Question 1

Former Chrysler vice chairman Robert Lutz observed that companies exist to serve the shareholder and create shareholder value. He insisted that the only person who owns the company is the person who paid good money for it. This is an example of a symbiotic approach to stakeholder management.

Accepted Answer

This is zero-sum stakeholder management. On the other hand, organizations can achieve mutual benefit through stakeholder symbiosis, which recognizes that stakeholders are dependent upon each other for their success and well-being.

Question 2

Auditors, banks, and analysts are external control mechanisms to ensure effective corporate governance.

Accepted Answer

A key role is played by various external control mechanisms in assuring effective corporate governance. These include the auditors, banks, analysts, an active financial press, and the threat of hostile takeovers.

Question 3

Business-level strategy focuses on (1) what businesses to compete in and (2) the management of the business portfolio to create synergy among its businesses.

Accepted Answer

Corporate-level strategy focuses on the issues of what businesses to compete in and how this portfolio of businesses can be managed to achieve value synergy.

Question 4

Effective leadership can play a large role in fostering corporate entrepreneurship. Corporate entrepreneurship can have a very positive impact on the bottom line of a firm.

Accepted Answer

Entrepreneurial activity aimed at new value creation is a major engine for economic growth. For entrepreneurial initiatives to succeed viable opportunities must be recognized and effective strategies must be formulated. This requires effective leadership.

Question 5

Decisions by boards of directors are always consistent with shareholder interests.

Accepted Answer

The board of directors (BOD) are the elected representatives of the shareholders, charged with ensuring that the interests and motives of management are aligned with those of the owners (i.e., shareholders). Recent scandals have resulted in criticism and cynicism that the BOD fulfills this charge.

Question 6

Entrepreneurial activity aimed at new value creation is not a major engine for economic growth.

Accepted Answer

Entrepreneurial activity aimed at new value creation is a major engine for economic growth. For entrepreneurial initiatives to succeed, viable opportunities must be recognized and effective strategies must be formulated.

Question 7

All successful firms compete and outperform their rivals by developing bases for competitive advantage, which can be achieved only through cost leadership.

Accepted Answer

Successful firms strive to develop bases for competitive advantage, which can be achieved through cost leadership and/or differentiation as well as by focusing on a narrow or industrywide market segment.

Question 8

Procter and Gamble developed a laundry detergent compaction technique that appeals to consumers, retailers, shipping and wholesalers, and environmentalists. This is an example of stakeholder symbiosis.

Accepted Answer

According to the text, the Procter and Gamble technique that compacts two to three times as much cleaning powder into a liquid concentration has led to a change in consumer shopping habits and has revolutionized industry supply-chain economics. This is an example of stakeholder symbiosis in action.

Question 9

Stockholders, employees, and the community-at-large are among the stakeholders of a firm.

Accepted Answer

A stakeholder can be defined as an individual or group, inside or outside the company that has a stake in and can influence the performance of the organization. Stakeholders include stockholders, employees, suppliers, governments, and others.
Refer To: Exhibit 1.5

Question 10

Leaders are responsible for creating a learning organization so that the entire organization can benefit only from the individual talents.

Accepted Answer

Given rapid and unpredictable change, leaders must create a learning organization so that the entire organization can benefit from individual and collective talents.

Question 11

International strategy involves decisions concerning appropriate entry strategy and attaining competitive advantage in international markets.

Accepted Answer

When firms enter foreign markets, they face both opportunities and pitfalls. Managers must decide not only on the most appropriate entry strategy but also how they will go about attaining competitive advantages in international markets.

Question 12

Firms must exercise either informational control or behavioral control in order to assure proper strategy implementation.

Accepted Answer

Firms must exercise two types of strategic control. First, informational control requires that organizations continually monitor and scan the environment and respond to threats and opportunities. Second, behavioral control involves the proper balance of rewards and incentives as well as cultures and boundaries (or constraints).

Question 13

The three primary participants in corporate governance are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the employees.

Accepted Answer

The primary participants are: (1) the shareholders, (2) the management (led by the chief executive officer), and (3) the board of directors.

Question 14

Symbiosis is the ability to recognize interdependencies among the interests of multiple stakeholders within and outside an organization.

Accepted Answer

Organizations can achieve mutual benefit through stakeholder symbiosis, which recognizes that stakeholders are dependent upon each other for their success and well-being.

Question 15

Strategy formulation involves decisions made by firms regarding investments, commitments, and other aspects of operations that create and sustain competitive advantage.

Accepted Answer

Strategy formulation is developed at several levels and addresses the decisions made by firms regarding investments, commitments, and other aspects of operations that create and sustain competitive advantage.

Question 16

Stockholders in a company are the only individuals with an interest in the financial performance of the company.

Accepted Answer

A stakeholder can be defined as an individual or group, inside or outside the company that has a stake in and can influence the performance of the organization. Each stakeholder group makes various claims on the company.
Refer To: Exhibit 1.5

Question 17

Ensuring effective corporate governance requires an effective and engaged board of directors, uninvolved shareholders, and proper managerial rewards and incentives.

Accepted Answer

We focus on three important mechanisms to ensure effective corporate governance: an effective and engaged board of directors, shareholder activism, and proper managerial rewards and incentives.

Question 18

Corporate-level strategy addresses how firms compete and outperform their rivals as well as achieve and sustain competitive advantages.

Accepted Answer

Business-level strategy addresses the issue of how to compete in a given business to attain competitive advantage.

Question 19

Strategy implementation involves actions that carry out the formulated strategy including proper strategic controls, organizational designs, and leadership.

Accepted Answer

Sound strategies are of no value if they are not properly implemented. Strategy implementation involves ensuring proper strategic controls, organizational designs, and leadership, which includes establishing effective means to coordinate and integrate activities within the firm as well as with its suppliers, customers, and alliance partners.

Question 20

Stakeholders make various claims on a company. Their interests must be taken into account in the strategic management process.

Accepted Answer

A stakeholder can be defined as an individual or group, inside or outside the company that has a stake in and can influence organizational performance. Each stakeholder group makes various claims on the company and must be taken into account in the strategic management process.

Quiz 1: Strategic Management: Creating Competitive Advantages