255

CHAPTER 1
The Nature of Strategic Management

True/False
Introduction

1. The underpinnings of strategic management hinge on managers gaining an

understanding of competitors, markets, prices, suppliers, distributors, governments,
creditors, shareholders and customers worldwide.

Ans: T Page: 4

2. Although the Internet has increased in popularity, it has actually led to increases
in company expenses.

Ans: F Page 4<

3. Consumer e-commerce is five times greater than business-to-business e-

commerce.

Ans: F Page 4

What Is Strategic Management?

4. Optimizing for tomorrow the trends of today is the purpose of strategic

management.

Ans: F Page: 5

5. Even though useful, strategic planning has been cast aside by corporate America
since the early 1990s.

Ans: F Page: 5

6. Resource allocation is included in strategy-formulation activities.

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Ans: T Page: 5

7. The terms strategic management and strategy implementation are synonymous.

Ans: F Page: 5

8. A vision statement is, in essence, a company’s game plan.

Ans: F Page: 5

9. Strategy implementation is often considered to be the most difficult stage in the

strategic-management process because it requires personal discipline, commitment and
sacrifice.

Ans: T Page: 6

10. The final stage in strategic management is strategy implementation.

Ans: F Page 6

11. Strategy formulation, implementation and evaluation activities occur at three

hierarchical levels in a large diversified organization: corporate, divisional and
functional.

Ans: T Page: 6

12. One of the fundamental strategy evaluation activities is reviewing external and
internal factors that are the bases for current strategies.

Ans: T Page: 6

13. An objective, logical, systematic approach for making major decisions in an

organization is a way to describe the strategic-management process.

Ans: T Page: 7

14. Strategic management is an attempt to organize qualitative and quantitative

information in a way that allows effective decisions to be made under conditions of
uncertainty.

Ans: T Page: 7

15. Analytical and intuitive thinking should complement each other.

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Ans: T Page: 7

16. According to Albert Einstein, “Knowledge is far more important than intuition.”

Ans: F Page 7

17. Management by intuition can be defined as operating from the “I’ve-already-

made-up-my-mind-don’t-bother- me-with-the-facts mode.”

Ans: F Page 7

18. By monitoring external events, companies should be able to identify when change
is required.

Ans: F Page: 8

Key Terms in Strategic Management

19. Anything the firm does especially well compared to rival firms could be
considered a competitive advantage.

Ans: T Page 8

20. Once a firm acquires a competitive advantage, they are usually able to sustain the
competitive advantage for an extended period of time.

Ans: F Page 9

21. Newspaper companies in the United States provide a good example of how a
company can sustain a competitive advantage over the long term.

Ans: F Page 9

22. In order for a firm to achieve sustained competitive advantage, a firm must
continually adapt to changes in external trends and events and effectively formulate,
implement, and evaluate strategies that capitalize upon those factors.

Ans: T Page: 9

23. Strategists are usually found in higher levels of management and have
considerable authority for decision-making in the firm.

Ans: T Page: 10
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24. The middle manager is the most visible and critical strategic manager.

Ans: F Page: 10

25. All strategists have similar attitudes, values, ethics and concerns for social
responsibility.

Ans: F Page: 10
26. A vision statement answers the question, “What is our business?,” whereas a
mission statement answers, “What do we want to become?”

Ans: F Page: 10-11

27. In the last five years, the position of chief strategy officer (CSO) has diminished
in comparison to other top management ranks of many organizations.

Ans: F Page: 10

28. A clear mission statement describes the values and priorities of an organization.

Ans: T Page: 10

29. As of 2004, Wal-Mart was the largest corporation in the world.

Ans: T Page 11

30. Strengths and weaknesses are determined relative to competitors.

Ans: T Page: 12

31. In a multidivisional firm, objectives should be established for the overall company
and not for each division.

Ans: F Page: 13

32. Objectives should be measurable, quantitative, challenging, realistic, consistent

and prioritized.

Ans: T Page: 13

33. Annual objectives are long-term milestones that organizations must achieve to
reach short-term objectives.

Ans: F Page: 13

34. Annual objectives are especially important in strategy formulation.

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Ans: F Page: 13

35. According to research, a healthier workforce can more effectively and efficiently
implement strategies.

Ans: T Page: 13

The Strategic-Management Model

36. Identifying an organization’s existing vision, mission, objectives and strategies is

the final step for the strategic management process.

Ans: F Page: 15

37. Once an effective strategy is designed, modifications are rarely required.

Ans: F Page: 15

38. Application of the strategic-management process is typically more formal in

larger and well-established organizations.

Ans: T Page: 15

Benefits of Strategic Management

39. Followed by commitment, understanding is the most important benefit of strategic

management.

Ans: T Page: 16

40. The changes that occurred at Disney after Robert Iger took over as CEO
exemplifies the fact that more and more organizations are centralizing the strategic-
management process.

Ans: F Page: 16

41. Firms with planning systems more closely resembling strategic-management

theory generally exhibit superior long-term financial performance relative to their
industry.

Ans: T Page: 17

42. Low-performing firms typically underestimate their competitor’s strengths and

overestimate their own firm’s strengths.
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Ans: T Page: 17

43. According to Greenley, strategic management provides a cooperative, integrated

and enthusiastic approach to tackling problems and opportunities.

Ans: T Page: 18

Why Some Firms Do No Strategic Planning

44. The poor reward structure is one reason managers do not engage in strategic
planning.

Ans: T Page: 18

45. Crises and fires in an organization allows managers the training and time for
effective strategic planning.

Ans: F Page: 17

Pitfalls in Doing Strategic Planning

46. Top managers making many intuitive decisions that conflict with the formal plan
is one pitfall managers should avoid in strategic planning.

Ans: T Page: 19

47. Managers must be very formal in strategic planning because formality induces
flexibility and creativity.

Ans: F Page: 19

Guidelines for Effective Strategic Management

48. An integral part of strategy implementation must be to evaluate the quality of the
strategic-management process.

Ans: F Page: 19

49. Strategic-management must be a self-reflective learning process that familiarizes

managers and employees in the organization with key strategic issues and feasible
alternatives for resolving those issues.

Ans: T Page: 20

Business Ethics and Strategic Management

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50. Today, managers and employees can be found personally liable if they ignore,
conceal, or disregard a pollution problem.

Ans: T Page: 21

51. Merely having a code of ethics is not sufficient to ensure ethical business
behavior.

Ans: T Page: 23

52. An integral part of the responsibility of all managers is to provide ethical

leadership by constant example and demonstration.

Ans: T Page: 23

Comparing Business and Military Strategy

53. In most situations, business strategy is very different than military strategy.

Ans: F Page: 25

The Nature of Global Competition

54. International operations can be as simple as exporting a product to a single

foreign country.

Ans: T Page: 28

55. One risk in international operations is that nationalistic factions could seize the
operations.

Ans: T Page: 29

Conclusion

56. All organizations have a strategy from their inception, even if the strategy is
informal, unstructured, and sporadic.

Ans: T Page: 30

57. Nonprofit organizations have less need for strategic management because they are
not interested in making a profit.

Ans: F Page: 30

58. Firms can be more proactive with strategic management.

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Ans: T Page: 30

Multiple Choice
Introduction

59. The term “environment” includes all of the following except:

a. air.
b. water.
c. firms.
d. natural resources.
e. fauna.

Ans: c Page: 4

60. The one factor that has most significantly impacted the nature and core of
buying and selling in nearly all industries has been
a. the Internet.
b. political borders.
c. corporate greed.
d. customer and employee focus.
e. the government.

Ans: a Page: 4

What Is Strategic Management?

61. What can be defined as the art and science of formulating, implementing and
evaluating cross-functional decisions that enable an organization to achieve its
objectives?
a. Strategy formulation
b. Strategy evaluation
c. Strategy implementation
d. Strategic management
e. Strategic leading

Ans: d Page: 5
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62. ____________ is used to refer to strategic formulation, implementation and

evaluation, with ______________ referring only to strategic formulation.
a. Strategic planning; strategic management
b. Strategic planning; strategic processing
c. Strategic management; strategic planning
d. Strategic management; strategic processing
e. Strategic implementation; strategic focus

Ans: c Page: 5

63. During what stage of strategic management are a firm’s specific internal
strengths and weaknesses determined?
a. Formulation
b. Implementation
c. Evaluation
d. Feedback
e. Goal-setting

Ans: a Page: 5

64. An important activity in __________ is taking corrective action.

a. strategy evaluation
b. strategy implementation
c. strategy formulation
d. strategy leadership
e. all of the above

Ans: a Page: 6

65. What step in the strategic development process involves mobilizing employees
and managers to put strategies into action?
a. Formulating strategy
b. Strategy evaluation
c. Implementing strategy
d. Strategic advantage
e. Competitive advantage

Ans: c Page: 6

66. What types of skills are especially critical for successful strategy
implementation?
a. Interpersonal
b. Marketing
c. Technical
d. Conceptual
e. Thinking
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Ans: a Page: 6

67. Which phase of strategic management is called the action phase?

a. Strategy formulation
b. Strategy implementation
c. Strategy evaluation
d. Allocating resources
e. Measuring performance

Ans: b Page: 6

68. __________ is not a strategy-implementation activity.

a. Taking corrective actions
b. Establishing annual objectives
c. Devising policies
d. Allocating resources
e. Motivating employees

Ans: a Page: 6

69. Strategy evaluation is necessary because

a. internal and external factors are constantly changing.
b. the SEC requires strategy evaluation.
c. competitors change their strategies.
d. the IRS requires strategy evaluation.
e. firms have limited resources.

Ans: a Page: 6

70. Which statement best describes intuition?

a. It represents the marginal factor in decision-making.
b. It represents a minor factor in decision-making integrated with analysis.
c. It should be coupled with analysis in decision-making.
d. It is better than analysis in decision-making.
e. It is management by ignorance.

Ans: c Page: 7

71. _________ and _________ are external forces transforming business and
society today.
a. E-commerce; strategy
b. E-commerce; globalization
c. Strategy; globalization
d. Corporate culture; stakeholders
e. Stakeholders; strategy

Ans: b Page: 8
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72. Anything that a firm does especially well compared to rival firms is referred to
as:
a. competitive advantage.
b. comparative advantage.
c. opportunity cost.
d. sustainable advantage.
e. an external opportunity.

Ans: a Page: 8

Key Terms in Strategic Management

73. The trends in newspaper circulation in the United States provide support for
which statement?
a. Sustainable competitive advantage is easy to maintain.
b. Several firms can have similar competitive advantages.
c. Some products are relatively immune to changes in the external environment
d. Most competitive advantages are hard to sustain
e. Competition is generally good for companies and consumers

Ans: d Page 9

74. Which individuals are most responsible for the success and failure of an
organization?
a. Strategists
b. Financial planners
c. Personnel directors
d. Stakeholders
e. Human resource managers

Ans: a Page: 10

75. The first step in strategic planning is generally:

a. Developing a vision statement
b. Establishing goals and objectives
c. Making a profit
d. Developing a mission statement
e. Determining opportunities and threats

Ans: a Page: 10

76. What are enduring statements of purpose that distinguish one business from
other similar firms?
a. policies
b. mission statements
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c. objectives
d. rules
e. employee conduct guidelines

Ans: b Page: 10

77. The largest company in the world is:

a. Honda Motor
b. ING Group
c. Wal-Mart
d. Ford Motor Company
e. Royal Dutch/Shell Group

Ans: d Page: 10

78. Usually, external opportunities and threats are:

a. uncontrollable by a single organization.
b. controlled by governments.
c. not as important as internal strengths and weaknesses.
d. key functions in strategy implementation.
e. key functions in strategy exploitation.

Ans: a Page: 12

79. Specific results an organization seeks to achieve in pursuing its basic mission
are:
a. strategies
b. rules
c. objectives
d. policies
e. mission

Ans: c Page: 13

80. Internal __________ are activities in an organization that are performed

especially well.
a. opportunities
b. competencies
c. strengths
d. management
e. factors
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Ans: c Page: 13

81. What are the means by which long-term objectives will be achieved?
a. strategies.
b. strengths.
c. weaknesses.
d. policies.
e. opportunities.

Ans: a Page: 13

82. Long-term objectives should be all of the following except:

a. measurable.
b. continually changing.
c. reasonable.
d. challenging.
e. consistent.

Ans: b Page: 13

83. __________ can best be described as short-term in nature.

a. Mission statements
b. Tenure
c. Annual objectives
d. Strategies
e. Management

Ans: c Page: 13

84. In which phase of strategic management are annual objectives especially

important?
a. formulation
b. control
c. evaluation
d. implementation
e. management

Ans: d Page: 13

85. What are guides to decision making?

a. laws
b. rules
c. policies
d. procedures
e. goals
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Ans: c Page: 13

The Strategic-Management Model

86. The strategic-management process

a. occurs once a year.
b.is a sequential process.
c. is a continuous process.
d.applies mostly to companies with sales greater than $100 million.
e. applies mostly to small businesses

Ans: c Page: 13

87. Which of the following is not included in the strategic management model?
a. Measure and evaluate performance.
b. Perform internal research to identify customers.
c. Establish long-term objectives.
d. Implement strategies.
e. Develop mission and vision statements.

Ans: b Page: 14

Benefits of Strategic Management

88. Strategic management enables an organization to __________, instead of

companies just responding to threats in their business environment.
a. be proactive
b. determine when the threat will subside
c. avoid the threats
d. defeat their competitors
e. foresee into the future

Ans: a Page: 16
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89. The act of strengthening employees’ sense of effectiveness by encouraging and

rewarding them to participate in decision-making and exercise initiative and imagination
is referred to as:
a. Authoritarianism
b. Proaction
c. Empowerment
d. Transformation
e. Delegation

Ans: c Page: 16

90. How do line managers become “owners” of the strategy?

a. by attending top manager meetings
b. by gathering information about competitors
c. by involvement in the strategic-management process
d. by becoming a shareholder of the firm
e. by buying off top managers

Ans: c Page: 16

91. The changes that occurred when Robert Iger took over the reigns at Disney,
demonstrate which current trend in organizations?
a. increased formalization of the strategic management process
b. increased structuring of strategic management
c. increased decentralizing of strategic management
d. increased emphasis on strategic planning
e. increased central planning of the strategic management process

Ans: c Page 16

92. According to research, organizations using strategic management are

__________ than those that do not.
a. more profitable
b. more complex
c. less profitable
d. less static
e. less complex

Ans: a Page: 17

93. According to Greenley, strategic management offers all of these benefits

except that
a. it provides an objective view of management problems.
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b. it creates a framework for internal communication among personnel.

c. it encourages a favorable attitude toward change.
d. it maximizes the effects of adverse conditions and changes.
e. it gives a degree of discipline and formality to the management of a business.

Ans: d Page: 17- 18

Why Some Firms Do No Strategic Planning

94. What is not a reason given for poor or no strategic planning in organizations?
a. Wasting of time
b. Being content with success
c. Fire-fighting
d. Poor reward structure
e. Trust of management

Ans: e Page: 18-19

Pitfalls in Doing Strategic Planning

95. All of these are pitfalls an organization should avoid in strategic planning
except:
a. using plans as a standard for measuring performance.
b. using strategic planning to gain control over decisions and resources.
c. failing to involve key employees in all phases of planning.
d. too hastily moving from mission development to strategy formulation.
e. being so formal in planning that flexibility and creativity are stifled.

Ans: a Page: 19

96. What is not a pitfall an organization should avoid in strategic planning?

a. Failing to communicate the plan to employees
b. Involving all managers rather than delegating planning to a “planner”
c. Top managers not actively supporting the strategic planning process
d. Doing strategic planning only to satisfy accreditation or regulatory requirements

Ans: b Page: 19
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97. Which of the following statements is false?

a. Open-mindedness is an important guideline for effective strategic management.
b. Strategic management must become a self-perpetuating socialist mechanism.
c. No organization has unlimited resources.
d. Strategic decisions require trade-offs.
e. Strategic management must be a self-reflective learning process.

Ans: b Page: 20

Business Ethics and Strategic Management

98. Principles of conduct that guide decision-making are known as

a. human rights.
b. the Constitution.
c. business ethics.
d. nonprofit organization policies.
e. social responsibility requirements.

Ans: c Page: 20

99. A (n) ____________ can provide a basis on which policies can be devised to
guide daily decisions and behavior at the work site.
a. list of guidelines
b. policy for safety
c. vision statement
d. code of business ethics
e. annual objective

Ans: d Page: 23

100. Because they must take the __________ of the firm, strategists’ salaries are high
compared to those of other individuals in the organization.
a. moral risks
b. social risks
c. environmental risks
d. societal criticism
e. employee criticism

Ans: a Page: 23

101. What can be created by ethics training and an ethics culture?

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a. Competitive responsibility
b. Competitive advantage
c. Strategic advantage
d. Employee cooperation
e. Comparative advantage

Ans: c Page: 25

102. Which of these business actions is (are) always considered to be unethical?

a. poor product or service safety
b. using nonunion labor in a union shop
c. dumping flawed products in a foreign market
d. insider trading
e. all of the above

Ans: e Page: 25

103. Ethical standards come out of __________ in a final analysis.

a. government
b. competitors
c. history and heritage
d. stakeholder analysis
e. community involvement

Ans: c Page: 25

Comparing Business and Military Strategy

104. A strong __________ heritage underlies the study of strategic management.

a. military
b. government
c. political
d. social
e. cultural

Ans: a Page: 25

105. Military strategy is based on an assumption of __________, whereas business

strategy is based on an assumption of __________.
a. conflict; cooperation
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b. conflict; competition
c. cooperation; conflict
d. competition; conflict
e. cooperation; competition

Ans: b Page: 26

The Nature of Global Competition

106. ____________ are organizations that conduct business operations across national
borders.
a. Domestic firms
b. Multinational corporations
c. Parent companies
d. Government-backed companies
e. Franchises

Ans: b Page: 28

107. A(n) __________ refers to a firm investing in international operations, while the
_________ is the country where that business is conducted.
a. parent company; host country
b. home country; parent company
c. parent country; host company
d. host company; home country
e. exporting company; importing company

Ans: a Page: 28

108. The greatest advantage of international operations is:

a. Reduced tariffs and taxes
b. Spreading economic risks over a wider number of markets
c. Access to global technology, culture and business practices
d. Gaining new customers
e. Less-intense competition

Ans: d Page: 28

109. All of these are potential disadvantages of an international operation except:

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a. overestimated weaknesses and underestimated strengths of competitors.

b. differing languages, cultures and value systems.
c. reduced tariffs and taxes.
d. complexity due to a multiple monetary system.
e. all of these are potential disadvantages.

Ans: c Page: 29

Essay Questions
110. Compare and contrast strategic planning with strategic management.

Strategic planning is more often used in the business world, whereas strategic
management is often used in academia. Sometimes, strategic management is used to refer
to strategy formulation, implementation and evaluation, with strategic planning referring
only to strategy formulation. The purpose of strategic management is to exploit and
create new and different opportunities for tomorrow; long-range planning, in contrast,
tries to optimize for tomorrow the trends of today.

Page: 5

111. Which stage in the strategic-management process is most difficult? Explain why.

Strategy implementation is the most difficult stage in the strategic-management process

because it requires personal discipline, commitment and sacrifice. Successful strategy
implementation hinges upon managers’ ability to motivate employees, which is more of
an art than a science.

Page: 6

112. Explain the relationship between strategic management and competitive

advantage for firms. How can a firm achieve sustained competitive advantage?

Ans: Strategic management is all about gaining and maintaining competitive advantage.
Competitive advantage is anything a firm does especially well compared to rival firms.
When a firm can do something that rival firms cannot do, or owns something that rival
firms desire, that can represent a competitive advantage. Getting and keeping
competitive advantage is essential for long-term success of an organization. A firm must
strive to achieve sustained competitive advantage by (1) continually adapting to changes
in external trends and events and internal capabilities, competencies and resources, and
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by (2) effectively formulating, implementing and evaluating strategies that capitalize

upon those factors.

Page: 8-9

113. Define what strategists are. Describe what they do in an organization.

Strategists are individuals who are most responsible for the success or failure of an
organization. They help an organization gather, analyze and organize information. They
track industry and competitive trends, develop forecasting models and scenario analyses,
identify business threats and develop creative action plans. Strategic planners usually
serve in a support or staff role. Usually found in higher levels of management, they
typically have considerable authority for decision-making in the firm.

Page: 9

114. Define and discuss the differences between vision and mission statements.

Many organizations today develop a vision statement that answers the question “What do
we want to become?” Developing a vision statement is often considered the first step in
strategic planning, preceding even development of a mission statement. Many vision
statements are a single sentence. For example, the vision statement of Stokes Eye Clinic
in Florence, South Carolina, is “Our vision is to take care of your vision.” The vision of
the Institute of Management Accountants is “Global leadership in education, certification,
and practice of management accounting and financial management.” Mission statements
are “enduring statements of purpose that distinguish one business from other similar
firms. A mission statement identifies the scope of a firm’s operations in product and
market terms.” It addresses the basic question that faces all strategists: “What is our
business?” A clear mission statement describes the values and priorities of an
organization. Developing a mission statement compels strategists to think about the
nature and scope of present operations and to assess the potential attractiveness of future
markets and activities. A mission statement broadly charts the future direction of an
organization.

Page: 11

115. Discuss some forces that influence the formality of strategic-management

systems.
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Firms that compete in complex, rapidly changing environments, such as technology

companies, tend to be more formal in strategic planning. Firms that have many divisions,
products, markets and technologies also tend to be more formal in applying strategic-
management concepts. Greater formality in applying the strategic-management process is
usually positively related with the cost, comprehensiveness, accuracy and success of
planning across all types and sizes of organization.

Page: 14-15

116. List 10 major benefits of strategic management, as stated by Greenley.

There are 14 benefits stated by Greenley. Students are to list any 10 of the following: (1)
it allows for identification, prioritization and exploitation of opportunities, (2) it provides
an objective view of management problems, (3) it represents a framework for improved
coordination and control of activities, (4) it minimizes the effects of adverse conditions
and changes, (5) it allows major decisions to better support established objectives, (6) it
allows more effective allocation of time and resources to identified opportunities, (7) it
allows fewer resources and less time to be devoted to correcting erroneous or ad hoc
decisions, (8) it creates a framework for internal communication among personnel, (9) it
helps integrate the behavior of individuals into a total effort, (10) it provides a basis for
clarifying individual responsibilities, (11) it encourages forward thinking, (12) it provides
a cooperative, integrated and enthusiastic approach to tackling problems and
opportunities, (13) it encourages a favorable attitude toward change, and (14) it gives a
degree of discipline and formality to the management of a business.

Page: 16-17

117. Give at least seven reasons why some firms do no strategic planning.

Ans: Some reasons for poor or no strategic planning are as follows:

Poor reward structures, fire-fighting, waste of time, too expensive, laziness, content with
success, fear of failure, overconfidence, prior bad experience, self-interest, fear of the
unknown, honest difference of opinion, and suspicion.

Page: 17-18

118. What are the pitfalls in strategic planning that management in an organization
should watch out for or avoid? Identify any five pitfalls.

There are 13 pitfalls. Students should list any five of the following: (1) using strategic
planning to gain control over decisions and resources; (2) doing strategic planning only to
satisfy accreditation or regulatory requirements; (3) too hastily moving from mission
development to strategy formulation; (4) failing to communicate the plan to employees,
277

who continue to work in the dark; (5) top managers making many intuitive decisions that
conflict with the formal plan; (6) top managers not actively supporting the strategic-
planning process; (7) failing to use plans as a standard for measuring performance; (8)
delegating planning to a “planner” rather than involving all managers; (9) failing to
involve key employees in all phases of planning; (10) failing to create a collaborative
climate supportive of change; (11) viewing planning to be unnecessary or unimportant;
(12) becoming so engrossed in current problems that insufficient or no planning is done;
and (13) being so formal in planning that flexibility and creativity are stifled.

Page: 18
119. Explain the significance of the ISO (International Organization for
Standardization). What are the purposes of ISO 9000, ISO 14000, and ISO 14001?

Ans: The ISO is based in Geneva, Switzerland and is a network of the national standards
institutes of 147 countries. The ISO is the world’s largest developer of standards and is
widely accepted worldwide. ISO standards are voluntary, since the organization has no
legal authority to enforce their implementation. However, many companies that are not
ISO certified often cannot get work. ISO 9000 focuses on quality control and ISO 14000
focuses on operating in an environmentally-friendly manner. ISO 14000 refers to a series
of voluntary standards in the environmental field. ISO 14001 is similar to ISO 14000
because it is also an environmental standard. ISO 14001 is a standard for Environmental
Management Systems. Standards include environmental auditing, environmental
performance evaluation, environmental labeling, and life-style assessment. ISO 14001
standards offer a universal technical standard for environmental compliance.

Page: 21-22

120. Explain what Drucker means when he says, “Trees die from the top.”

“Trees die from the top,” can be explained as ‘top management creates organizational
spirit.’ When top management’s spirit dies, so does the rest of the company’s spirit. This
leads to the downfall, or death, of the company.

Page: 22-24

121. Compare and contrast business and military strategy.

Business and military strategy are very similar. A key aim of both business and military
strategy is “to gain competitive advantage.” They both also try to use their own strengths
to exploit competitor’s weaknesses. Happiness is not a result of accidental strategies in
either business or military organizations. The element of surprise provides great
competitive advantages in both military and business strategy; information systems that
provide data on opponents’ or competitors’ strategies and resources are also vitally
important. Finally, both business and military organizations must adapt to change and
constantly improve to be successful.
278

While business and military strategy are the same in many ways, they have one major
difference—business strategy is formulated, implemented and evaluated with an
assumption of competition, whereas military strategy is based on an assumption of
conflict.

Page: 24-25

122. What are the advantages and disadvantages of having international operations?
Explain.

International operations create many advantages for a company: 1) Foreign operations

can absorb excess capacity, reduce unit costs and spread economic risks over a wider
number of markets; 2) foreign operations can allow firms to establish low-cost production
facilities in locations close to raw materials and/or cheap labor; 3) competitors in foreign
markets may not exist, or competition may be less intense than in domestic markets; 4)
foreign operations may result in reduced tariffs, lower taxes and favorable political
treatment in other countries; 5) joint ventures can enable firms to learn the technology,
culture and business practices of other people and to make contacts with potential
customers, suppliers, creditors and distributors in foreign countries; 6) many foreign
governments and countries offer varied incentives to encourage foreign investment in
specific locations; and 7) economies of scale can be achieved from operations in global
rather than solely domestic markets. Larger-scale production and better efficiencies allow
higher sales volumes and lower price offerings.

There are also numerous potential disadvantages of having internal operations: 1)

nationalistic factions could seize foreign operations; 2) firms confront different and often
little-understood social, cultural, demographic, environmental, political, governmental,
legal, technological, economic and competitive forces when doing business
internationally. These forces can make communication difficult between the parent firm
and subsidiaries; 3) weaknesses of competitors in foreign lands are often overestimated,
and strengths are often underestimated. Keeping informed about the number and nature
of competitors is more difficult when doing business internationally; 4) language, culture
and value systems differ among countries, and this can create barriers to communication
and problems managing people; 5) gaining an understanding of regional organizations is
difficult but is often required in doing business internationally; 6) dealing with two or
more monetary systems can complicate international business operations; and 7) the
availability, depth and reliability of economic and marketing information in different
countries varies extensively, as do industrial structures, business practices and the
number and nature of regional organizations.

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