Chapter 1

Question 1

Mission

Answer 1

The mission is articulated in a broadly defined but enduring statement of purpose that identifies the scope of an organization’s operations and its offerings to affected groups and entities.

Question 2

Strategy

Answer 2

Strategy refers to top management’s plans to develop and sustain competitive advantage so that the company’s mission is fulfilled

Question 3

Competitive Advantage

Answer 3

Competitive advantage is a state whereby a
firm’s successful strategies cannot be easily
duplicated by its competitors. Maintaining a
sustained competitive advantage over time
can be challenging.

Question 4

Difference between strategy and strategic management process

Answer 4

The difference between a strategy and the strategic management process is that the latter includes considering what must be done before a strategy is formulated through assessing whether or not the success of an implemented strategy was successful.

Question 5

Strategic Management

Answer 5

Strategic Management is a broader
term than strategy and is a process that
includes top management’s analysis of
the environment in which the
organization operates prior to
formulating a strategy, as well as the
plan for implementation and control of
the strategy.

Question 6

The strategic management process

Answer 6

1. External Analysis: Analyze the opportunities and threats, or constraints, that exist in the organization’s external environment, including industry and forces in the external environment.
2. Internal Analysis: Analyze the organization’s strengths and weaknesses in its internal environment. Consider the context of managerial ethics and corporate social responsibility.
3. Strategy Formulation: Formulate strategies that build and sustain competitive advantage by matching the organization’s strengths and weaknesses with the environment’s opportunities and threats.
4. Strategy Execution: Implement the strategies that have been developed.
5. Strategic Control: Measure success and make corrections when the strategies are not
   producing the desired outcomes.

Question 7

Business model

Answer 7

The mechanism whereby the organization seeks to earn a profit by selling its goods or services.

Question 8

Progressive firms business models

Answer 8

Progressive firms often devise innovative
business models that extract revenue—and
ultimately profits—from sources not
identified by competitors.

Question 9

5 Factors associated with a successful business strategy

Answer 9

1. Understand the competitive
   environment.
2. Understand how resources translate into
   strengths and weaknesses.
3. The strategy is consistent with the
   mission and goals of the organization.
4. Plans for putting the strategy into action
   are designed before it is implemented.
5. Possible future changes (i.e., strategic
   control) are evaluated before the
   strategy is adopted.

Question 10

Intended Strategy vs Realized Strategy

Answer 10

Intended Strategy—what management
originally plans.
Realized Strategy— what management
actually implements.
Intended & realized strategies typically
differ because of unforeseen events,
better information that was not available
when the strategy was formulated,
and/or an improvement in top
management’s ability to assess its
environment.

Question 11

Strategy as an art

Answer 11

The lack of environmental predictability
and the fast pace of change render
elaborate strategy planning as suspect at
best.
Strategic managers should emphasize
creativity and innovation.
Strategies should be developed like a
potter molds clay

Question 12

Strategy as a science

Answer 12

The scientific approach is the most widely
recognized view of strategy.
Strategic managers are encouraged to
systematically assess the firm’s external
environment and evaluate the pros and cons of
myriad alternatives before formulating strategy.
The scientific approach is more prominent in
this text.

Question 13

Industrial Organization

Answer 13

A branch of microeconomics, emphasizes the influence of the industry environment on the firm.
Primary influence: structure of industry
Application to case analysis: industry analysis portion of the external environment

Question 14

Resource Based Theory

Answer 14

Views performance primarily as a function of a firm’s ability to utilize its resources and emphasize the development of a distinctive competence.
Primary influence: firms unique combo of strategic resources
Application to case analysis: analysis of internal strengths and weaknesses

Question 15

Contingency Theory

Answer 15

Represents a middle ground perspective that views organizational performance as the joint outcome of
environmental forces and the firm’s strategic
actions.
Primary influence: fit between firm and its external environment
Application to case analysis: SWOT analysis and SW/OT matrix

Question 16

Distinctive competence

Answer 16

Unique resources, skills, and capabilities that enable a firm to distinguish itself from its competitors and create competitive advantage.

Question 17

Corporate Governance

Answer 17

the board of directors, institutional investors (e.g., pension and retirement funds, mutual funds, banks,
insurance companies, among other money
managers), and large shareholders known as
blockholders who monitor firm strategies to
ensure effective management.

Question 18

Insiders vs outsiders

Answer 18

Insiders bring company-specific knowledge to the board whereas outsiders bring independence and an external perspective. Over the past several decades, the composition of the typical board has shifted from one controlled by insiders to one controlled by outsiders.

Question 19

Boards of directors

Answer 19

Boards consist of officials elected by
shareholders who are responsible for
monitoring activities in the organization.
Boards are responsible for:
1. Evaluating top management’s strategic
proposals.
2. Establishing broad direction for the firm
3. Selecting and determining the
compensation for the chief executive

Question 20

CEO Duality

Answer 20

when the CEO also serves as the chairman of the board—represents a potential conflict of interest

Question 21

Sarbanes-Oxley Act (2002)

Answer 21

Requires firms to include more independent directors on their boards and make disclosures on internal controls, ethics codes, and the composition of their audit committees on annual reports.
Covers public firms in the United States
Requires that both the CEO and the CFO
certify every report that contains
company financial statements
Restricts membership of the firm’s audit
committee to outsiders
Prohibits firms from extending personal
loans to board members or executives

Question 22

Board of Directors

Answer 22

Responsible for monitoring activities in the organization, evaluating top management’s strategic proposals, and establishing the broad strategic direction for the firm.
Research indicates, for instance, that board members are often invaluable sources of environmental and competitive information
Evidence suggests that many boards are
becoming more responsive and assertive
in their responsibilities.

Question 23

Cons of insiders controlling the board

Answer 23

When insiders control a board, a rubber stamp mentality can develop, whereby directors do not aggressively challenge executive decisions as they should.

Question 24

4 characteristics of strategic decisions

Answer 24

1. Based on a systematic, comprehensive
   analysis of internal and external factors.
2. Long-term and future-oriented—usually
   several years to a decade or longer.
3. Seek to capitalize on favorable situations
   outside the organization.
4. Involve choices and trade-offs.

Question 25

Strategic decisions only from top management?

Answer 25

Strategic decisions do not necessarily start with top management action, however, but instead can bubble up from a series of lower level decisions throughout the firm.

Question 26

Comparative Advantage

Answer 26

The idea that certain products may be produced more cheaply or at a higher quality in particular countries due to advantages in labor costs or technology.
The notion of comparative advantage is fluent, as nations enjoying a form of comparative advantage at one period may not enjoy it in a future period.

Question 27

Who is responsible for strategy formulation?

Answer 27

Strategy formulation is the direct responsibility of the CEO, but he or she relies on a team of other individuals as well, including the board of directors, vice presidents, and other various managers.