are more knowledgeable of a firm’s financial situation.

Question 66

List two advantages of the Bottom-Up Approach in Strategic Management.

Answer 66

Advantages to a Bottom-Up Approach:
Involves employees and managers who will be involved with strategy implementation.
Greater number of people generating ideas.