Chapter 6

Question 1

Resources

Answer 1

the assets, capabilities, processes, employee time, information, and knowledge used by an organization to =
* Improve its effectiveness and efficiency
* Create and sustain competitive advantage

Question 2

Competitive advantage

Answer 2

providing greater value for customers than competitors can

Question 3

Sustainable competitive advantage

Answer 3

a competitive advantage
that other companies have tried unsuccessfully to duplicate and
have, for the moment, stopped trying to duplicate

Question 4

Characteristics of resources that contribute to sustainable
advantage

Answer 4

• Valuable resource: allows companies to improve efficiency and effectiveness
• Rare resource: not controlled or possessed by many competing firms
• Imperfectly imitable resource: impossible or extremely costly or
  difficult for other firms to duplicate
• Nonsubstitutable resource: produces value or competitive advantage
  and has no equivalent substitutes or replacements

Question 5

Competitive inertia

Answer 5

a reluctance to change strategies or
competitive practices that have been successful in the past

Question 6

Strategic dissonance

Answer 6

a discrepancy between a company’s
intended strategy and the strategic actions managers take when
implementing that strategy

Question 7

Situational (SWOT) analysis

Answer 7

an assessment of the strengths and
weaknesses in an organization’s internal environment and the
opportunities and threats in its external environment

Question 8

Distinctive competence

Answer 8

what a company can make, do, or
perform better than its competitors

Question 9

Shadow-strategy task force

Answer 9

a committee within a company that
analyzes the company’s own weaknesses to determine how
competitors could exploit them for competitive advantage

Question 10

Core capabilities

Answer 10

the internal decision-making routines, problem-solving
processes, and organizational cultures that determine how efficiently inputs can be turned into outputs

Question 11

Strategic group

Answer 11

a group of companies within an industry against which top managers compare, evaluate, and benchmark strategic threats and opportunities

Question 12

Core Firms

Answer 12

the central companies in a strategic group

Question 13

Secondary firms

Answer 13

the firms in a strategic group that follow strategies related to but somewhat different from those of the core firms

Question 14

Strategic reference points

Answer 14

the strategic targets managers use to measure whether a firm has developed the core competencies it
needs to achieve a sustainable competitive advantage
*** Managers should either choose a risk-avoiding strategy or a risk-
seeking strategy based on whether the company falls above or
below strategic reference points

Question 15

Strategy-Making Process

Answer 15

1. Assess need for strategic change
2. Conduct situational analysis
3. Choose strategic alternative

Question 16

Corporate-level strategy

Answer 16

the overall organizational strategy
that addresses the question “What business or businesses are we in or should we be in?”

Question 17

Diversification

Answer 17

a strategy for reducing risk by buying a variety of items (stocks or, in the case of a corporation, types of businesses) so that the failure of one stock or one business does not doom the entire portfolio

Question 18

Portfolio strategy

Answer 18

a corporate-level strategy that minimizes risk by diversifying
investment among various businesses or product lines

Question 19

Acquisition

Answer 19

the purchase of a company by another company

Question 20

Unrelated diversification

Answer 20

creating or acquiring companies in
completely unrelated businesses

Question 21

BCG matrix

Answer 21

a portfolio strategy developed by the Boston Consulting Group that categorizes a corporation’s businesses by growth rate and relative market share and helps managers decide how to invest corporate funds

Question 22

Related diversification

Answer 22

creating or acquiring companies that share similar products, manufacturing, marketing, technology, or cultures

Question 23

Disadvantages of BCG Matirx

Answer 23

Evidence suggests that acquiring unrelated businesses is not useful
because of the U-shaped relationship between diversification and risk
* The BCG matrix may yield incorrect judgments about a company’s potential
* Mis categorizing companies can weaken strong performers and harm employee morale

Question 24

Grand strategy

Answer 24

a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use

Question 25

Growth strategy

Answer 25

a strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business * Grow externally through merger or acquisition * Grow internally through expanding exiting business or creating and growing new businesses

Question 26

Stability strategy

Answer 26

a strategy that focuses on improving the way in which the company sells the same products or services to the same customers

Question 27

Retrenchment strategy

Answer 27

a strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business * by making significant cost reductions by laying off employees; closing poorly performing stores, offices, or manufacturing plants * by closing or selling entire lines of products or services

Question 28

Recovery

Answer 28

the strategic actions taken after retrenchment to return to a growth strategy

Question 29

Industry-level strategy

Answer 29

a corporate strategy that addresses the question, “How should we compete in this industry?”

Question 30

Character of the rivalry

Answer 30

a measure of the intensity of competitive behavior between companies in an industry

Question 31

Porter's Five Industry Forces

Answer 31

1. Threat of substitution 2. Buyer power 3. Supplier power 4. Competitive Rivalry 5. Threat of new entry

Question 32

Positioning Strategies

Answer 32

Purpose: to protect your company from the negative effects of industry-wide competition and to create a sustainable competitive advantage

Question 33

Cost leadership

Answer 33

producing a product or service of acceptable quality at consistently lower production costs than competitors can, so that the firm can offer the product or service at the lowest price in the industry

Question 34

Differentiation

Answer 34

providing a product or service that is sufficiently different from competitors’ offerings that customers are willing to pay a premium price for it

Question 35

Focus strategy

Answer 35

using cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment

Question 36

Adaptive Strategies

Answer 36

Purpose: to choose an industry-level strategy that is best suited to changes in an organization’s external environment

Question 37

Defenders

Answer 37

companies using an adaptive strategy aimed at defending strategic positions by * seeking moderate, steady growth * offering a limited range of high-quality products and services to a well-defined set of customers

Question 38

Prospectors

Answer 38

companies using an adaptive strategy that seeks fast growth by * searching for new market opportunities * encouraging risk taking * being the first to bring innovative new products to market

Question 39

Analyzers

Answer 39

companies using an adaptive strategy that seeks to minimize risk and maximize profits by following or imitating the proven successes of prospectors

Question 40

Reactors

Answer 40

companies that do not follow a consistent adaptive strategy but instead react to changes in the external environment after they occur

Question 41

Firm-level strategy

Answer 41

a corporate strategy that addresses the question, “How should we compete against a particular firm?”

Question 42

Direct competition

Answer 42

the rivalry between two companies that offer similar products and services, acknowledge each other as rivals, and act and react to each other’s strategic actions

Question 43

Level of direct competition is determined by

Answer 43

* Market commonality: the degree to which two companies have overlapping products, services, or customers in multiple markets * Resource similarity: the extent to which a competitor has similar amounts and kinds of resources

Question 44

Strategic Moves of Direct Competition

Answer 44

1. Attack: a competitive move designed to reduce a rival’s market share or profits * A full-attack strategy can provoke harsh retaliatory responses 2. Response: a competitive countermove, prompted by a rival’s attack, to defend or improve a company’s market share or profit * Match or mirror or competitor’s move * Respond along a different dimension from competitor’s move