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Page 1: Strategic Management and the Entrepreneur

Chapter 3 Strategic Management and The Entrepreneur

 

Multiple Choice Questions:

 

1. Which of the following is NOT one of the three components of intellectual capital?

a.       human

b.       structural

c.       competitor

d.       customer

 

c., Medium, Page 68

 

2. __________ involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives to keep it on its desired course.

a. Competitive advantage

b. Mission

c. Strategic management

d. Market segmentation

 

c., Easy, Page 69

 

3. The aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market superior to its competition is its:

a. mission statement.

b. competitive advantage.

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c. competitive profile.

d. strategic plan.

 

b., Easy, Page 69

 

4. A strategic plan:

a. serves as a blueprint for helping business owners to match their companies' strengths and weaknesses to the environment's opportunities and threats.

b. is a company's game plan, helping it to accomplish its mission, goals, and objectives.

c. is crucial to creating a company's competitive advantage that sets it apart from its competition and gives it a unique position in the market.

d. All of the above.

 

d., Medium, Page 69

 

5. Which of the following was NOT identified as a way for the typical small business to establish a competitive advantage?

a. Lowering prices

b. Providing higher quality goods or services

c. Improving customer service

d. Doing whatever the company does for its customers better than its competitors

 

a., Medium, Page 69

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6. ____________ are a unique set of capabilities that a company develops in key operational areas (e.g., quality, service, innovation, and others) that allow it to vault past its competitors.

a. Core competencies

b. Opportunities

c. Key success factors

d. Mission statements

 

a., Medium, Page 69

 

7. The relationship between core competencies and competitive advantage is best described by which statement?

a. Strengthening a company's competitive advantage strengthens its core competencies.

b. A company's core competencies become the nucleus of its competitive advantage.

c. As a company's core competencies become stronger, its competitive advantage becomes weaker.

d. There is no relationship between core competencies and competitive advantage.

 

b., Difficult, Page 69

 

8. Which of the following is NOT a characteristic of the strategic management procedure for a small company?

a. It should use a relatively short planning horizon—two years or less, typically.

b. It should begin with an extensive objective-setting session.

c. It should encourage the participation of employees and even outsiders to improve the reliability and creativity of the resulting plan.

d. It should allow for flexibility and not be overly structured.

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b., Medium, Page 71

 

9. A clearly defined vision helps a company in which of the following ways?

a.       Provides direction

b.       Determines decisions

c.       Motivates people

d.       All of the above.

 

d., Easy, Page 71

 

10. A small company's mission statement:

a. establishes its purpose in writing.

b. gives the business and everyone in it a sense of direction.

c. defines what the company is, why it exists, and its reason for being.

d. All of the above.

 

d., Easy, Page 72

 

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11. When developing a company's mission statement, an entrepreneur should remember to:

a. write the statement alone without anyone else's interference.

b. omit statements about her values because they may turn some stakeholders off.

c. keep it short and simple.

d. All of the above.

 

c., Difficult, Page 74

 

12. __________ are positive internal factors that contribute toward accomplishing the company's mission, goals, and objectives, while __________ are negative internal factors that inhibit the accomplishment of a firm’s mission, goals, and objectives.

a. Strengths; Weaknesses

b. Weaknesses; Strengths

c. Opportunities; Threats

d. Threats; Opportunities

 

a., Easy, Page 75

 

13. Kevin Abt noticed that people were cooking meals in their homes less often but wanted to avoid the hassle of going out to eat. They wanted to "eat in" without cooking. Abt launched a company, Takeout Taxi, that delivers restaurant-prepared food to his customers' homes and businesses. Takeout Taxi is the result of a(n):

a. strength.

b. weakness.

c. opportunity.

d. threat.

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c., Medium, Page 75

 

14. Maria Sanchez is the owner of the Main Street Cafe. A new restaurant opens a few blocks away. To Maria, this new restaurant constitutes a(n):

a. strength.

b. weakness.

c. threat.

d. opportunity.

 

c., Medium, Page 76

 

15. _______ are positive external factors a firm could exploit to accomplish its objectives, while ______ are negative external forces that inhibit a firm’s ability to achieve its mission, goals, and objectives.

a. Strengths; Weaknesses

b. Weaknesses; Strengths

c. Opportunities; Threats

d. Threats; Opportunities

 

c., Medium, Page 76

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16. Every business is characterized by a set of controllable variables that determines the relative success (or lack of it) of market participants called:

a. distinctive competencies.

b. key success factors.

c. opportunities and threats.

d. competitive edge.

 

b., Easy, Page 77

 

17. Your ________ competitors offer the same products and services, and customers often compare prices, features, and deals from these competitors as they shop.

a.       significant

b.       direct

c.       indirect

d.       All of the above.

 

b., Easy, Page 79

 

18. Which of the following is an effective method of collecting information about competitors?

a. Ask customers and suppliers what competitors are doing.

b. Talk to employees, especially sales representatives and purchasing agents, about competitors.

c. Attend trade shows and collect competitors' sales literature.

d. All of the above

 

d., Easy, Page 80

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19. Which of the following is NOT a recommended method of collecting competitive intelligence?

a. Attend trade shows and collect competitors' sales literature.

b. Buy competitors' products or services and assess their quality and features, benchmarking their products and services against yours.

c. Pay competitors' employees to become informants about their companies' strategies, markets, and trade secrets.

d. Watch for employment ads from competitors to determine the types of workers they are hiring.

 

c., Medium, Page 80

 

20. Which of the following is true about the information-gathering process in competitive analysis?

a. It is an expensive process which only large companies can afford.

b. It can be relatively inexpensive and easy for the small business owner to conduct.

c. It is a process closely regulated by various federal laws which prohibit doing things like purchasing competitive products and analyzing them.

d. It is a process that requires expert help and is relatively expensive.

 

b., Difficult, Page 80

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21. Purchasing rival companies' products, taking them apart, and analyzing them is:

a. called industrial espionage.

b. considered illegal due to federal regulation.

c. benchmarking.

d. cataloging.

 

c., Easy, Page 80

 

For Questions 22-26, consider the following competitive profile matrix:

Key Success Your Business Competitor 1 Competitor 2Factors Weighted Weighted Weighted

Weight Rating Score Rating Score Rating ScoreQuality .35 4 1.40 2 .70 1 .35Service .20 4 .80 2 .40 2 .40Convenience .15 2 .30 4 .60 1 .15On-Time Delivery

.20 2 .40 4 .80 2 .40

Location .10 3 .30 1 .10 2 .20TOTAL 1.00 3.20 2.60 1.50

 

22. Which of the following statements is TRUE?

a. Overall, Competitor 2 is the strongest of these three companies.

b. Your company's most serious weakness is its poor quality.

c. Your company's most vulnerable point against these two competitors is in the area of on-time delivery.

d. The most important of the key success factors is location.

 

c., Medium, Page 81

 

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23. Which company has the strongest competitive position?

a. Your company

b. Competitor 1

c. Competitor 2

d. Impossible to tell from the information given

 

a., Medium, Page 81

 

24. Which company has the worst location?

a. Your company

b. Competitor 1

c. Competitor 2

d. Impossible to tell from the information given

 

b., Medium, Page 81

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25. In terms of quality, which company has the weakest competitive position?

a. Your company

b. Competitor 1

c. Competitor 2

d. Impossible to tell from the information given

 

c., Medium, Page 81

 

26. Which key success factor does the entrepreneur who built this table believe is most important?

a. Quality

b. Service and on-time delivery

c. Convenience

d. Location

 

a., Medium, Page 81

 

27. A competitive profile matrix:

a. identifies a firm's core competencies.

b. permits the small business owner to divide a mass market into smaller, more manageable segments.

c. allows the small business owner to evaluate her firm against competitors on the key success factors for the industry.

d. creates a road map of action for the entrepreneur in order to fulfill her company's mission, goals, and objectives.

 

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c., Difficult, Page 81

 

28. ___________ are the broad, long range attributes the small business seeks to accomplish; __________ are the more specific targets for performance.

a. Goals; objectives

b. Goals; strategies

c. Objectives; goals

d. Strategies; goals

 

a., Easy, Page 83

 

29. Which of the following is NOT a characteristic of a well-written objective?

a. Realistic, yet challenging

b. Measurable

c. General

d. Timely

c., Medium, Page 83

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30. The focal point of any company's strategy, whatever it may be, should be:

a. its product or service.

b. its competition.

c. its customers.

d. its strengths and weaknesses.

 

c., Medium, Page 83

 

31. A _____________ is a road map of the tactics and actions an entrepreneur draws up to fulfill the company's mission, goals, and objectives.

a. mission

b. strategy

c. competitive edge

d. core competency

 

b., Easy, Page 83

 

32. _________ spell(s) out the "ends" an organization is to achieve; __________ define(s) the "means" for achieving the ends.

a. Mission, goals, and objectives; strategy

b. Key success factors; strategy

c. Strategy; mission, goals, and objectives

d. Strategy; vision

 

a., Medium, Page 83

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33. The relationship between a company's mission, goals, and objectives and its strategy is best described by which of the following statements?

a. Developing a company's strategy lays the groundwork for creating its mission, goals, and objectives.

b. The mission, goals, and objectives spell out the ends the company wants to achieve, and the strategy defines the means for reaching them.

c. Although managers must change a company's mission, goals, and objectives as competitive conditions change, they should avoid adjusting the company's strategy to prevent the company from losing its focus and momentum.

d. There is no real link between a company's mission, goals, and objectives and its strategy.

 

b., Difficult, Page 83

34. A strategy should:

a. be comprehensive and well integrated.

b. focus on establishing for the firm the key success factors in the industry.

c. identify how the firm will accomplish its mission, goals, and objectives.

d. All of the above.

 

d., Medium, Page 85

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35. A cost-leadership strategy works well when:

a. buyers are sensitive to price changes.

b. competing firms sell the same commodity products.

c. a company can reap savings from economies of scale.

d. All of the above.

 

d., Medium, Page 85

 

36. Small firms pursuing a cost-leadership strategy have an advantage in reaching customers whose primary purchase criterion is:

a. quality.

b. constant innovation.

c. price.

d. customer service.

 

c., Easy, Page 85

 

37. Which of the following statements concerning a cost-leadership strategy is true?

a. Companies pursuing this strategy concentrate on a niche within the overall market.

b. A cost-leadership strategy is built on differences among market segments.

c. A cost-leadership strategy works best when buyers' primary purchase criterion is price.

d. All of the above.

 

c., Medium, Page 85

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38. The principle behind a _______ strategy is to select one or more market segments, identify customers' special needs, and approach them with a good or service designed to excel in meeting these needs.

a. cost-leadership

b. differentiation

c. focus

d. concentration

 

c., Easy, Page 86

 

39. Cost-leadership may have which of the following inherent dangers?

a. What is chosen to distinguish the product does not boost its performance.

b. An overfocus on the physical characteristics of the product.

c. The identified niche is not large enough to be profitable.

d. An overemphasis on costs to the elimination of other strategies.

 

d., Difficult, Page 86

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40. Which of the following statements concerning a differentiation strategy is true?

a. A differentiation strategy seeks to build customer loyalty by positioning goods or services in a unique fashion.

b. A differentiation strategy is built on a company's core competence.

c. A differentiation strategy must create the perception of value in the customer's eyes.

d. All of the above

 

d., Medium, Page 86

 

41. A small company following a ________ strategy seeks to build customer loyalty by positioning its goods and services in a unique fashion.

a. differentiation

b. cost-leadership

c. focus

d. niche

 

a., Easy, Page 86

 

42. A company that offers superior product quality, extra customer service, and fast delivery times is pursuing a:

a. cost-leadership strategy.

b. differentiation strategy.

c. concentration strategy.

d. strategic alliance.

 

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b., Medium, Page 86

 

43. Which of the following is a danger in choosing a differentiation strategy?

a. Focusing only on physical characteristics of a product or service and ignoring important psychological factors, such as status, prestige, image, and customer service.

b. Choosing a market that is not large enough to be profitable.

c. Misunderstanding the firm’s true cost drivers.

d. All of the above.

 

a., Difficult, Page 87

 

44. Shere Vincente operates a travel service that specializes in arranging trips for women, giving special attention to their needs and preferences, from security and comfort to activities and events designed to appeal to her target customers. Vincente is pursuing a _____ strategy.

a. cost-leadership

b. differentiation

c. focus

d. positioning

 

c., Medium, Page 88

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45. Rather than attempting to serve the total market, the small firm pursuing a _________ strategy specializes in serving a specific target segment.

a. cost-leadership

b. differentiation

c. focus

d. head-to-head

 

c., Medium, Page 88

 

46. Small companies must develop strategies that exploit all of the competitive advantages of their size by:

a.       responding quickly to customers’ needs.

b.       remaining flexible and willing to change.

c.       constantly innovating.

d.       All of the above.

 

d., Easy, Page 89

 

47. In order for the control process to work, the business owner must:

a. make as few changes and modifications in the operational plans as possible.

b. concentrate on competitive information.

c. identify and track key performance indicators.

d. maintain control and delegate as little authority and responsibility as possible.

 

c., Medium, Page 91

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48. Which of the following is NOT one of the four important perspectives a balanced scorecard should look at a business from?

a.       Competitor perspective

b.       Internal business perspective

c.       Innovation and learning perspective

d. Financial perspective

 

a., Difficult, Page 92

 

49. Skatell's, a small jewelry store with three locations, designs and manufactures much of its own jewelry while its competitors (many of them large department stores) sell standard, "off-the-shelf" jewelry. As a result, many customers see Skatell's as the place to go for unique pieces of jewelry. Skatell's reputation for selling unique and custom-designed jewelry is a(n):

a. strength.

b. weakness.

c. opportunity.

d. threat.

 

a., Medium, Page 74

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50. Refer to the previous question. Skatell's business strategy would best be described as:

a. low-cost.

b. differentiation.

c. focus.

d. generic.

 

b., Medium, Page 86

 

 

True/False Questions:

 

51. With the growth of the World Wide Web, globalization, and increased competition, the business environment has become more turbulent and challenging to business owners.

 

True, Easy, Page 68

 

52. One of the biggest changes entrepreneurs face is the shift in the economy from a base of financial to intellectual capital.

 

True, Medium, Page 68

 

53. The three components of intellectual capital are human, structural, and customer.

 

True, Medium, Page 68

 

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54. Narrower product lines, smaller customer bases and more limited geographic areas give small companies a natural advantage over large businesses when preparing a strategic plan.

True, Medium, Page 68

 

55. The most effective way for a small business to establish a competitive advantage is by offering lower prices.

False, Easy, Page 69

 

56. Small companies' core competencies are often the result of benefits such as agility, speed, closeness to customers, superior service, and innovative ability—all of which are size advantages that allow them to do things that their larger competitors cannot.

True, Medium, Page 69

 

57. Although developing a strategic plan is important for large companies, it is not essential to managing a small company successfully because of its limited resources.

False, Easy, Page 70

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58. Large companies have a natural advantage over small firms when it comes to preparing a strategic plan.

False, Medium, Page 70

 

59. The ideal strategic planning process for a small company should start with setting objectives.

False, Medium, Page 71

 

60. The ideal strategic planning procedure for a small company should be formal and highly structured.

False, Medium, Page 71

 

61. Ideally, strategic planning is not an outcome but an ongoing process.

True, Easy, Page 71

 

62. The most effective way to communicate the values of a company to everyone it touches is to formulate an effective mission statement.

True, Medium, Page 72

 

63. The mission statement addresses the first question of any business venture: "What business am I in?

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True, Easy, Page 72

 

64. A company's mission statement defines what it stands for, why it exists, and its reason for being.

True, Easy, Page 72

 

65. As business and competitive conditions change, so should a small company's mission statement.

True, Medium, Page 74

 

66. A company's mission statement should be lengthy and use fancy jargon to impress outsiders.

False, Medium, Page 74

 

67. Strengths are positive internal factors that contribute towards accomplishing the company's mission, goals, and objectives.

True, Easy, Page 74

 

68. Conducting a SWOT analysis for her own business and for her key competitors allows an entrepreneur to gain a competitive edge by matching her company's strengths against her competitors' weaknesses.

True, Easy, Page 74

 

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69. To be effective, the small business owner should limit strategic analysis to only the two or

three most significant opportunities facing the firm.

True, Medium, Page 75

 

70. Weaknesses are negative external forces that inhibit the firm's ability to achieve its mission, goals, and objectives.

False, Easy, Page 75

 

71. After a company's strengths and weaknesses are assessed, the strategic planning process should identify opportunities and threats facing the company and should isolate the key factors for success in business.

True, Medium, Page 75

 

72. Threats are negative external forces that inhibit a company's ability to achieve its mission, goals, and objectives.

True, Easy, Page 76

 

73. “Big Box Retailers” present an opportunity for many small business owners.

 

False, Medium, Page 76

 

74. A firm's strategy must focus on establishing for the firm the key success factors the entrepreneur has identified for the industry.

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True, Medium, Page 77

 

75. A small business owner can collect a great deal of information about competitors through a number of low-cost competitive intelligence methods.

True, Easy, Page 80

 

76. Significant competitors are those that offer the same products and services your company offers, and customers often compare prices, features, and deals from these competitors as they shop.

 

False, Medium, Page 80

 

 

 

77. Conducting successful competitive intelligence on rivals' strategies and actions may include researching their websites, buying their products to assess their quality, and watching for employment ads to determine the type of employees they are hiring.

True, Easy, Page 80

 

78. Experts estimate that 70 to 90 percent of the competitive information a company needs already resides with employees who collect it in their daily dealings with suppliers, customers, and other industry contacts.

True, Difficult, Page 80

 

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79. Performing competitive intelligence on rivals' strategies and actions does NOT mean that entrepreneurs must engage in unethical or illegal espionage activities.

True, Medium, Page 80

 

80. It is unwise for entrepreneurs to monitor competitors' strategies and actions because such

activities require them to engage in illegal or unethical behavior.

False, Medium, Page 80

 

81. One of the goals of competitive analysis is to improve a firm's reaction time to competitor's actions.

True, Medium, Page 80

 

82. A competitor analysis should include an analysis of direct competitors as well as significant and indirect competitors.

 

True, Medium, Page 80

 

83. A competitive profile matrix analyzes how well a company and its rivals match the key success factors in the industry.

True, Medium, Page 81

 

84. "Improving the company's cash flow" is a good example of an effective objective.

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False, Difficult, Page 83

 

85. The strategic planning process works best when employees are actively involved with managers in setting company goals and objectives.

True, Easy, Page 83

 

 

 

 

86. Setting seemingly impossible objectives, those outside of the likely reach of employees, helps managers to create and maintain a high motivation level.

False, Medium, Page 83

 

87. "Increasing our market share from 8 percent to 10 percent by the end of the current fiscal year" is a good example of an effective objective.

True, Medium, Page 83

 

88. Goals and objectives provide targets to aim for and a basis for evaluating a company's performance.

True, Easy, Page 83

 

89. Objectives should be as general as possible to permit flexibility in the business.

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False, Medium, Page 83

 

90. Goals are the broad, long-range attributes that a business seeks to accomplish; objectives are more specific targets of performance.

True, Easy, Page 83

 

91. A company's strategy spells out the ends the business wants to achieve, and its mission, goals, and objectives define the means for reaching them.

False, Medium, Page 83

 

92. Before an entrepreneur can build a successful strategy, she must establish a clear mission, goals, and objectives in order to have appropriate targets at which to aim her strategy.

True, Medium, Page 83

 

93. A strategy is a road map of action for fulfilling a firm's mission, goals, and objectives.

True, Easy, Page 83

 

94. A company pursuing a cost-leadership strategy strives to be the lowest-cost producer relative to its competitors in the industry.

True, Easy, Page 85

 

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95. Small firms pursuing a cost-leadership strategy have an advantage in reaching customers whose primary purchase criterion is high quality.

False, Medium, Page 85

 

 

96. A danger of cost-leadership is that a company may misunderstand what processes actually drive its true costs.

True, Medium, Page 85

 

97. The best way to build a cost-leadership competitive advantage is to focus entirely on manufacturing costs.

False, Easy, Page 85

 

98. One key to building a successful differentiation strategy is to be better than competitors at some characteristic that customers value.

True, Easy, Page 86

 

99. To be successful, a differentiation strategy must create the perception of value in the customer's eyes.

True, Medium, Page 86

 

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100. One danger in choosing a differentiation strategy is trying to differentiate on the basis of something that the customer does not perceive as valuable.

True, Medium, Page 86

 

101. The key to a successful differentiation strategy is to build it on a core competency, something the company is uniquely good at doing in comparison to its competitors.

True, Easy, Page 86

 

102. A differentiation strategy frequently allows the company the opportunity to charge a higher price for its products or services.

 

True, Medium, Page 86

 

103. The focal point of the entire strategic plan and the competitive strategy chosen should be the customer.

True, Easy, Page 87

 

104. A small business following a focus strategy attempts to serve its narrow target markets more effectively and efficiently than competitors trying to appeal to the broad market.

True, Medium, Page 88

 

105. A focus strategy recognizes that not all markets are homogenous.

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True, Medium, Page 88

 

106. Focus strategies build on differences among market segments.

True, Medium, Page 88

 

107. The secret to good control is identifying and tracking key performance indicators.

True, Medium, Page 91

 

108. To evaluate the effectiveness of their strategies, some companies are developing balanced score cards, a set of measurements unique to a company that includes both financial and operational measures and gives managers a quick, comprehensive picture of the company’s total performance.

 

True, Medium, Page 91

 

109. When creating a balanced scorecard for his or her company, an entrepreneur should establish goals for each critical indicator of company performance and create meaningful measures for each one.

 

True, Medium, Page 91

 

110. A balanced scorecard should look at a business from four important perspectives: competitor, internal, innovation and learning, and financial.

 

False, Difficult, Page 91

 

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Essay Questions:

 

111. Assume that you are a consultant to a small independent hardware store in a town where a retail giant such as Wal-Mart, K-mart or Target is about to open. The large retailer sells many of the same items the small hardware store sells, but at lower prices. What advice would you offer the owner concerning the hardware store's strategy? Explain.

 

To compete successfully against a larger competitor, the small business owner must develop a true competitive advantage and utilize those core competencies that set the small business apart from the giant conglomerates like Wal-Mart.

 

Through the strategic management process, a concise plan could be developed. The typical small business has fewer product lines, a better-defined customer base and a specific geographical area. Valuable information can be obtained through close customer contacts and a more flexible approach to meeting customer needs.

Page 69

 

112. What is strategic management? What role does a strategic plan play in a small company?

Strategic management involves developing a game plan to guide a company as it strives to accomplish its vision, mission, goals and objectives and to keep it from straying off its desired course.

 

It gives owners a blueprint for matching their companies’ strengths and weaknesses to the opportunities and threats in the environment.

Page 69

 

113. What advice would you offer an entrepreneur on how to create a mission statement for his or her company?

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Tips for writing a powerful mission statement include:

Keep it short

Keep it simple

Get everyone in the company involvedKeep it current

Reflect your values and beliefs

Reflect concern for future

Keep tone positive and upbeat; use it to lay ethical foundation for company.

Look at other companies’ mission statements; make sure it’s appropriate for company culture.

Use it.

Page 72 

114. Define each of the following terms and give an example of each: strengths, weaknesses, opportunities, and threats.

 

Strengths are positive internal factors that a company can use to accomplish its mission, goals and objectives

(ex)

special skills or knowledge

positive public image

experienced sales force

 

Weaknesses are negative internal factors that inhibit the accomplishment of a company’s mission, goals and objectives.

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(ex)

lack of capital

shortage of skilled labor

inferior location

 

Opportunities are positive external options that a firm can exploit to accomplish its mission, goals and objectives.

(ex)

proprietary technology

emergence of potentially new target market(s)

lower interest rates

 

Threats are negative external forces that inhibit a company’s ability to achieve its mission, goals and objectives

(ex)

new competitors

adverse legislation

economic recession

Page 74

 

115. Assume you own a small shoe store. Discuss the three different types of competition you might face and give examples of each.

 

Direct competitors offer the same products and services, and customers often compare prices, features, and deals from these competitors as they shop. Other shoe stores would be direct competitors. Significant competitors offer some of the same products and services. Although their product or service lines may be somewhat different, there is competition with them in several key areas. Department stores and athletic stores would be examples of significant competitors. Indirect competitors offer the same or similar products or services only in a small number of areas, but their

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target customers seldom overlap yours. Discount stores and thrift stores may be examples of indirect competitors.

Page 79

 

116. Assume you own a small print shop. Why is it important for you to monitor your competitors' activities? Describe at least five techniques you might use to monitor competitors' strategies and actions ethically and inexpensively.

 

A recent survey identified the greatest small business challenge as competition. Other studies suggest that keeping tabs on rivals’ movements through competitive intelligence programs is vital to strategic activity and survival.

 

Specific techniques you might use include:

 

Reading industry trade publications

Asking customers and suppliers

Talking to employees

Attending trade shows

Buying competitors products (benchmarking)

Obtaining credit reports

Checking library resources

Using World Wide Web

Visiting competing businesses

Watching for employment ads from competitors

Conducting patent searches for patents filed by competitors

Page 80

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117. What is strategy? Describe the three basic strategies small companies can choose from: cost-leadership, differentiation, and focus. Explain the conditions under which each works, its benefits, and its pitfalls.

 

Strategy is a road map of the actions an entrepreneur draws up to a company’s missions, goals and objectives. It is a master plan that covers all of the major organizational parts and ties them together.

 

Cost leadership: strives to be the lowest cost producer.

 

Best when primary purchase criterion is price, and the power to set industry’s floor price and economies of scale are available. Disadvantage is if cost drivers are unknown or other strategies are overlooked.

Differentiation: seeks to build customer loyalty by positioning its product/service in a unique different fashion.

 

Best when differentiation is in the form of a “true benefit” to the customer.Disadvantage is trying to differentiate on the basis of something that does not boost performance or lower cost.

 

Focus: select one or more customer(s)/market(s) to create a niche.

 

Best when creating real value for customer by differentiation or low cost in a narrow target segment.

Disadvantages include not being able to capture enough of a market share to be profitable.

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Page 83

 

118. Assume you own a small camera shop that sells and repairs cameras and equipment. Discuss some of the methods you might select to allow you to successfully compete against the many large retailers that are nearby.

 

In most cases, small business owners will not be able to select a cost leadership strategy to meet the larger competitors who have a size advantage over them. Therefore, this small business owner will probably have a greater chance of success utilizing a focus and/or differentiation strategy.

 

He might use a focus strategy by concentrating on a specific market segment, identifying those consumers’ special needs, wants, and interests, and approaching them with a mix of product offerings that excel in meeting those needs, wants, and interests.

He might use a differentiation strategy that would seek to build customer loyalty by positioning his goods and services in a unique or different way than the competition. For example, he may offer superior customer service, special product features, complete product lines, instantaneous parts availability, absolute product reliability, supreme product quality, and extensive product knowledge. He might also offer on-site repair of camera equipment.

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Page 39: Strategic Management and the Entrepreneur

Chapter 3

Strategic Management and The Entrepreneur

Mini-Case

 

Case 3-1: Finding a Competitive Advantage

 

Copreneurs Ed and Yolanda recently opened a vintage used car lot called Cherry Lane. They sell antique and collectible cars on consignment for the owners at a fee of 30 percent of the selling price. The price is further reduced by 10% if a particular car is not sold within the first 30 days. One of the first customers convinced Yolanda that this was the only fair thing to do, and in an effort to provide something for “the cost conscious buyer,” she provided what she thought was excellent customer service and implemented the idea.

 

Ed and Yolanda feel Cherry Lane has an ideal location. It is located adjacent to the city’s baseball stadium, alongside the freeway in the center of all the other car dealerships. Although Cherry Lane has significant foot traffic, most people never make offers to buy.

 

In an effort to increase sales, Ed and Yolanda are working on a new marketing strategy that they believe should be quite different from the “shotgun” approach they had been using over the last few months.

 

Questions:

 

119. What is a competitive advantage? Does Cherry Lane have one? If so, what is it?

A competitive advantage is an aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market. No business can be everything to everyone. Developing a strategic plan allows the small business to differentiate itself from other companies -- a common pitfall for many small firms. Cherry Lane has an advantage over regular car dealerships because they are well suited to concentrate on the collectible car enthusiast niche in their marketplace.

 

Page 40: Strategic Management and the Entrepreneur

120. As Ed and Yolanda begin the strategic planning process, what steps should they take?

 

Step 1: Develop a clear vision and translate it into a meaningful mission statement..

Step 2: Assess the company's strengths and weaknesses.

Step 3: Scan the environment for significant opportunities and threats facing the business.

Step 4: Identify the key factors for success in the business.

Step 5: Analyze the competition.

Step 6: Create company goals and objectives.

Step 7: Formulate strategic options and select the appropriate strategies.

Step 8: Translate strategic plans into action plans.

Step 9: Establish accurate controls.

 

The strategic planning process does not end with these ten steps; rather, it is an ongoing process that an entrepreneur will repeat.

 

Page 41: Strategic Management and the Entrepreneur

121. Considering the three basic small business strategies identified in your textbook, which one would work best for Cherry Lane? Why?

 

A Cost Leadership strategy would not complement the higher price image that these collectible cars usually have.

 

Some students may identify the appropriate strategy as Differentiation; however, the other car dealerships are not direct competitors, nor is their market the same.

The Focus strategy could be used to more successfully position Cherry Lane with its ability to meet the needs of a special customer base-collectible car buffs. Rather than attempting to serve the total market, the focusing firm specializes in serving a specific target segment or niche. Lowering prices with this special target market is not as important creating the perception of value in the customers' eyes.

 

 


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