Fred r david – strategic management, 13th edition ch06

Exam
Name___________________________________
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
1)
Long-term objectives represent the results expected from pursuing certain strategies.
1)
_______
2)
Objectives provide direction and allow for organizational synergy.
2)
_______
3)
Strategic objectives include those associated with growth in revenues, growth in earnings, higher
dividends, larger profit margins and improved cash flow.
3)
_______
4)
Strategic objectives include larger market share, quicker on-time delivery than rivals, quicker design-tomarket times than rivals, lower costs than rivals, and wider geographic coverage than rivals.
4)
_______
5)
"If it ain't broke, don't fix it" refers to managing by crisis.
5)
_______
6)
The overall aim of the Balanced Scorecard is to balance financial objectives with strategic objectives.
6)
_______
7)
Since a combination strategy is not risky, many organizations pursue a combination of two or more
strategies simultaneously.

7)


_______
8)
Horizontal integration is seeking ownership or increased control over competitors.
8)
_______
9)
Divestiture is selling all of a company's assets, in parts, for their tangible worth.
9)
_______
10)
A chief executive officer is located in the divisional level of a large firm.
10)
______
11)
Gaining ownership or increased control over distributors or retailers is called forward integration strategy.
11)
______
12)
Franchising is an effective means of implementing forward integration.
12)
______
13)
A growing trend is for franchisers to buy out their part of the business from their franchisees.
13)
______
14)
McDonalds currently owns more than 50 percent of its restaurants.

14)
______
15)


Forward integration strategy is especially effective when the availability of quality distributors is so limited
as to offer a competitive advantage to those firms that integrate forward.
15)
______
16)
A strategy of seeking ownership or increased control of a firm's suppliers is backward integration.
16)
______
17)
If a firm's present suppliers are expensive and unreliable in meeting the firm's need for parts, components
or raw materials, the firm should pursue a horizontal integration strategy.
17)
______
18)
Horizontal integration is an appropriate strategy when the competitors of an organization are doing poorly.
18)
______
19)
Market penetration, market development, product development and joint venture are intensive strategies.
19)
______
20)
When the correlation between dollar sales and dollar marketing expenditures has historically been low,
market penetration is an appropriate strategy.
20)

______
21)
Market development includes introducing present products into new geographic areas.
21)
______
22)
An appropriate strategy when an organization has excess production capacity is market development.


22)
______
23)
Orascom Telecom and Etisalat both seek to dominate the international market while searching for
opportunities in other regions, especially in Africa and Asia .
23)
______
24)
Product development is a strategy that seeks increased sales by improving or modifying present products
or services.
24)
______
25)
Product development is an appropriate strategy when an organization has successful products that are in
the maturity stage of their life cycle.
25)
______
26)
Instead of extending the life cycle of existing products through modification and improvement, innovative
strategies make existing products obsolete.
26)

______
27)
Innovative strategy requires investing a small amount of capital in R&D and changing the company culture
to one that supports creativity and talent.
27)
______
28)
There are four basic types of diversification concentric, conglomerate, forward and backward.
28)
______
29)


Most companies favor related diversification strategies in order to exploit the common use of a well-known
brand name.
29)
______
30)
The related diversification strategy is effective when an organization has a weak management team.
30)
______
31)
Almarai's takeover of companies that are not part of their primary dairy business is an example of related
diversification.
31)
______
32)
Unrelated diversification is an appropriate strategy when an organization's present channels of distribution
can be used to market the new products to current customers.
32)

______
33)
The Libyan Investment Authority's involvement in industries such as oil, travel, banking, and
telecommunication is a good example of related diversification.
33)
______
34)
Unrelated diversification may be an especially effective strategy when an organization's basic industry is
experiencing increasing annual sales and profits.
34)
______
35)
Retrenchment and turnaround are the same strategy.
35)
______
36)


Although bankruptcy can be an effective type of retrenchment strategy, it does not allow firms to avoid
major debt obligations and to void union contracts.
36)
______
37)
Chapter 7 bankruptcy is a liquidation procedure used only when a firm sees no hope of being able to
operate successfully or to obtain necessary creditor agreement.
37)
______
38)
Chapter 9 bankruptcy applies to municipalities.
38)

______
39)
According to statistics from the American Bankruptcy Institute, Chapter 11 bankruptcy filings in the U.S.
increased from 43,694 in 1980 to 60,837 in 2009.
39)
______
40)
Chapter 13 bankruptcy is similar to Chapter 11, but available only to large corporations.
40)
______
41)
Divestiture is the selling of land a firm owns.
41)
______
42)
Divestiture has become a popular strategy to enable firms to focus on their core business and become
more diversified.
42)
______
43)


Liquidation is often appropriate when retrenchment and divestiture have failed.
43)
______
44)
According to Porter, strategies allow organizations to gain competitive advantage from three different
bases cost leadership, differentiation and integration.
44)
______

45)
For consumers who are price sensitive, cost leadership emphasizes producing standardized products at
very low per-unit cost.
45)
______
46)
A best-value strategy offers products or services to a wide range of customers at the lowest price on the
market.
46)
______
47)
A low-cost focus strategy offers products or services to a small range of customers at the lowest price
available on the market.
47)
______
48)
Al Faisaliah Hotel would be a good example of a firm seeking the best-value focus strategy.
48)
______
49)
A cost leadership strategy can be especially effective when most buyers use the product in the same way.
49)
______
50)


A differentiation strategy can only be achieved with a large target market.
50)
______
51)

Gaining a differentiation advantage is a primary reason for pursuing forward, backward, and horizontal
integration strategies.
51)
______
52)
The most effective differentiation bases are those that are hard or expensive for rivals to duplicate.
52)
______
53)
A low cost focus strategy can be especially attractive when the target market niche is small.
53)
______
54)
A differentiation strategy can be especially attractive when the industry has many different niches and
segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources.
54)
______
55)
In a turbulent, high-velocity market, a lead-change strategy is best whenever the firm has the resources to
pursue this approach.
55)
______
56)
Cooperative arrangements and joint ventures between competitors are becoming increasingly popular.
56)
______
57)


Joint ventures tend to fail when the managers who are required to collaborate daily in operating the

venture are not involved in forming or shaping the venture.
57)
______
58)
Divestiture would be an appropriate strategy when a need exists to introduce a new technology quickly.
58)
______
59)
An acquisition occurs when a large organization purchases a smaller one or vice versa.
59)
______
60)
When an acquisition or merger is not desired by both parties, it is called a takeover or a hostile takeover.
60)
______
61)
In the Arab world, hostile takeovers are common due to the current nature of social and business
networking, which appears to favour hostile attitudes.
61)
______
62)
Out of the wordld's 300 largest private equity firms in 2010, sixty were from the Arab world.
62)
______
63)
A leveraged buyout occurs when a firm's management and other private investors use borrowed funds to
buy out the firm's shareholders.
63)
______
64)

First mover advantages refers to the benefits a firm may achieve by entering a new market or developing
a new product or service prior to rival firms.
64)
______
65)
Companies are avoiding outsourcing more and more because it is more expensive than traditional methods
and it does not allow a firm to concentrate on core competencies.
65)
______
66)
India commands over 60 percent of all backoffice outsourcing.
66)
______
67)
In the Arab world, the non-profit sector is not as common and active as it is in Western countries.
67)
______
68)
Strategists in governmental organizations operate with far more strategic autonomy than their
counterparts in private firms.
68)
______
69)
According to varous sources, 95 percent of all businesses in the Arab region are family firms.
69)
______
70)
All sizes and types of organizations can utilize and benefit from strategic-management concepts and

techniques.
70)
______
71)


Research shows strategic management in small firms is more formal than in large firms, but large firms
that engage in strategic management outperform those that do not.
71)
______
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers
the question.
72)
Long-term objectives are needed at which level(s) in an organization?
72)
______

A)

Divisional
B)
Functional

C)

Corporate
D)
all of these

E)

none of these
73)
Financial objectives involve all of the following except
73)
______
A)
higher dividends.
B)
greater return on investment.
C)
larger market share.
D)
a rising stock price.
E)
growth in revenues.
74)
What principle is based on the belief that the true measure of a really good strategist is the ability to solve
problems?


74)
______
A)
Managing by subjectives
B)
Managing by extrapolation
C)
Managing by objectives
D)

Managing by crisis
E)
Managing by hope
75)
What principle is built on the idea that there is no general plan for which way to go and what to do?
75)
______

A)

Managing by extrapolation
B)
Managing by crisis
C)
Managing by subjectives
D)
Managing by objectives
E)
Managing by hope
76)
All of the following are important factors in the Balanced Scorecard except
76)
______
A)
business ethics.
B)
employee morale.
C)
customer service.
D)

stockholder equity.


E)
product quality.
77)
Which level of strategy is most likely not present in small firms?
77)
______
A)
Functional

B)

Divisional
C)
Operational

D)

Corporate/company
E)
All of these are present in small firms
78)
Aramco's ownership of Saudi Petroleum International, which specializes in scheduling, loading, storage,
transportation and delivery of crude oil, is an example of which type of strategy?
78)
______
A)
Unrelated diversification

B)
Related diversification
C)
Backward integration
D)
Horizontal integration
E)
Forward integration
79)
The sale of Global Investment House of Kuwait 's stakes in Salam Bank to Techtronic Industries is an
example of which type of strategy?
79)
______
A)


Liquidation
B)
Related diversification
C)
Retrenchment
D)
Unrelated diversification
E)
Divestiture
80)
Egypt-based Fresh Electric Co. assembles gas stoves and water heaters in Georgia, for export to Azerbaijan
and Armenia. This is an example of which type of strategy?
80)
______

A)

Product development
B)
Forward integration
C)
Market development
D)
Horizontal integration
E)
Backward integration
81)
Which of the following is most likely not included in the functional level of a small company?
81)
______
A)
Finance

B)

R&D
C)
Human resource managers
D)
Marketing
E)
Department managers

82)
Forward and backward integration strategies are sometimes collectively referred to as which of these
strategies?
82)
______

A)

Horizontal integration
B)
Vertical integration
C)
Diversification
D)
Stuck-in-the-middle
E)
Hierarchical integration
83)
Websites which sell products directly to consumers are examples of which type of strategy?
83)
______
A)
Backward integration
B)
Conglomerate diversification
C)
Product development
D)
Horizontal integration
E)

Forward integration
84)
What percentage of McDonald's restaurants are actually owned by the McDonald's corporation?
84)
______

A)

63 percent
B)


23 percent
C)
55 percent
D)
43 percent
E)
35 percent
85)
Which of these strategies is effective when the number of suppliers is small and the number of competitors
is large?
85)
______

A)

Backward integration
B)
Concentric diversification

C)
Conglomerate diversification
D)
Forward integration
E)
Horizontal diversification
86)
Backward integration is effective in all of these except
86)
______
A)
when an organization has both capital and human resources to manage the new business of supplying its
own raw materials.
B)
when present suppliers have high profit margins.
C)
when an organization competes in an industry that is growing rapidly.
D)
when the advantage of stable prices are not important.
E)
when an organization needs to acquire a needed resource quickly.


87)
What refers to a strategy of seeking ownership of or increased control over a firm's competitors?
87)
______

A)

Backward integration
B)
Conglomerate diversification
C)
Horizontal integration
D)
Forward integration
E)
Concentric diversification
88)
In which situation would horizontal integration be an especially effective strategy?
88)
______
A)
When decreased economies of scale provide major competitive advantages.
B)
When an organization competes in a slowing industry.
C)
When competitors are succeeding due to managerial expertise or having particular resources an
organization possesses.
D)
When an organization has neither the capital nor human talent needed to successfully manage an
expanded organization.
E)
When an organization can gain monopolistic characteristics in a particular area or region without being
challenged by the federal government for "tending substantially" to reduce competition.
89)
Which strategy seeks to increase market share of present products or services in present markets through
greater marketing efforts?
89)

______

A)

Market penetration


B)
Market development
C)
Backward integration
D)
Forward integration
E)
Product development
90)
When a domestic company first begins to export to India, it is an example of
90)
______

A)

concentric diversification.
B)
backward integration.
C)
market development.
D)
horizontal integration.
E)

forward integration.
91)
Which strategy generally entails large research and development expenditures?
91)
______
A)
Retrenchment
B)
Divestiture
C)
Product development
D)
Forward integration
E)
Market penetration
92)


All of the following situations are conducive to market development except
92)
______
A)
when an organization has excess production capacity.
B)
when an organization is very successful at what it does.
C)
when new untapped or unsaturated markets exist.
D)
when an organization competes in a high-growth industry.
E)

when an organization's basic industry is becoming rapidly global in scope.
93)
Which strategy is appropriate when an organization competes in an industry characterized by rapid
technological developments?
93)
______
A)
Backward integration
B)
Liquidation
C)
Market penetration
D)
Retrenchment
E)
Product development
94)
Innovation implies
94)
______

A)

the modification of an existing product
B)
the creation of a completely new product
C)
the recycling of unused product

D)
the duplication of a popular product
E)
All of the above
95)
Adding new, unrelated products or services for present customers is called
95)
______

A)

unrelated diversification.
B)
forward integration.
C)
conglomerate diversification.
D)
related diversification.
E)
backward integration.
96)
Which strategy should an organization use if it competes in a no-growth or a slow-growth industry?
96)
______
A)
Backward integration
B)
Retrenchment
C)
Unrelated diversification

D)
Divestiture
E)
Related diversification
97)
Nakheel, the property unit of Dubai World, engaged in several rounds of job cuts in 2008 and 2010. This is
an example of
97)
______


A)
backward integration.
B)
unrelated diversification.
C)
forward integration.
D)
divestiture.

E)

retrenchment.
98)
Adding new, unrelated products or services is called
98)
______
A)
forward integration.
B)

related diversification.
C)
backward integration.
D)
unrelated diversification.
E)
conglomerate diversification.
99)
Damac Holding laying off employees in 2007 in order to counter the slowdown in economic activity is an
example of
99)
______
A)
retrenchment.
B)
liquidation.
C)
divestiture.

D)

forward integration.
E)


backward integration.
100)
What kind of strategy is retrenchment?
100)
_____

A)
A turnaround or reorganization strategy
B)
An intensive strategy
C)
A conglomerate strategy
D)
An expansion strategy
E)
An offensive strategy
101)
Bankruptcy
101)
_____

A)

should only be used for small, private firms.
B)
should never be used as a strategy.
C)
should be used only when one is legally forced to do so.
D)
should only be used for large firms.
E)
can be an effective type of retrenchment strategy.
102)
Which chapter of the bankruptcy code applies to municipalities?
102)
_____

A)
Chapter 12
Chapter 9

B)


C)
Chapter 8
D)
Chapter 13

E)

Chapter 7
103)
The Family Farmer Bankruptcy Act of 1986 created
103)
_____
A)
Chapter 13.

B)

Chapter 7.
C)
Chapter 9.

D)

Chapter 8.
E)
Chapter 12.
104)
Retrenchment would be an effective strategy when an organization
104)
_____

A)

has decided to capitalize on opportunities, maximize threats, take advantage of strengths and overcome
weaknesses.
B)
is plagued by inefficiency, low profitability, poor employee morale and pressure from stockholders to
improve performance.
C)
has shrunk so quickly that major internal reorganization is needed.
D)
is one of the stronger competitors in a given industry.
E)
does not have a clearly distinctive competence and has failed to meet its objectives and goals consistently
over time.
105)


What term refers to selling a division of an organization?
105)
_____
A)
Horizontal integration

B)
Joint venture
C)
Divestiture

D)

Concentric diversification
E)
Liquidation
106)
Which strategy should be implemented when a division is responsible for an organization's overall poor
performance?
106)
_____
A)
Backward integration
B)
Cost leadership
C)
Divestiture

D)

Related diversification
E)
Forward integration
107)
Selling all of a company's assets in parts for their tangible worth is called
107)

_____

A)

divestiture.
B)
liquidation.

C)

unrelated integration.


D)
joint venture.
E)
concentric diversification.
108)
Which strategy would be effective when the stockholders of a firm can minimize their losses by selling the
organization's assets?
108)
_____
A)
Differentiation
B)
Integration
C)
Liquidation

D)

Diversification
E)
Cost leadership
109)
Under which strategy would you offer products or services to a wide range of customers at the lowest price
available on the market?
109)
_____
A)
Low-cost

B)

Best-value focus
C)
Low-cost focus
D)
Best-value
E)
Differentiation
110)
According to Porter, which strategy offers products or services to a small range of customers at the lowest
price available on the market?