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Strategic Management Past Exam Questions
Strategic Management (MGMT3010)
Curtin University
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Exam revision 5 quesions 4 essays LECTURE 1 CHAPTER 1 – STRATEGY CONCEPTS Q1 what is modern strategic management What is strategic management? -Seing objecives for the organisaion, planning and implemening the necessary changes and measuring the outcomes - Strategic management is a central issue for all organisaions. - In this unit we discussed many dimensions and perspecives within each of those dimensions. - Within any industry there is a broad range of organisaions. These companies experience a large variaion in performance and opportuniies and display diferent approaches to compeing and markets. - Strategic Management explains those diferences and how they impact on success: why in the same market condiions some organisaions succeed while others fail. Extra notes: central issues, are we in the right market? Where should we move to next? Who are our current compeitors and potenial? Very important for successful performance, because they use core competencies and also think about future development
Q2 Why is success in the implementaion of strategy is criical for improving organisaional performance? Unil a strategy is implemented, it is just a collecion of ideas and expectaions - The process of strategy implementaion is very ime consuming, costly and frequently only parially successful. - If the strategy involves a signiicant change, the implementaion of the strategy can take years to complete. - Another important aspect of strategy implementaion, apart from the resources , ime taken to implement and the likelihood of variaions from the original plan, is the approach necessary to achieve this type of change. - Success in the implementaion of any strategy is criical for improving organisaional performance. Unil a strategy is implemented, it is only an expectaion. The process of implementaion is not easy and requires ime and resources. Furthermore, implementaion is oten only parially successful, possibly leading to emergent strategies. Can be quite diicult and challenging, changing environment, technological, condiions of external environment. Needs to be considered – likely hood of variaions. Strategic plans someimes not accepted by others in the workplace. External vs internal strategy implementaion. Impact of the nature of industry dynamics – diferent stages of industry development (chap 6). Stable / mature industry – condiions are completely diferent from emergent stage. Concept of dynamic of abiliies.
LECTURE 2 CHAPTER 4 – EVALUATING FIRMS EXTERNAL ENVIRONMENT Q3 Industry environmental analysis An industry is a group of irms producing products that are close subsitutes - Firms that inluence one another
- Includes a rich mix of compeiive strategies that companies use in pursuing strategic compeiiveness and above-average returns
- Compared to the general environment, the industry environment has a more direct efect on the irm’s strategic compeiiveness and above-average returns Key environmental characterisics for most industries: Opportuniies:
- Economic prosperity
- Strong social demand for a product or service
- Strong legal system which would protect holders of patents and licences
- Free trade agreements between countries
- Increased labour lexibility laws Threats
- Economic downturn
- Poliical instability
- Rapid rates of technology development
- High levels of polluion (china)
- Corrupt legal systems
- Increase in energy and crude oil prices
Q4 How could a irm protect itself and grow in an industry characterised by low barriers to entry?
Low barriers to entry allow potenial entrants to enter and are generally accompanied by low barriers to exit. This means that the industry is not protected and that the expected level of proit will be lower on average than within highly protected industries.
However, some strategic acions may help irms in these industries: Firms may develop some barriers to entry such as switching costs or ighing for favourable regulaions and legal protecions.
The best protecion is certainly excellence and reputaion. If the irm develops a business level difereniaion strategy, it de facto creates a barrier because potenial entrants do not beneit from customer loyalty.
A focused business level strategy may also help, because it will lead the irm to concentrate on a sub-market that it serves extremely well. Some speciic resources and competencies may provide the irm with assets that other irms do not possess, creaing a difereniaion with incumbents and potenial entrants. The use of structural dimensions in the industry such as economies of scale, absolute cost advantages, or product difereniaion may prove to be strong difereniators and barriers to entry. In any case, a careful analysis of the structure of the industry and potenial barriers to entry is required. Extra notes: Low barriers mean more entries into the industry. Efects proitability Maximising economies of scale will be afected Industry is highly compeiive Pressure of exising companies Companies try to posiion themselves diferently “these companies are doing something special for their customers” Difereniaion
The “strategise” approach emphasises the importance of strategic analysis and forecasing tools. Those who support this view link successful performance of organisaions to their ability to plan the future based on the past. There is strong research evidence that planning is a crucial aspect of high risk decision making.
The “improvise” approach argues that formal planning is inefecive in dynamic or high velocity environments
In the rapidly changing environment the best performing organisaions are those that act out of their future. Moreover, some advocates of this approach argue that relying on the past represents a threat to the future.
There is research evidence that suggests that planning can improve irm performance in either dynamic or stable environments (Eisenhardt, 1989).
In pracice these two approaches - ‘raional design’, or strategise, and ‘emergent process’, or improvise, support organisaional strategy formulaion and implementaion and contribute into an increased corporate responsiveness and adaptaion to environmental turbulence.
Hint: discuss the role of dynamic capabiliies in the ability of irms to improvise; discuss the role of emergent strategy Explain both sides – HINT Explain why approaches are important – explain under which circumstances are important Uncertainty in the market, plans may not work – ability to improvise, be agile, move market forces is criical Ensure physical assets are not destroyed adaptaion to new condiions discuss the role of intentness? planned and emergent strategies
Q8 diferent names exist related to central noion of competence, capability, competence, core comp, dynamic capability etc highlight historic development help to glorify diferent nature general weakness of term precision, many authors have proposed their own deiniion=variaions of central concepts
Q9 why do we need to understand dynamic capabiliies
- The dynamic capabiliies view is a relaively recent stream in the strategic management literature, it has atracted increasing atenion from researchers and praciioners who explore the role of dynamic capabiliies in obtaining compeiive advantage.
- Dynamic capabiliies are the ability of organisaions to integrate, build, and reconigure internal and external competencies to address rapidly changing environments.
- This deiniion opens the opportunity to incorporate managerial acion into discussions of the sources of compeiive advantage.
- Dynamic capabiliies relect irms’ ability to regenerate its knowledge base Extra notes: Dynamic capabiliies are atemping to act as “a bufer between irm resources and the fast- changing business environment” Hot topic intro 1990’s Characterisic of internal and external environment in which the company operates Ability to observe changes, improve knowledge base in organisaion
Q10 how dynamic capabiliies enable a company to adapt its internal and external competences in order to survive in a rapidly changing environment?
- The RBV of a compeiive advantage emphasises the deployment and protecion of unique resources rather than the need for resources and competencies to develop over ime.
- Rapid and unpredictable environmental changes and market complexity require companies to accumulate compeiive advantage through learning and knowledge creaion processes in order to survive in rapidly changing environment and to respond to dynamic changes.
- These requirements are addressed by and referred to as the knowledge-based organisaion.
- Dynamic capabiliies relect the changing nature of external environments. They act like bufer between irm’s internal and external environment.
- Apart from the various types of organisaional capabiliies, dynamic capabiliies also can incorporate managerial acion as a source of compeiive advantage
- Ongoing collaboraion with customers is also opening up opportuniies to reconigure the irm’s exising internal competencies resources to develop dynamic capabiliies. Extra notes: Some managers have diferent abiliies to recognise, or see changes and think it is relevant to not do anything. Everybody responds in diferent ways. Managerial acions – advantage Global strategy – how global compeiions on the whole market requires you to make changes Partnerships – idenify new opportuniies
LECTURE 5 CHAPTER 7 – BUSINESS LEVEL STRATEGIES Q11 Why dont irms try to maximise their economies of scale and run their operaions on the largest possible scale? Economies of scale: cost savings atributed to decreased ixed costs per unit when the volume of producion and sales increases.
- For the reason that economies of scale have limits. Otherwise, industries would be consituted of giant irms, and, in theory, of only one large irm dominaing the enire market.
- That type of irms would beneit from such large economies of scale that nobody else could ever challenge it. In fact, several factors consitute limits that keep irms from growing indeinitely:
- A) the ability of smaller irms to difereniate their products and to compete on dimensions other than price,
- B) the ability of smaller irms to change more rapidly and to adapt to their environment faster than large and heavier organisaions,
- C) the diiculies linked to size and, especially, the problems emerging from coordinaion, integraion, and control of a giant organisaion. Growth is not always possible in a market, and there is always a limit to that growth.
- Therefore, size maximisaion translates into size opimisaion. In some cases, the structure of the industry does not confer an atribute of "scale sensiivity" to the industry.
understanding of its ability to create and supply difereniaion. Demand analysis ideniies customers’ demands for difereniaion and their willingness to pay for it, but creaing difereniaion advantage also depends on a company’s ability to ofer difereniaion. To idenify the company’s potenial to supply difereniaion, it is necessary to examine the aciviies the company performs and the resources it commands.
- Third perspecive focuses on the iming of customers' percepions of difereniaion. Search goods' quality can be ascertained by inspecion, whereas experience goods have to be consumed to allow the ideniicaion of their intrinsic qualiies. Extra notes: Special relaionships with customers – difereniaion – extra services, rewards cards. not just sales, but how customers feel about using certain products.
Q14 What is the role of social and psychological factors in analysing difereniaion?
- Analysing product difereniaion requires to understand customers’ underlying moivaions
- Very few goods or services are acquired to saisfy basic needs for survival; most buying relects social goals and values in terms of the desire to ind community with others, to establish one’s own idenity, and to make sense of what is happening in the world.
- Most suppliers of branded goods recognise that their brand equiies have much more to do with status and conformity than to survival or security.
- Examples: What is so diferent about Louis Vuiton’s popular, much-copied brown and black tote? What is so diferent in the commonly recognised designs of Gucci handbags?
- The customers are willing to pay a premium price for these branded products, not just for the physical features of these products, but also for intangible difereniaion of self- idenity and social ailiaion
- The value conferred by leading consumer brands such as Louis Vuiton, Gucci, Coca-Cola, Harley-Davidson, Mercedes-Benz and Virgin is less a warranty of the reliability and more an embodiment of idenity and lifestyle
- For these brands, adverising and promoion have long been the primary means of inluencing and reinforcing customer percepions. Increasingly, consumer goods companies are seeking new approaches to brand development that focus less on product characterisics and more on ‘brand experience’, ‘shared values’ and ‘emoional dialogue’.
Q15 what is the diference between tangible and intangible difereniaion
- Tangible difereniaion looks at the observable characterisics of a product or service that are relevant to customers' preferences and choice processes.
- Intangible difereniaion is concerned with the social, emoional, and psychological consideraions present in choices over all products and services.
- Tangible difereniaion relates to the observable characterisics of a product or service, whereas intangible difereniaion relates to non-tangible atributes of the product or service
Q16 What is the diference between difereniaion strategy and market segmentaion? Does market segmentaion lead to achieving difereniaion on the chosen segment of the market? Does difereniaion of products or services always mean that a irm targets a certain segment of the market?
- Difereniaion provides customers with a product or a service whose characterisics appear to be unique and are perceived by them as valuable. Difereniaion is concerned with "how" a irm competes. Segmentaion deals with "where" the irm competes in terms of targets (customer groups, localiies, and product types). To implement difereniaion, diferent techniques exist, but all techniques rely on a deep understanding of the idenity, the needs and expectaions, the locaion, the psychological and behavioural atributes of a irm's customers.
- Establishing a segmentaion of the market and deciding a difereniaion strategy are independent in theory, because a irm may locate itself within a paricular segment without achieving difereniaion. However, the two concepts go hand-in-hand because the segmentaion step is a preparatory step in the difereniaion decision, since it provides a tool to understand and classify customers' characterisics, upon which difereniaion is based. Moreover, by ofering uniqueness in its products or services, a irm may inevitably target certain market niches.
Q17 How can irms implement an integrated approach of cost leadership and difereniaion?
- Difereniaion adds to cost.
- If difereniaion narrows a company’s segment scope, it also limits the potenial for exploiing scale economies, thus limiing the opportuniies for cost advantage.
- One way of reconciling difereniaion with cost eiciency is to postpone difereniaion to later stages of the company’s value chain.
- Economies of scale and the cost advantages of standardisaion are frequently greatest in the manufacturing of basic components.
- Modular design with common components permits scale economies while maintaining considerable product variety.
- New manufacturing technologies and the internet have redeined tradiional tradeofs between eiciency and variety.
Q18 can a irm use cost leadership business-level strategy and difereniaion strategy simultaneously? Cost leadership strategy: integrated set of acions designed to produce or deliver goods or services at the lowest cost relaive to compeitors, with features that are acceptable to customers. E cost leaders: virgin airlines, jet star, ryan air, coles, woollies, Walmart, mcdonalds.
- Using cost leadership and difereniaion simultaneously implies providing the product or service at a lower cost than rivals on a permanent basis, and being able at the same ime to ofer atributes perceived posiively and as unique by the same customers.
- This strategy allows a irm to beneit from both advantages related to the basic strategies, cost and difereniaion. It achieves an increase in its market share by selling at very reasonable price compared to rivals, but more importantly, is able to ofer more than its rivals for the same price. It gains on both sides. Toyota and Dell are following this strategy.
- In fact, few irms are trying (or succeeding at) this strategy, because it appears to be more diicult to implement and entails higher risk. The major risk is failing to be excellent on both dimensions, and then excelling in neither. Difereniaion has a cost,
companies, a criical factor is "relaive eiciency": what are the transacion costs of market contracts, as compared to the administraive costs of a diversiied irm?
- Another factor to consider is the nature of the asset or capability. If they are complex and deeply embedded in a irm's managerial systems and corporate culture, it is very likely that the best way to generate value is via the internal market, because exploiing these assets through market contracts would be very diicult.
Q21 How synergy can be created by unrelated diversiicaion? Eicient internal capital allocaions Think what is more eicient, the internal capital markets of diversiied companies or the external capital market? Diversiied companies have two key advantages: 1. By maintaining a balanced porfolio of cash-generaing and cash-using businesses, diversiied companies can avoid the costs of using the external capital market, including the margin between borrowing and lending rates and the heavy costs of issuing new debt and equity. 2. Diversiied companies have beter access to informaion on the inancial prospects of their diferent businesses than that typically available to external inanciers. Eicient labor allocaions - Eiciencies also arise from the ability of diversiied companies to transfer employees — especially managers and technical specialists — between their divisions, and to rely less on hiring and iring. - As companies develop and encounter new circumstances, so diferent management skills are required. - The costs associated with hiring include adverising, the ime spent in interviewing and selecion, and the costs of ‘head-huning’ agencies. - The costs of dismissing employees can be very high where severance payments must be ofered. - A diversiied corporaion has a pool of employees and can respond to the speciic needs of any one business through transfer from elsewhere within the corporaion.
LECTURE 7 CHAPTER 8 – MERGERS AND ACQUISITIONS Q22 Explain reasons for merger and acquisiion acivity Many companies acively engage in merger and acquisiion aciviies to seek beter inancial performance. The following reasons are the most common: Economies of scale. Some costs, especially ixed costs, can be reduced by removing overlapping operaions ater a merger or acquisiion. Economies of scope. Mergers and acquisiions oten can extend the market and product porfolio of the companies when they are combined into one. Tax beneits. A proitable company can enjoy tax beneits by acquiring a money-losing business by incorporaing the losses into their consolidated proits accounts. Higher return on investment. A company can increase its return on investment (ROI) by acquiring another company with a higher ROI
Q23 Explain the reasons of failure of merger and acquisiion acivity Integraion diiculies:
- Melding two disparate corporate cultures
- Linking diferent inancial and control systems
- Building efecive working relaionships (paricularly when management styles difer)
- Resolving problems regarding the status of the newly acquired irm’s execuives
- Retaining key personnel Inadequate evaluaion of the target company:
- Inefecive Due diligence process may result in acquirer paying excessive premium for target company.
- Evaluaion requires examining the; inancing, cultural diferences, tax consequences, acions necessary to meld workforces. Large or extraordinary debt:
- High debt can: increase likelihood of bankruptcy, downgrading credit raing, preclude investment in R7D, hr training and markeing. Inability to achieve synergy
- Synergy exists when assets create more value working together than they do independently.
- Firms experience transacion costs when using acquisiion strategies to create synergy.
- Firms may underesimate costs: direct costs, such as bank charges. indirect costs, such as investment of managerial ime. Too much diversiicaion:
- Firms must process more informaion.
- Broad scope may cause managers to rely too much on inancial rather than strategic controls.
- Reinforcing cycle of acquisiions becomes a subsitute for internal innovaion. Over ime, the irm becomes increasingly reliant on other companies’ innovaions. Too large:
- Addiional costs of controls may exceed the beneits of the economies of scale and addiional market power.
- More bureaucraic controls due to large size.
- Formalised controls oten lead to relaively rigid and standardised managerial behaviour.
- Firm may become less lexible and then produce less innovaion.
LECTURE 8 CHAPTER 9 – ALLIANCES, PARTNERSHIPS AND NETWORKS Q24 Explain, why compeiion occur at a network level rather than at an organisaional level?
- Many successful companies prefer to pursue innovaions in a collaboraion
- Alliances allow companies to develop new capabiliies and competencies
- Alliances may involve formal agreements or they may be enirely informal — they may or may not involve ownership links
- Strategic alliances are viewed as an alternaive to diversiicaion
Q25 describe a situaion where an alliance with muliple partners, possibly even including governments, would be necessary to achieve a shared strategic purpose?
Alliances with muliple partners, also known as consoria , are meaningful when developing and establishing new technology since the market power as well as resources
The current dynamic market environment requires companies to focus on their core competences while forming cooperaive relaionships with other companies to access and build internal resources.
Contemporary development in the ield of strategy acknowledges that the resources residing outside the company’s boundary are also available for companies.
To beneit from resources external to the organisaion, it is crucial to establish, develop and maintain lasing business relaionships with customers, suppliers and other important actors.
Companies are no longer isolated and independent; rather they are required to be more lexible and cooperaive
Q29 what are simple but powerful principles that make collaboraion of companies with their compeitors successful?
- Collaboraion is compeiion in a diferent form. Successful companies never forget that their new partners may be out to disarm them. They enter alliances with clear objecives, and also understand how their partners' objecives will afect their success.
- Harmony is not the most important measure of success. Indeed, occasional conlict may be the best evidence of mutually beneicial collaboraion. Few alliances remain a win- win undertaking forever. A partner may be content even as it unknowingly surrenders core skills.
- Cooperaion has limits. Companies must defend against compeiive compromise. A strategic alliance is a constantly evolving bargain whose real terms go beyond the legal agreement or the aims of top management. What informaion gets traded is determined day by day, oten by engineers and operaing managers. Successful companies inform employees at all levels about skills and technologies that are of-limits to the partner and monitor what the partner requests and receives.
- Learning from partners is paramount. Successful companies view each alliance as a window on their partners' broad capabiliies. They use the alliance to build skills in areas outside the formal agreement and systemaically difuse new knowledge throughout their organisaion.
LECTURE 9 CHAPTER 10 – INTERNATIONAL STRATEGY Global strategic management views the world as a single, segmented, market and applies the organisaion’s resources to the opportuniies (and risks) it ofers The principal elements of global strategic management are similar to domesic strategic management:
- an assessment of the environment in which the company wishes to operate
- an assessment of the capability of the organisaion in relaion to that environment, including the capacity to withstand poliical, social and foreign exchange risks
Q27 explain the beneits of a global strategy Companies that compete on a naional basis are highly vulnerable, compared to companies that compete on a global basis. A global Strategy can provide a greater degree of security for two reasons: - globalisaion of customer preferences • scale economies Cost beneits — scale and replicaion
- In most global industries, one of the most important areas in which to achieve economies of scale is product development.
- Most global businesses, however, ind that their biggest cost advantages result from economies in the replicaion of knowledge-based assets - including organisaional capabiliies. Exploiing naional resource eiciencies
- Global strategy does not necessarily involve establishing producion in one locaion to support a global distribuion network.
- Global strategies can also involve exploiing the eiciencies obtained by locaing diferent aciviies in diferent places.
- Global businesses are not just in search of market opportuniies; they are also in search of resource opportuniies. Serving global customers
- In several industries, such as banking, audit services and adverising, the primary driver of globalisaion has been the need to service global customers.
- For example, the large accouning irms have established branches in most major economies so that they can provide audiing services to mulinaional companies in each of their locaions. Achieving a global-level knowledge of the industry
- Global businesses tend to learn much more quickly about their external environment as a result of operaing within diferent country environments.
- This is because speciic features of the environment will be more prominent in one country than in others. Increasing the range of compeiive opions available Global businesses can ight aggressive compeiive batles in individual naional markets using their global resources, including inance and skills
LECTURE 11 CHAPTER 12 – STRATEGY EVALUATION Q30 Explain, what is strategy evaluaion?
Strategy evaluaion refer to the appraisal of plans and results of plans that centrally concern or afect the basic mission of the enterprise
Rumelt stated that the evaluaion of strategy should provide answers to the following quesions:
Are the objecives of the business appropriate?
Are the major policies and plan appropriate?
Do the results obtained to date conirm or refute criical assumpions on which the strategy rests?
It is argued that strategy evaluaion should take three forms at diferent stages of the strategic management process
– Performance evaluaion and strategic appraisal - the irst step in developing a new strategy or in the fundamental reappraisal of exising strategy
– Strategy evaluaion and selecion - the prospecive appraisal of strategy opions and the selecion of a preferred strategy
– Evaluaion and control of strategy outcomes - this follows strategy implementaion to ensure strategic goals are met
Evaluaion also involves the determinaion of the value of the company’s strategy
The major advantage of this method is it challenges companies to pool together informaion that is normally dispersed, thus gives and integrated overview of the business. The addiional three perspecives of the BSC method assist managers in idenifying how to achieve the desired inancial performance targets.
McKinsey 7-S model: To achieve the desired performance targets, organisaional strategy should be supported with appropriate mechanisms of implementaion Strategy implementaion incorporates a broad range of interrelated changes 7-SModelwasintroducedbyMcKinseyand Company partners The model describes the seven factors for efecive strategy execuion.
- Strategy. The posiioning and acions taken by an enterprise in response to or anicipaion of changes in the external environment, intended to achieve compeiive advantage.
- Structure. The way in which tasks and people are specialised and divided, and authority is distributed; how aciviies and reporing relaionships are grouped; and how the mechanisms by which aciviies in the organisaion are coordinated.
- Systems. The formal and informal procedures used to manage the organisaion, including management control systems, performance measurement and reward systems, planning, budgeing and resource allocaion systems, and management informaion systems.
- Staf. The people, their backgrounds and competencies; how the organizaion recruits, selects, trains, socializes, manages the careers, and promotes employees.
- Skills. The disincive competencies of the organizaion; what it does best along dimensions such as people, management pracices, processes, systems, technology, and customer relaionships.
- Style/culture. The leadership style of managers — how they spend their ime, what they focus their atenion on, what quesions they ask of employees, how they make decisions; it also relects the organisaional culture (the dominant values and beliefs, the norms, the conscious and unconscious symbolic acts taken by leaders (job itles, dress codes, execuive dining rooms, corporate jets, informal meeings with employees).
- Shared values. The core or fundamental set of values that are widely shared in the organisaion and serve as guiding principles of what is important; vision, mission, and values statements that provide a broad sense of purpose for all employees.
Strategic Management Past Exam Questions
Course: Strategic Management (MGMT3010)
University: Curtin University
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