Business Strategies Overview Quiz

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Questions and Answers

Which strategy involves adding new and unrelated products to a company’s offerings?

Diversification (correct)

Liquidation

Retrenchment

Divestiture

What does retrenchment typically aim to achieve for a company?

Enhancing brand visibility and customer loyalty

Reversing declining sales and profits (correct)

Increasing market share through new products

Entering new markets with existing products

What is the primary outcome of a divestiture strategy?

Expansion of product lines

Liquidating all assets of the company

Selling off a portion of the organization (correct)

Reduction of operational costs

Which strategy entails selling all of a company's assets individually for their tangible worth?

Liquidation Signup and view all the answers

Which company engaged in a significant store closure and reduction strategy recently?

Sears Holdings Signup and view all the answers

What is a key characteristic of horizontal integration?

Gaining monopolistic characteristics without federal challenges Signup and view all the answers

Which factor is NOT relevant for pursuing a market penetration strategy?

Current markets are saturated with similar products Signup and view all the answers

Under what condition is a market development strategy typically pursued?

When existing products need to be introduced into new geographic areas Signup and view all the answers

What advantage do increased economies of scale provide for an organization?

Major competitive advantages in operations and cost-efficiency Signup and view all the answers

What factor typically leads to the success of product development strategies?

Major improvements or modifications to existing products Signup and view all the answers

Which condition would best justify the need for market development?

An organization has excess production capacity. Signup and view all the answers

What is a key factor that indicates the need for product development?

An organization’s products are in the maturity stage of the product life cycle. Signup and view all the answers

Which of the following describes related diversification?

Ensuring that value chains possess competitively valuable cross-business strategic fits. Signup and view all the answers

What advantage is NOT associated with synergies of related diversification?

Creating stronger bargaining power with suppliers. Signup and view all the answers

Which of the following conditions suggests that an organization should consider unrelated diversification?

An organization is looking to enter new markets without overlaps. Signup and view all the answers

Study Notes

Strategic Management Concepts: A Competitive Advantage Approach, Concepts and Cases

Seventeenth Edition
Chapter 5 focuses on strategies in action.
Learning Objectives (1 of 2):
- Identify and discuss five characteristics and ten benefits related to clear objectives.
- Define and provide an example of eleven types of strategies.
- Identify and discuss the three types of integration strategies.
- Offer specific guidelines regarding when market penetration, market development, and product development are effective strategies.
- Explain when diversification is a suitable business strategy.
Learning Objectives (2 of 2):
- List guidelines for when retrenchment, divestiture, and liquidation are effective strategies.
- Identify and discuss Porter's five generic strategies.
- Compare cooperation among competitors, joint ventures/partnerships, and mergers/acquisitions as strategic approaches.
- Discuss tactics such as being a first mover, outsourcing, and reshoring in relation to facilitating strategies.
- Explain how strategic planning differs in for-profit, nonprofit, and small firms.

Figure 5.1: A Comprehensive Strategic-Management Model

The model is a visual representation of the strategic management process.
It shows the inter-connectedness of various stages of the process. Chapters are referred to as being linked with other chapters in the process. This includes the stages of External Assessment, Business Vision and Mission, etc.
Sources of figures and models are cited.

Long-Term Objectives

The results that are expected from implementing specific strategies.
Span a timeframe of two to five years.
Long-term objectives are interconnected to, and often influenced by short-term objectives.

The Nature of Long-Term Objectives

Provide clear direction.
Foster synergy among various organizational aspects.
Enable a systematic evaluation process.
Help set priorities and reduce uncertainty.
Minimize conflicts and stimulate effort.
Assist in resource allocation and job design.

Table 5.1: Five Characteristics of Objectives

Characteristics of Effective Objectives:
- Quantitative and measurable.
- Understandable and clear.
- Challenging and achievable.
- Compatible and consistent with organizational structure.
- Obtainable and realistic.

Financial Versus Strategic Objectives

Financial objectives focus on growth in revenues, earnings, dividends, and stock price.
Strategic objectives focus on achieving a larger market share, quicker performance than rivals, product quality enhancements, and wider coverage than rivals

Not Managing by Objectives

Managing by Crisis, Hope, Extrapolation, and Mystery are approaches that lack strategic planning

Types of Strategies

Organizations generally pursue a combination of strategies.
A combination strategy can carry a significant risk if overused.
It's not practical for a single organization to attempt to pursue all possible beneficial strategies. Decisions must be made about which strategies to pursue, and priorities must be set.

Table 5.3: Alternative Strategies Defined and Exemplified (1 of 2)

Defines and provides examples of alternative strategies (Forward Integration, Backward Integration, Horizontal Integration, Market Penetration, Market Development, and Product Development).
Examples are included for each strategy, demonstrating how to implement the strategy and provide outcomes.

Table 5.3: Alternative Strategies Defined and Exemplified (2 of 2)

This table expands on the diversification, retrenchment, divestiture, and liquidation strategies.
Each approach is detailed, offering definitions and examples.

Exercise

The Exercise segment outlines an activity to identify and justify relevant strategies for a chosen company.
It also challenges students to think as a CEO in the given scenario.

Figure 5.2: Levels of Strategies with Persons Most Responsible

Highlights different organizational levels (corporate, divisional, functional, operational) responsible for various strategic decisions, differentiated for both large and small companies.

Table 5.4: Varying Performance Measures by Organizational Level

Illustrates how bonus or merit pay is tied to short-term and long-term objectives at different organizational levels.

Integration Strategies

Forward Integration: Obtaining control over distributors or retailers.
Backward Integration: Acquiring control over suppliers.
Horizontal Integration: Gaining control over competitors.

Forward Integration Guidelines

Provides specific scenarios when Forward Integration would be a suitable strategy.

Backward Integration Guidelines

Offers conditions when Backward Integration is a strategic option

Horizontal Integration Guidelines

Outlines situations favoring Horizontal Integration

Intensive Strategies

Market Penetration Strategy: Aimed at expanding market share in existing markets with existing products/services.
Market Development Strategy: Introduction of existing products, services to new markets.
Product Development Strategy: Improving or modifying existing products/services for increased sales.

Market Penetration Guidelines

Specific conditions when employing a Market Penetration Strategy is most effective.

Market Development Guidelines

Specific conditions under which a Market Development strategy is most effective.

Product Development Guidelines

Offers factors that would justify a Product Development Strategy.

Diversification Strategies

Related Diversification: Exploiting related value chains for business strategic fits.
Unrelated Diversification: Employing value chains of dissimilar enterprises.

Exploiting expertise, or technological know-how
Combining related activities for achieving lowered costs.
Leveraging a known brand name.
Employing collaborative cross-business relationships.

Organization operates in a non-growth/slow-growth sector.
New, related products enhance sales of existing products.
New, related products are offered at competitive prices.
Seasonal balance of related product sales.
Existing products are in a product life cycle decline stage.

Unrelated Diversification Guidelines(1 of 2)

Increasing revenue by introducing unrelated products.
High competitive challenges or a slow-growth in existing industry.
Existing distribution channels can be used for marketing.
Products have counter-cyclical sale patterns.
Existing industry experiencing declining sales and returns.

Unrelated Diversification Guidelines(2 of 2)

Sufficient resources and leadership skills needed for the new industry.
Attract investment opportunities in an unrelated business.
Leveraging financial synergy.
Existing product markets are saturated.
When antitrust action may impact a single, concentrated industry.

Defensive Strategies (1 of 3)

Retrenchment: Cost and asset reduction to reverse declining results.
Divestiture: Selling a division or part of an organization to generate new capital for ventures.
Liquidation: Selling all assets to yield current value.

Defensive Strategies (2 of 3)

Retrenchment is a turnaround/re-organizational strategy intended to improve organizational performance by establishing core strengths.

Retrenchment Guidelines

When an organization has core competencies yet consistently misses goals.
When an organization is a less competitive entity within an industry.
When organizational difficulties include inefficiency, low profitability, and low employee morale.
When an organization doesn't adequately use opportunities or mitigate threats.
When significant organizational growth has created the need for major internal reorganization.

Divestiture Guidelines

When pursuing a retrenchment strategy has failed to improve results.
When a division requires additional resources for competitiveness more than the organization can provide.
When a division is underperforming in comparison to the rest of the organization.
When a division conflicts with the overall organization structure.
When there's a significant need for readily available capital investment.
When the government enacts antitrust actions.

Defensive Strategies (3 of 3)

Liquidation : A final attempt to recover value by selling off all of the company's assets (or parts of assets)

Liquidation Guidelines

When a combination of retrenchment and divestiture strategies has not yielded success.
When bankruptcy is the only feasible alternative to resolve a company’s financial issues.
When stakeholders want to salvage losses by selling off company assets.

Value Chain Analysis and Benchmarking

Value Chain Analysis: Examination of the value each step adds in the manufacturing process, from materials to the final product delivery.
Benchmarking: Comparison of best practices across competing companies, aiming to improve.

Figure 5.3: A Value Chain Illustrated

Displays the Value Chain concept visually, demonstrating the connection between companies, customers, suppliers, and distribution networks.

Figure 5.4: An Example Value Chain for a Typical Manufacturing Company (1 and 2)

Illustrates the value chain with specific costs for products and services, such as raw materials, production, distribution, and sales.

Figure 5.5: Transforming Value Chain Activities into Sustained Competitive Advantages

The figure outlines how value chain activities drive sustainable competitive advantages. This progression occurs from activities, to core competencies, then distinctive competencies and ultimately competitive advantages.

Michael Porter's Two Generic Strategies (1 of 3)

Cost Leadership: Emphasizes standardized products/services at the lowest possible per-unit cost, appealing to price-sensitive consumers.
Two types: General Cost Leadership and Focused Cost Leadership

Michael Porter's Two Generic Strategies (2 of 3)

Differentiation: Focus on unique products or services, attracting customers who prioritize quality over price. Wide and Narrow Differentiation are described.

Michael Porter's Two Generic Strategies (3 of 3)

Two types of differentiation are described: Wide target markets and Narrow target markets

Means for Achieving Strategies

Build: Organic growth within the organization.
Borrow: Joint ventures with other companies.
Buy: Mergers and acquisitions.

Table 5.6: Six Reasons Why Many Mergers and Acquisitions Fail

Integration problems.
Excessive debt from target companies.
Unsuccessful synergy achievement.
Excess diversification.
Integration difficulties from different organizational cultures.
Decreases employee morale because of layoffs and employee relocation.

Table 5.7: 12 Potential Benefits of Merging with or Acquiring Another Firm

Capacity utilization improvements.
Efficient use of current sales force.
Managerial staff reduction.
Increased economies of scale.
Smoothing out seasonal sales.
Gaining access to new suppliers, distributors, customers (and investors).
Gaining access to new technologies.
Increases in market share.
Gaining entry into global markets.
Gaining pricing power.
Eliminating tax obligations.
Eliminating competitors

Table 5.8: Six Benefits of a Firm Being the First Mover

Access to rare resources.
Critical knowledge of success factors/issues.
Control of advantageous market positions and locations.
Strong relationships with customers, suppliers, and investors.
Establishing customer loyalty.
Early patent protection.

Strategic Management in Nonprofit and Small Firms

Nonprofits do not pay taxes.
Nonprofits do not have shareholders to provide capital. (Two key differences)

Figure 5.6: How to Gain and Sustain Competitive Advantages

A flow chart that details the steps one should take in order to gain and sustain competitive advantages from the establishment of a clear vision/mission to sustaining competitive advantages.

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Description

Test your knowledge on key business strategies including diversification, retrenchment, and market penetration. This quiz covers important concepts that shape corporate decision-making and strategic planning. Challenge yourself and learn about various corporate strategies and their implications.