Strategic Management and Business Policy Conceptual Part 5

120. Competitor intelligence could ethically come from all of the following EXCEPT a. court records. b. financial reports. c. trade show discussions. d. eavesdropping. ANSWER: d 121. Which of the following represents a competitive intelligence practice that is both legal and ethical? a. A firm hires a competitor's employees and asks them to share the names and addresses of business contacts from their previous company. b. An executive attends a trade show solely to obtain a competitor's brochures, listen to sales pitches, and ask questions about the competitor's products. c. A city council member shares information about the decision process for selecting a contractor to build a new library wing with his wife, an executive with a construction firm bidding on the contract. d. A marketing manager at Smith-Phillips, Inc., sells confidential plans for the company's expansion into the Far East to a firm that is not a direct competitor. ANSWER: b 122. Which of the following intelligence-gathering techniques is most likely to be legal and ethical? a. hiring investigators to examine the competitor's trash b. entering a competitor's production plant without authorization c. redirecting a competitor's emails to one's own company d. attending trade show presentations given by a competitor's employees ANSWER: d 123. The U.S. Hispanic market is the third-largest "Latin American" economy behind Brazil and Mexico. This impacts the aspect of demographic segment analysis. a. age structure b. geographic distribution c. income distribution d. ethnic mix ANSWER: d 124. New Jersey and New York have the highest state taxes in the United States. They also have high ratios of people moving out compared to people moving into the state. This impacts the aspect of demographic analysis. a. age structure b. geographic distribution c. income distribution d. ethnic mix ANSWER: b 125. The communications industry is broadly defined as encompassing all of the following EXCEPT a. media companies. b. smartphone producers. c. book retailers. d. entertainment companies. ANSWER: c 126. The Department of Defense buys aircraft from U.S. companies for national security reasons. This is an example of a barrier to entry. a. cost disadvantage independent of scale b. government policy c. capital requirements d. product differentiation ANSWER: b 127. After Amazon lowered the price on Kindle e-readers, Sony eventually lowered the price on its Reader. Sony needed to do this because a. it is in the same strategic group. b. it is outside the strategic group. c. of inter-strategic group competition. d. of strategic distinctiveness. ANSWER: a 128. Applications developed for iPhones make the phone more valuable to iPhone users. App developers are Apple. a. suppliers b. customers c. competitors d. complementors ANSWER: d 129. Counterfeiting goods and exporting them from China is a. ethical and legal. b. unethical but legal. c. ethical but illegal. d. unethical and illegal. ANSWER: d to Subjective Short Answer Case Scenario 1: The Boys and Girls Clubs. The Boys and Girls Clubs (BGC) is a national non-profit organization geared toward providing America's youth with the tools and skills they need to become healthy adults, responsible citizens, and effective leaders. By bringing parents, neighbors, educators, and civic leaders together with our youth, BGC believes it can instill these crucial life lessons at an age when they're most needed. The national organization is headquartered in Atlanta, GA, and serves as a service hub for over 3,700 club locations around the United States. Each local club is directed by a volunteer board of directors and staffed by professional youth development workers (usually including an executive director, a program director, and an arts director) and many volunteers who just enjoy working with young people and want to make a difference in their lives. While affiliated with the national center, each local BGC is locally funded. 130. (Refer to Case Scenario 1). How are the various facets of the general environment (Table 2.1 in Strategic Management) likely to be important for BGC? ANSWER: The best answers will begin by noting that BGC has a mission focused on the education and social development of needy youth. Thus, the demographic, economic, sociocultural, and physical segments may be the segments of primary importance. Within the physical segment, for instance, BGC may consider what it can do to respond to climate change and depletion of energy resources. The global segment is also a natural discussion point since contexts far from home may not come to our attention until after a critical stage has been passed. For instance, the presence of immigrants and refugees in a community may affect the needs of BGC's clientele. 131. (Refer to Case Scenario 1). Why would attention focused on victims of natural disasters be a threat to BGC? ANSWER: The best answers will observe that BGC is entirely dependent upon local donations for its operations, and public focus on other causes will likely draw away donation dollars that had been historically earmarked for BGC. This alternative charitable giving serves donors as a substitute for donations to BGC. 132. (Refer to Case Scenario 1). How might BGC respond to threats to its donations at both local and national levels? ANSWER: Since BGC is governed locally by a board of directors drawn from the community, the local organizations should use these members to rally support against their dwindling donation base. The board and BGC staff members can also reach out to other local organizations and community governments. At a national level, image ads and the lobbying of various national organizations (government, teachers' associations, minority outreach organizations, environmental groups, etc.) can be initiated and managed through the BGC headquarters in Atlanta. 133. (Refer to Case Scenario 1). The purpose of the Boys and Girls Clubs (BGC) is to instill in youth the tools and skills needed to become healthy adults, responsible citizens, and effective leaders. If BGC were to initiate programs about women's issues, women in the workforce, workforce diversity, and changes in work and career preferences, it would be contributing to an understanding of which segment of the general environment? A. demographic B. sociocultural C. economic D. technological ANSWER: B. Sociocultural Case Scenario 2: B.B. Mangler. B.B. Mangler is a top U.S. business-to-business distributor of maintenance, repair, and service equipment, components, and supplies such as compressors, motors, signs, lighting and welding equipment, and hand and power tools. Its industry is typically referred to as MRO, an acronym for maintenance, repair, and supplies. MRO products are typically small and fairly inexpensive (such as light bulbs and washers), but often needed on short notice. Mangler states its strategy as having the "capacity to offer an unmatched breadth of lowest-total-cost MRO solutions to business." Mangler's GoMRO sourcing center for indirect spot buys locates products through its database of 8,000 suppliers and 5 million products. Mangler has 388 physical branches in the United States, including Puerto Rico (90 percent of sales), 184 in Canada, and 5 in Mexico. Customers include contractors, service and maintenance shops, manufacturers, hotels, governments, and health care and educational facilities. Mangler also provides materials-management consulting services. 134. (Refer to Case Scenario 2). Historically, Mangler appears to have relied on its physical locations for market presence in the United States and northern South America. What threats does the Internet pose to its locationbased strategy? ANSWER: The best answers will start by noting that Mangler's location-based strategy is also likely to require quite a bit of investment in inventory (keeping all those parts on hand at each of its branches in the United States, Canada, and Mexico). Given that it competes in a low-cost industry, and itself competes on cost, an Internet-based MRO competitor may be able to create an even lower cost structure (as Amazon.com did with books). The Internet seems like a natural fit for the MRO market. Such an online strategy may be particularly effective for those MRO items that are less time-critical. 135. (Refer to Case Scenario 2). What opportunities does the Internet provide to Mangler, both domestically and internationally? ANSWER: Answers to this question should suggest several different responses to the ways in which Mangler could capitalize on the Internet domestically. The best answers for the international strategy question will begin by noting that just as Mangler's many domestic locations provide a barrier to entry in its markets by potential competitors (that is, it already has the market share to cover its high physical location costs and also is likely to have tremendous goodwill), so too have they been a barrier against Mangler's entry into other international markets such as Europe, Asia, and other parts of Latin America. The Internet does away with this barrier to a great extent, which levels the playing field between Mangler and the incumbents of those respective international markets. 136. (Refer to Case Scenario 2). How should Mangler respond to the threat of new Internet-based entrants? ANSWER: There are several possible avenues, and the best answers will note these alternatives. The most obvious response would be for Mangler to start up a web-based complement to its location-based delivery system. A related response might involve the centralization of low-demand, high-cost items to specific areas of the country, where they could then be funneled rapidly to the actual local outlets using the Internet as an internal market. Finally, Mangler could hedge this threat by investing in the most promising online rivals. Case Scenario 3: Barracuda Inc. Barracuda Inc. is a lamp-fixture manufacturer that is considering an entry strategy into the U.S. home-furnishings manufacturing industry. The existing landscape consists of many players but none with a controlling share. There are currently 2,500 home furnishings firms, and only 600 of those have more than 15 employees. Average net profit after tax is between 4 and 5 percent. While the industry still primarily comprises single-business, family-run firms that manufacture furniture domestically, imports are increasing at a fairly rapid rate. Some of the European imports are leaders in contemporary design. Relatively large established firms are also diversifying into the homefurnishings industry via acquisition. Supplier firms to the home-furnishings industry are in relatively concentrated industries (such as lumber, steel, and textiles). Retailers, the intermediate customer of the home-furnishings industry, have been traditionally very fragmented. Customers have many products to choose from, at many different price points, and few home-furnishing products have strong brands. Also, customers can switch easily among high- and low-priced furniture and other discretionary expenditures (spanning big-screen TVs to the choice of postponing any furniture purchase entirely). 137. (Refer to Case Scenario 3). Using the five-forces framework, summarize the opportunities and threats facing Barracuda as it considers entry into the home-furnishings manufacturing industry. Which threats are greatest to current incumbents? ANSWER: The best answers will be based on an application of the five forces model to the scenario. From this model students should be able to point out that the most significant threats are the power of consumers, lack of economic power with suppliers, and increasing presence of imports. These characteristics plus the highly fragmented nature of the industry itself are likely to translate into near-perfect competition, leaving no single player with a clear advantage. Opportunities may exist in particular niches, depending on the internal strengths of new entrants. In terms of the larger market, there appears to be an opportunity for a large firm to consolidate the industry and add brand power, thereby potentially gaining power over suppliers and customers. 138. (Refer to Case Scenario 3). How intense is competitive rivalry likely to be among incumbents of the homefurnishings manufacturing industry? ANSWER: The best answers will be able to walk through the determinants of rivalry spelled out in pages 57 through 59. The fact that this industry is fairly characterized as having nearly perfect competition suggests that rivalry is high. Larger players are likely to have significant exit barriers, particularly given the slow growth, high fixed costs, lack of differentiation, and low profitability of the market overall. Thus, new larger entrants to this industry may further escalate the degree of competition. 139. (Refer to Case Scenario 3). Is the furniture industry described above attractive? ANSWER: Astute students may begin by noting that this industry is attractive if you are in a position that is currently less attractive than that demonstrated by the home-furnishings business. Beyond that, discussion should generally lead to the recognition that this industry is currently unattractive – summarized by its paltry profit margins, fragmented membership, lack of power over suppliers and customers, and high degree of rivalry. Essay 140. Explain why it is important for organizations to analyze and understand the external environment. ANSWER: Organizations do not exist in isolation. The external environment of the organization presents threats and opportunities which the organization must address in its strategic actions. Some aspects of the organization's external environment are changing rapidly, such as technology, and the organization must constantly adjust to these changes. The information that the organization gathers about competitors, customers, and stakeholders is used to build the organization's capabilities or to build relationships with stakeholders in the external environment. The information that the organization gathers about the external environment must be matched with its knowledge of its internal environment to form its vision, to develop its mission, and to take actions that result in strategic competitiveness and above-average returns. 141. Identify and describe the three major parts of the external environment. What is the purpose for a firm to collect information about these aspects of its environment? ANSWER: The external environment has three major parts. The first is the general environment, which is composed of dimensions in the broader society that affect industries and their firms. These environmental segments are: demographic, economic, political/legal, sociocultural, technological, and global. The second part of the external environment is the industry environment, which involves five factors that influence a firm, its competitive actions and responses, and the industry's profit potential. These five factors are: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors. The competitor environment is the third part of the external environment. The firm must be able to predict competitors' actions, responses, and intentions. With the information collected about these aspects of its external environment, the firm can develop its vision, mission, and strategic actions. 142. Describe and discuss the four activities of the external environmental analysis process. ANSWER: The external environmental analysis process includes four steps: scanning, monitoring, forecasting, and assessing. The scanning of the environment includes the study of all segments of the general environment in order to detect changes that may occur in the future or that already are occurring. This is critical in a volatile environment. Scanning often deals with ambiguous, incomplete, or unconnected data and information. When analysts monitor the environment, they observe environmental changes to see if an important trend is emerging from those spotted by scanning. It is critical for the firm to detect meanings in these events and trends so that it can be prepared to take advantage of opportunities these trends provide. Forecasting builds on scanning and monitoring to develop feasible projections of what might happen and how quickly it will occur. Forecasting is important in helping the firm adjust sales to meet demand. Finally, through assessing, the analyst determines the timing and the significance of the effects of environmental changes and trends on the strategic management of the firm. Assessment must specify the competitive relevance of the data. 143. Describe the seven segments of the general environment. ANSWER: 1) The demographic segment encompasses factors such as population size, geographic distribution, age structure, ethnic mix, and income distribution. 2) The economic segment involves the nature and direction of the economy in which a firm competes or may compete, domestic as well as global. 3) The political/legal segment is the arena in which organizations compete for attention, resources, and a voice in laws and regulations guiding the interactions among nations. 4) The sociocultural segment is concerned with society's attitudes and cultural values. 5) The technological segment includes institutions and activities involved with creating new knowledge and transforming it into new outputs, products, processes, and materials. 6) The global segment includes new global markets, existing markets that are changing, international political events, and critical cultural and institutional characteristics of global markets. 7) The physical segment includes potential and actual changes in the physical environment (such as global warming) and business practices that are intended to positively deal with those changes (such as control of carbon emissions and other environmentally friendly actions). 144. Identify the five forces that underlie the five forces model of competition. Explain briefly how they affect industry profit potential. ANSWER: 1) Threat of new entrants: New entrants threaten existing firms' market share. They increase production capacity in an industry which results in lower profits for all firms, unless demand is increasing. The new entrant may force the existing firms to be more effective and efficient in production, and to compete on new dimensions. 2) Power of suppliers: Suppliers with high power can increase prices and decrease the quality of their products sold to the firm. If firms are unable to pass along price increases to customers, their profits diminish. 3) Power of buyers: When buyers (customers) have high power they can force prices down, and require increases in quality and service levels, thus driving profits down. 4) Substitutes: Substitutes perform the same or similar functions of the firm's product. The price of the substitute places an upper limit on prices firms can charge for the original product, limiting industry profits. 5) Intensity of competitive rivalry affects the firm's ability to make a profit as competitors' actions challenge the firm or competitors try to improve their market position. Increasing rivalry reduces the ability of weaker firms to survive. 145. Describe the factors that raise the competitive nature of an industry's rivalry. ANSWER: The competitive rivalry in an industry can be based on price, product quality, and product innovation in an attempt to differentiate the firm's product from its rivals' products. The factors that can increase competitive rivalry include: 1) numerous and equally balanced competitors; 2) slow or no industry growth; 3) high fixed costs, high storage costs of inventory, or perishable products; 3) lack of differentiated products or low cost of product switching by customers; 4) high strategic stakes for the competitors; and 5) high barriers for firms wishing to exit the industry, causing firms to remain in an industry where they cannot reasonably expect to make a profit. 146. What are high exit barriers and how do they affect the competition within an industry? ANSWER: Exit barriers are economic, strategic, and emotional factors causing companies to remain in an industry, even though the profitability of doing so is in question. The following are common sources of exit barriers: 1) specialized assets which cannot be used in another business or location; 2) fixed costs of exit, such as labor agreements which penalize a firm for ceasing operation; 3) strategic interrelationships or mutual dependence of business units wherein one business of a corporation serves another corporate business; 4) emotional barriers that cause owners to be sentimentally attached to the business or to their own role in it; 5) governmental and social restrictions that prevent a firm from closing, often in order to prevent the loss of jobs in a country or community. 147. What is a firm's strategic group? What effect does the strategic group have on the firm? ANSWER: The firm's strategic group is the set of firms that emphasize similar strategic dimensions and use a similar strategy. The firms in a strategic group occupy similar positions in the market, offer similar goods to similar customers, and may make similar decisions about production technology and organizational features. Competition among firms within a strategic group is more intense than the competition among a firm and those firms outside its strategic group. Actions of members in the firm's strategic group affect its strategic decisions in many areas, including pricing, product quality, and distribution. 148. What do firms need to know about their competitors? What legal and ethical intelligence-gathering techniques can be used to obtain this information? ANSWER: Competitor analysis helps firms identify: 1) what drives the competitor by understanding the competitor's future objectives); 2) what the competitor is doing and is capable of doing by understanding the competitor's current strategy; 3) what the competitor believes about the industry by understanding the assumptions made by the competitor; and 4) what the competitor's capabilities are by understanding the competitor's strengths and weaknesses. Firms can legally and ethically gather public information, such as annual reports, SEC reports, UCC filings, court records, and advertisements. Firms can also attend trade fairs to obtain competitors' brochures, view exhibits, and discuss products. This data combines to form competitive intelligence. 149. What are barriers to entry and how do they affect competition in the industry? ANSWER: Entry barriers discourage competitors from entering a market and facilitate a firm's ability to remain competitive in a market in which it currently competes. Barriers to entry include: 1) Economies of scale are derived from incremental efficiency improvements through experience as a firm grows larger. 2) Product differentiation occurs when over time, customers may come to believe that a firm's product is unique. This belief can result from the firm's service to the customer, effective advertising campaigns, or being the first to market a product or service. 3) Capital requirements – Competing in a new industry requires a firm to have resources to invest. In addition to physical facilities, capital is needed for inventories, marketing activities, and other critical business functions. 4) Switching costs are the one-time costs customers incur when they buy from a different supplier. 5) Access to distribution channels – Over time, industry participants commonly learn how to effectively distribute their products. Once a relationship with its distributors has been built a firm will nurture it, thus creating switching costs for the distributors. 6) Cost disadvantages independent of scale – Sometimes, established competitors have cost advantages that new entrants cannot duplicate. Proprietary product technology, favorable access to raw materials, desirable locations, and government subsidies are examples. 7) Government policy – Through their decisions about issues such as the granting of licenses and permits, governments can also control entry into an industry.