Cost management a strategic emphasis 7th edition blocher test bank

Cost Management A Strategic Emphasis 7th Edition Blocher Test Bank
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Cost Management A Strategic Emphasis 7th Edition Blocher Solutions
Manual
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Chapter 02
ImplementingStrategy:TheValueChain,theBalancedScorecardandtheStrategyMap
M ul tip le Choi ce Ques tions
1. In SWOT analys is, strengths and we aknesses are most easily identified by
looking:
A. At the firm as a potential cus tomer.
B. Inside the firm at its specific
resources. C. At the firm's
competition.
D. At the firm's product.
E. Outside the firm fro m a cons ultant's persp ective.
2. In SWOT analys is, oppor tunities and threats are identified by :

A. Co nsu ltation with middle
management. B. Talk ing with
the ra nk and file workers. C.
Lookin g outside the firm.
D. Brainstor ming tec hniques.
E. Reviewing our corpora te stra tegy.

3. Which of the follow ing does not re present a pos sible oppor tunity for a
manufactur ing firm as a par t of SWOT analysis?
A. De mographic trends .
B. Tec hnological advances in the industry .
C. A patent developed by another firm for
manufactur ing a pr oduc t. D. Ch anges in regula
tion of the industry.
E. Ch anges in the economic env iro nment facing all industries.
4. The balanced sc orecard :
A. Is not co mpr ehensive, since it does n't inclu de all the critica l success
fac tors wh ich co ntribute to co mpetitive success .
B. He lps focus managers' attention to bottom line profits.
C. Is for war d lookin g, stress ing nonfinanc ial meas ures that ca n lead
to benefits in the future. D. Fails to re flect envir onmental and social
effects of the firm's operations.
E. Is heavily we ighted toward the financial critical success fac tors .
5. The balanced sc orecard can be made mor e effective by deve loping it at
a detail lev el so that employe es:
A. Ca n se e how it is put together.

B. Apprecia te all the effor t that goes into its pr epara tion.
C. Respect management for including them in its formulation.
D. Ca n se e how their actions co ntribute to the
success of the firm. E. Do not feel left out.

6. The Eur o is:
A. A co mbination of European nations that co oper ate on
economic and tra de matters . B. A ve rsio n of Disney World
located near Paris .
C. A cu rre ncy used in many
European co untries . D. A cu rre ncy
used in all European co untries.
7. The main objec tive of value cha in analysis is to identify stages of the va
lue chain where the firm ca n:
A. Justify increases in the pr ice of the produc t or se rvice.
B. Incr ease va lue to the cu stomer or re duce
cost in some way. C. Outsource production to
other pro ducers.
D. Impr ove efficiency.
8. It is beco ming more co mmon to see manufac turing firms use the value
chain to take stra tegic steps to improv e the overall pr ofitability of the
firm by :
A. Placing greater emphasis on the va lue ch ain.
B. Mov ing to an emphasis on ups tream activities in the value chain.

C. Mov ing to an emphasis on downstream ac tivities in
the value chain. D. Identifyin g mos t pr ofitable
customers .
E. Mov ing to an emphasis on both the upstream and downstream activities
in the va lue chain.
9. With regard to cr itical success factors , whic h one of the following
would not be considered a financial measu re of success?
A. Cash flow.
B. Growth in indus try
productivity. C. Sales
growth.
D. Earnings growth.
E. Re duc tion in the cost of inventory.

10. Which one of the follow ing customer critical success fac tors is bes t
meas ured by wa rra nty ex pense ?
A. Quality.
B. De aler and distrib utor efficiency and
effectiveness . C. Timeliness of delivery .
D. Customer sa tisfac tion.
11. Which one of the follow ing is not usually inc luded as a perspective of the
balan ced scorecard?
A. Financia l Per for
mance. B. Tax Re
porting.
C. Learning and
Growth. D.
Customer Satisfac
tion.
E. Inter nal Business Processes.
12. Which of the follow ing best descr ibes the typ e of information that cost
management mus t provide that is mos t impor tant for the success of the org
aniza tion?

A. Short term infor mation for
decision mak ing. B. Re por ted
financ ial information.
C. Re por ted nonfinancial information.
D. Infor mation that addr esses the strategic objectives of
the organiza tion. E. Long- term planning information.

13. After cr itical success factors (CSFs) have been identified, the nex t step in
deve loping a co mpetitive stra tegy is to dev elop relevant and re liable
measure for thes e CSFs. These measures ar e impor tant to help the organiza
tion:
A. Mak e pro fit for any extended period.
B. Incr ease sa les above previous ye ar(s) .
C. Develop policies to enhance customer
profitability. D. Impr ove produc tivity in
selec ted pro duc t areas.
E. Monitor pro gress tow ard ach ieving stra tegic goals.
14. A firm has decid ed to use the balanced scor ecard. Whic h of the following
is not an adva ntage the co mpany will gain by us ing the balance d sc
orecard ?
A. It link s the firm's CSFs to its strategy .
B. It helps the firm monitor progr ess to achiev ement of its strategic goals .
C. It can provide a bas is for implementing stra tegic ch anges
desir ed by the firm. D. It prov ides a co mprehensive financia
l ove rview of the firm.
E. It helps to coordinate ac tivities in the firm.

15. Du ring which step of va lue ch ain analysis will the company discover
whether or not it has a cost advantage, and why?
A. Du ring the first step, when the va lue- chain
activities ar e identified. B. Du ring the first step,
when the co st driver(s) are identified.
C. Du ring the seco nd step, when the firm dev elops a competitive
advantage by either reducing cost or adding value.
D. The entire purp ose of value cha in analysis is to determine if the
company has a cost advantage ; therefore , it oc curs in all steps.
E. In the third step, wh en the co mpany adopts and implements the balanced
scorecard.

16. A loc al pharmac eutical firm has just announce d its discove ry of a revo
lutionary new drug for dieting. Howeve r, due to its deteriora ting re
lationsh ip with its union, the unioniz ed por tions of the co mpany's
employees have thr eatened to strik e. In addition, the company's stock has
star ted to dr op due to the firm's difficulty in payin g off some of its debt.
In this ex ample, what was the firm's co re competency( ies)?
A. Its re search and deve
lopment. B. Its human
resources abilities. C. Its
financ ing activities.
D. Its ope rating activities.
17. Du ring the strengths and weaknesses por tion of a firm's SWOT analysis,
which of the following wo uld not be discove red?
A. The firm's method of product distribution was not very efficien t.
B. Through co ntinued research and deve lopment, the firm's pro ducts we re
state- of-the- art.
C. Du e to a lack of bar riers to entry into the industry , se veral new c
ompetitor s were beginning to enter the marke t.
D. The production process needed to be reengineered to reduce
unnecessary scrap. E. The firm's employees ar e trained in new
manufactur ing methods each month.

18. When a firm is determining its opp or tunities and thr eats, which of the
follow ing would not be mentioned?
A. An intense rivalry with a local co mpetitor was beginning
to start a price war . B. The firm just rec eived a patent on its
main product.
C. The success of the firm's latest marketing ca mpaign.
D. In sp ite of its patent, ther e ar e several subs titute produc ts
co nsu mer s co uld use. E. Incr eased competition in some of its
key pr oduct lines.

19. The declining value of the U.S. dollar re lative to other cu rrencies in re
cent years means that:
A. U.S. exporters will face a gre ater challenge in expor ting
U.S. - made pr oduc ts. B. U.S. firms will be eager to buy
foreign products .
C. U.S. firms will be less profitable.
D. U.S. ex porters will have a tempora ry advantage over other
countries in for eign trade. E. The U.S. trade balance will worsen .
20. The cause and effect re lationships among cr itica l success factors ar e best
captured in:
A. The balanced sc
orecard . B. Business
intelligence .
C. The value
chain. D. The
strategy map. E.
SWOT analysis.
21. Which of the follow ing typ es of or ganizations ca n most benefit fro m va
lue chain analysis?
A. Serv ice firms.

B. No t- for - pro fit
organizations. C.
Manufactur ing firms .
D. All typ es of organiza tions can benefit fro m va lue ch ain analys is.
22. Which of the follow ing would not likely be a per spective of a balanced
scorecard for a consumer pr oduc ts re tailer?
A. Learning and
innova tion. B. Inter
nal processes .
C. Financia l perfor
mance. D. Customer
sa tisfac tion.
E. Research and development.

23. Which of the follow ing statements co ncerning value chain analysis is false?
A. The goal of value chain analysis is to find ar eas where a co mpany c
an either add value or re duce cost.
B. The value chain foc uses on the entire pro duction process , as we ll as
the sale of the pro duct and service after the sa le.
C. If a co mpany ca nnot co mpete in a sp ecific area of the value ch ain, it
might co nsid er the option of outso urc ing that por tion of the va lue
chain to so meone who can per form it better.
D. Throughout mos t industries , the most successful firms are the ones
that opera te within the entire value chain, ther eby ov erseeing eve ry
as pect of the va lue chain for the customer.
24. Which of the follow ing would likely not be consid ere d par t of the va lue
cha in in a ser vice firm?
A. Inspection of pr
oduc t. B.
Advertising.
C. Employee tra
ining. D.
Customer
service. E.

Materials
handling.
25. When per forming value chain analysis, which of the following should a
firm take into account?
A. The firm's c ompetitive
position. B. Opportunities
to re duce cost.
C. Poss ible oppor tunities where value ca
n be added.
D. The decis ion to enter or leav e an activity in
the va lue chain. E. All of thes e answer ch oices
are correct.

26. Both cost leadership and differ entiated firms ca n improv e on execution
through:
A. Impr ove d automation and a higher
output of pr oducts. B. Benchmarking and
total quality management.
C. Cost cu tting and downsizing of personnel.
D. Emphasis on research and pr oduc t
deve lopment. E. No ne of these answer
choices are correct.
27. To incre ase pro fitability, companies such as IBM and General Electric
have sh ifted their stra tegic focus toward :
A. Incr eas ing equipment sales.
B. Impr ovin g so ftwar e applications .
C. Prov iding new and enhance d
customer services. D. No ne of these
answer choices are correct.
28. Which of the follow ing is not a key benefit of the balan ce d scor ecard
(BSC)?
A. It prov ides a means for implementing stra tegy.

B. It prov ides an objective basis for determining each manager's
c ompensation and advance ment.
C. It prov ides a fra mework for the firm to achieve a desired organiza
tional change in strategy . D. It prov ides a baseline for how a firm's financ
ial opera tions co mpare to co mpetition within the
industry .

29. A stra tegy map is:
A. A detailed flowchar t outlining wh ich firm manag ers are re sponsib le
for each implementation of a firm's stra tegy and when these
implementations ar e to take place .
B. A ca use and effec t diagram of the re lationships among the balanced sco
recard persp ectives to sh ow how the achieve ment of cr itica l success
factors in each perspec tive affects the ac hievement of goals in other persp
ectives and the ove rall financial per formance of the firm.
C. A framew ork for the firm to ach ieve a desir ed organizational change in
stra tegy wh ile mapping th e successes of other firms within the indus try.
D. No ne of these answer choices are correct.
30. Sustainability is the balancing of sh ort and long ter m goals in all
three dimensions of the co mpany's performance. Those three areas
are :
A. Economic, socia l, and env
iro nmental. B. Economic,
socia l, and financ ial.
C. Economic, envir onmental,
and politica l. D. Social,
environmental, and financial.

31. Ov er the past several ye ars it has become increasingly important for
firms to impr ove ac hievement towards their social and envir onmental
res ponsib ilities. What is the best way the management accountant can
help the firm improve on sus tainability?
A. Participate in progra ms of env iro nmental organiza tions.
B. Develop and implement a legal staff and public relations staff for
dealing with sustainability issues that may affect the firm.
C. Develop and implement a sus
tainability scorecard. D. Risk
management.

32. In terms of strategic cost management for not- for - pro fit organ iza
tions, which of the follow ing is false?
A. No t- for - pro fit organizations ca n benefit fro m stra tegic cost
management since they must prove their effectiveness and efficiency to a
number of differ ent stake holders.
B. The balanced sc orecard can be used to measure the or ganization's per
formance.
C. Value chain analysis c an be used for analyzing the organiza tion's pro
duct desig n, pr oduct testing, adve rtising, and production processes.
D. SWOT analysis is most helpful for non- pro fit organizations
wh en it deals with the or ganization's co mpetitive thr eats,
opportunities , and cr itical success factors.
33. In or der to remain competitive in the contempora ry bus iness
environment, several firms have star ted training their employe es to stop
viewing pro blems as s trictly functional - that is, as only a marke ting
problem, or an accounting problem, for example. Wha t does this trend illus
trate about stra tegic management?
A. There has been a renewed emphasis on integr ative t hink ing and so
lvin g pro blem cr oss - functionally.

B. Func tional barr iers are an inherent part of a co
mpany's value chain. C. Firms ar e increas ingly s eeing
the va lue of bus iness intelligence .
D. SWOT analysis is desig ned to break down functional barriers.
34. Which of the follow ing organiz ations presents awards to firms that excel
at execution of strategy , based on cr iter ia such as leadership, mar keting,
strategic planning and process manage ment?
A. Inter national Organization for
Standardiza tion. B. Malco lm
Baldrige National Quality Program.
C. Global Re porting
Initiative . D. World
Resources Ins titute.
E. American Ins titute of Cer tified Public Accountants.

35. The financia l cr itical success factor of profitability can be measured by :
A. Co mmunity serv ice activities .
B. Customer retur ns and co
mplaints. C. Nu mber of
product defects.
D. Nu mber of desig n
ch anges. E. Earnings
from operations.
36. Us ing value- chain analysis, a firm ca n deve lop a co mpetitive adva ntage
by s pec ifica lly lookin g for ways to:
A. Add va lue and reduce cost.
B. Impr ove manufacturing
productivity. C. Impr ove cus
tomer se rvice .
D. Impr ove produc t quality.
E. Re duce or ganiz ational risk.
37. Value activities can best be defined as:
A. Activities that firms in the industry mus t per form to improve a pro duc t.

B. Activities that firms in the industry mus t per form in the process of pr
oduc ing the or pr ovid ing the se rvice .
C. Activities that firms in the industry mus t per form in the process of
closing dow n a product line, inc luding cu stomer se rvice .
D. Activities that firms in the industry mus t per form to cons ider ways of
mark eting a pr oduc t.
E. Activities that firms in the industry mus t per form in the process of co
nsidering new products , inc luding cu stomer se rvice .

38. The Wor ld Res ources Institute has defined:
A. Typ es of cost manag
ement.
B. Ca tegor ies for env ironmental per
formance indicators. C. Methods for ach
ieving sustainab ility.
D. Ca tegor ies for ec onomic per
formance indic ators .
39. A firm su cceeds on its ability to deliver products to customers more
quickly than riva l companies in its industry . This skill is an exa mple of
the firm's:
A. Co re
competency.
B. Research
effectiveness. C.
Production
efficiency .
D. Cost co ntro l
effectiveness .
E. Value-chain
analysis.
40. SWOT analysis, a valuable analys is tool, stand s for:

A. Stre ngths - Wor kability - Oppor
tunities - Threats.
B. Stra tegies - Weaknesses -
Opportunities - Thre ats. C. Stre ngths -
Weaknesses - Observa tions - Threats. D.
Stre ngths - Weaknesses - Opportunities -
Threats. E. Stra tegies - Weaknesses -
Obse rva tions - Thre ats.
41. Which of the follow ing perspec tives of a Balanced Scorecard would
most likely be the ultimate goal in a strategy map for a public co mpany?
A. Learning and
nal processes .
mance. D. Customer
service.
E. Employees and co
mmunity.

42. Some of the indicators of a gr ow ing conce rn for sus tainability include:
A. The liquidity crisis and su b-pr ime
loan scandals. B. The global economic
recession.
C. The increased use of value cha in analysis.
D. The increased concern about
climate change. E. The increased use
of the balance d scorecard .
43. Patagon ia, mak er of clo thing and gear for outdoor enthusiasts , is very co
nscious of su stainability issues. The company chose not to pr oduc e a pro
duc t because:
A. The cost of manufactur ing the product exce eded its target cost.
B. There was not su fficien t demand for the pr oduc t at
the planned price. C. The environmental impact of tox ic
was te was unacceptable.
D. The environmental impact of producing the product in terms of carbon
emissions and ener gy co nsu mptions was unacceptable.
E. The company co uld not justify adding another pro duc t when there we re
acceptable alter natives alre ady in the company's pro duct offeri ngs .

44. The increase of the U.S. dollar relative to other currencies has c aused firms
in the U.S.to:
A. Experience incr eas ing sales
in the U.S. B. Experience incr
eas ing sales worldwide .
C. Co nsider strategic ally beneficial inves tments ove rseas.
D. Re quire bus iness partners to mak e payments in advance.
45. NAFTA and WTO refer to:
A. Org anizations with exp ertise in business pr
ocess impr ove ment. B. Laws and organizations
which regulate interna tional trade.
C. Laws and regulations re garding sustainability.
D. Org anizations and trade gro ups that work for global eco nomic
development.

46. The five steps of stra tegic dec ision - mak ing include all of the following
steps except:
A. Obtain information and co nduc
t analyses. B. De termine the
organization's stra tegy.
C. Identify the alternative actions .
D. Co ntinue an on - going eva luation
of the pro blem. E. Ch oose and
implement the des ired action.
47. A final step in the SWOT analysis is to identify quantitative measures for
the:
A. Value propositions.
B. Co mpetitor analyses.
C. Cr itical success factors.
D. Value propositions and also cr itical success factors .
E. Co mpetitor analyses and also cr itical success factors.
48. Which of the follow ing is leas t likely to be a cr itica l success fac tor for a
cost leader ship firm?
A. Financia l meas ure of
performance. B. Learning and
gr owth indicator .

C. Measure of opera tional
efficiency. D. Brand
recognition.
49. All of the follo wing are required resources for differentiation except:
A. Product engineer ing.
B. Co rpora te reputation
for quality. C. Intens e su
pervision of labor.
D. Stro ng marketing ca pability.

50. All of the follo wing are required resources for cos t leadership except:
A. Substantial capital
inves tment. B. Stro ng
marketing ca pability.
C. Products des igned for ease of
manufac turing . D. Process engineer
ing skills.
51. Which of the follow ing is not a ter m us ed for a phase of the va lue
chain?
A.
Operations.
B.
Upstream.
C. Downstre am.
D. Sustainability.
52. Which of the follow ing measu res wo uld likely be found on the financial
persp ective section of a balanced scorecard?
A. Sales growth.
B. Customer retention.
C. Efficiency of manufactur ing.

D. Incr ease in number of sa les s taff.
53. A meas ure of res earch and deve lopment on the balance d scor ecard cou
ld include:
A. Marke t share.
B. Nu mber of new pr
oducts . C. Sales
growth.
D. Cash flows.

54. Which of the follow ing is not a reason why global companies choose
to re port on cor porate re sponsib ility?
A. Ethic al cons ider
ations . B.
Innovation and
learning. C. Risk
management.
D. Marke t
share. E.
Saves time.
55. Which of the follow ing is not an env ironmental performance indica tor?
A. Fossil fuel use.
B. Ca rbon
emissio ns. C.
Fresh water usa
ge.
D. Percentage of employ ees with flu vacc inations.
56. The Global Repor ting Initiative is an independent group that par
tners with other gro ups to address the measurement of sus tainability,
inc luding a partnersh ip with:

A. The U.S. government.
B. The U.S. De par tment of
Defens e. C. The United
Nations.
D. The Eur opean Commission.
57. Michael Porter's five competitive for ces inclu de which one of the
following?
A. Global co mpetition.
B. Intens ity of demand by
customers . C. Bargaining
pow er of co mpetitor s.
D. Intens ity of riva lry among co mpetitors.

58. Effective execution of the cost leadership strategy requir es all of the
follow ing except:
A. Incen tives base d on meeting strict
quantitative goals. B. Frequent, detailed
control repor ts.
C. Tight cost contro l.
D. Stru cture d organiza tion and policies .
E. Stro ng coordination among func tions: rese arch, pr oduct
development, manufac turing , and marke ting.
59. The differentiation strategy re quires all of the following res ources,
except:
A. Stro ng marketing ca pability.
B. Long tradition in the indus try or
unique skills. C. Product engineer
ing.
D. Products des igned for ease of manufac ture .
E. Co rpora te reputation for quality or technology leadership.
Ess ay Ques tio ns

60. Automobile engines have become more co mplex over the past twenty y
ears, partly as a result of env iro nmental conce rns about ex haust
contaminants. Engineers have deve loped two basic approach es to so lvin g
the co ntaminant pr oblem. The firs t emphasize d th e ca talytic conve rter,
a modification of the automobile exhaust sys tem desig ned to break dow n
pollutants. The second emphasize d redesig n of the automobile engine's co
mbus tion process , which adds more than twice the cost of the ca talytic
conver ter alone. However, redesigning the co mbustion process us ually
results in improved full efficiency.
Re quire d:
(a ) Co mment on the strategic adva ntage of re desig ning the co mbustion
process ve rsus simply adding a catalytic conve rter.
(b ) Wha t are the ethical ques tions, if any, that sh ould be addressed in the
above decision?

61. Studeb aker Cor pora tion, one of the ear lies t auto manufacturers, prosper
ed in the late 1940 's and into the 1950 's. Its advertising after Wor ld War II
emphas ized quality of des ign an d production. The corporation also used
the stability of its wo rk force in its advertise ments, often featuring pic tures
of father and son working side by side in its fac tories .
Re quir ed:
(a ) From just this brief description of Studebaker Corporation, which type
of competitive stra tegy - cost leadership or differentiation,- would yo u
guess Studebaker was us ing? Explain your choice . (b ) Give n your answer
in Part (a ), speculate on what mar ket factors might have ca used the co
rpora tion to go into bankruptcy and cease pro duc tion in the mid - 1960s.

62. Many products in the marketplace today ar e built fro m components des
igned and manufac tured by sub -contractors. While the ex tent of t his prac
tice is not well known to consumers, manufactur e and sale of multi-
component units that us e parts from many differe nt co mpanies co ntinues
to gr ow.
Re quire d:
If the as se mbling company is us ing value - chain analysis in its stra tegic
planning, co mme nt on the following:
(a ) The cos t jus tifica tion for subcontracting.
(b ) The willingness of consu mers to buy pr oducts they know contain
subcontracted parts. (c) The pro blems of quality c ontrol facin g the
assembling company.

63. Exeter Indus tries produces and markets s eve ral lines of food and bev era
ge produc ts. The co mpany plans to expand its market to cover a new
geographical ar ea, and the firs t pr oduc ts to be introduced into this new
marke t ar e thre e of Exe ter's c offees. A meeting of t he marke ting co
mmittee has been ca lled to determine the pr icing and promotional strategy
for the introduc tion of these coffees . Exeter has adopted the differentiation
strategy and is using the mar keting co mmittee to co me up with the pro
per way to execute this strategy in the firm's pric ing and pr omotional
policy.
Mark Williams, vice president of marketing, has su gges ted that Exeter
continue its policy of pr emium pricing for Rich Roas t Coffee in the new
mark et. "Rich Roas t is a superior blend of Braz ilian coffees and should
have little difficu lty gaining customer acceptance . The use of other pr
omotional stra tegies doesn't appear nec essary at this time."
Ca ro l Ra ndolph, general sales manager, agree d with this strategy for Rich
Roast but
re commended a differ e nt appr oach for Vitality Co ffee, Exeter's bra nd of
deca ffeinated coffee. "Vitality is an unknown name in this region and will
requir e a determined pro motional effor t to gain marke t share from other
very co mpetitive products. We could try pene tration pric in g or packaging
options c ombined with either manufacture r's co upons or rebates. Wha tever
strategy we select,
we should hit the marke t hard if we want to be successful."

Da n Felton has been appointed regional sales manager for the new
geographica l area and is co ncerned about the acceptance of Mellow Roast
Coffee, a blend of re gular and decaffeinated co ffees. "This is a brand new
type of coffee in this region and may jus t sit on the sh elf unless we develop
an effective advertising ca mpaign." Pric ing or packag ing options will be
wor thless unless the pr oduc t gains so me visibility and the targeted
customer base is made aware of the bene fits of Mellow Ro ast. We nee d a
good slo gan like "A gentle wakeup without ca ffeine stress!"
Re quir ed:
Mark Williams has s ug gested the co ntinuance of premium pr icin g for
Rich Roast Co ffee. Explain the stra tegic role of pr emium pr icing, and
describe the economic c irc umstances in the marke tplace that wo uld enco
ura ge the use of this pric ing strategy . (CMA adapted)

64. Williams Instruments manufactures sp ecialized surgical equip ment for
hospitals and c linics throughout the wor ld. One of Williams' mos t
popular products , compris ing 40% of its reve nues and 35% of its profits,
is a blood pressure measur ing dev ice . Avera ge production and sales are
400 units per month. Williams has ach ieve d its success in the market
through excellent customer se rvice and pro duct reliability. The
manufacturing process c ons ists pr imarily of assembly of co mponents
purchased from va rious elect ro nic firms, plus a sma ll amount of
metalwork ing and finishing. The manufac turing operations c ost $600 per
unit. The purchased par ts c ost Williams
$800 , of wh ich $300 is for parts wh ich Williams c ould manufacture in its
ex isting fac ility for $100
in mater i als for each unit, plus an inves tment in labor and equipment wh
ich would cost $175,000 per month.
Also, Williams is consid ering outsourcing to another firm, Matrix Concepts,
Inc., the marke ting,
dis tribution, and servicing for its units. This would save Wi lliams $75,000
in monthly materials and labor costs. The cost of the co ntract would be $125
per product.
Re quire d:
(1 ) Prepare a value ch ain analys is for Williams to as sist in the decis ion
whether to manufactur e or buy the par ts, and whether to co ntrac t out the
mark eting, dis tribution, and s erv icing of the units. (2 ) Should Williams
continue to: (a ) purchase the par ts or manufactur e them? (b) prov ide the

marke ting, distrib ution and service, or outsource this ac tivity to Matrix?
Exp lain your answers .

65. Lev is Stra uss and Co, maker of Levi' s familiar 501 and Made and Cr afted
brands of jeans, also mak es a bra nd that wa s intro duced for discount
retailers such as Walmart and Kmart. Lev i's stra tegy with the new jeans
(the Signature bra nd) was to se ll a competitive ly pr ice d pair of jeans .
The jeans are abou t one- half or less the pric e of the familiar 501 and Made
and Cr afted jeans. To get costs down Lev i's:
• Us es c heaper fabr ics and materials.
• Shuns costly mass - market adv ertising.
• Stric tly limits the number of fits,
styles , and colors. Re quire d:
1. Ass ess the new stra tegy at Lev i. Wha t do yo u think ar e the potential
bene fits and risks?
2. Ho w will the firm's va lue ch ain and balanced scorecard change as a resu
lt of the new stra tegy ?

66. Gor don Manufacturing produc es high - end fur niture products for the
luxury hotel industry . Gor don has succeeded thr ough excellence in desig
n, careful attention to quality in manufacturing and in customer service, and
through continuous product innovation. The manufac turing process at Gor
don begins with a close consu ltation with each customer so that the finished
pro duct exac tly meets the customer's s pecifica tions. This commonly
means unique des igns, spec ial fabrics, and high leve ls of manufactu ring
quality. In addition, Gordon believes that a key c ompetitive edge it has over
other co mpetitors is that it has an outstanding des ign staff that is able to wo
rk with customers to co me up with product designs that go bey ond the
customer's expec tations. Anticipa ting a grow th in the demand for lux ury
hotel rooms, Gord on has expanded its ope rations to inc lude one new
manufac turing plant, and by refitting so me of the older plants with newer,
more efficient equipment. The ins tallation of the new equipment has ca use
d so me delays in filling so me customer orders, and Gordon has sh ifted
production fro m those plants with the delays to other manufactur ing plants.
The re sult has been an incr ease in some processing costs, transportation cos
ts, and delays in meeting customer or der deadlines . Also, the introduction
of
the new equipment has created some tens ions with employe es who see the
new, mor e efficient
equip ment as a potential thr eat to their job secu rity. Ther e is also some
dis agreement among managers as to wh ether the new equipment will
improv e or reduce quality.

Re quire d:
Develop a SWOT analys is for Gord on Manufactur ing. Lis t one or more
items in each ca tegory.

don begins with a close consu ltation with each cu stomer so that the
finished pro duct exac tly meets the customer's s pecifica tions. This
commonly means unique des igns, spec ial fabrics, and high leve ls of
manufactur ing quality. In addition, Gordon believes that a key c ompetitive
edge it has over other co mpe titors is that it has an outstanding des ign staff
that is able to wo rk with customers to co me up with product designs that
go bey ond the customer's expec tations.
Re quire d:
Present a value chain for Gor don Manufacturing with at least five activities
and e xp lain the role of each activity in the va lue chain.

don begins with a close consu ltation with each customer so that the finished
pro duct exac tly meets the customer's s pecifica tions. This commonly
means unique des igns, spec ial fabrics, and high leve ls of manufactur ing
quality. In addition, Gordon believes that a key c ompetitive edge it has over
other co mpetitors is that it has an outstanding des ign staff that is able to wo
rk with customers to co me up with product designs that go bey ond the
customer's expec tations.
Re quire d:
Present a balanced scorecard for Gordon Manufactur ing with four per
spectives and at leas t three quan titative critical success fac tors in eac h
perspective .

69. The tire business is beco ming incre asingly co mpetitive as new
manufacturers from Southeast Asia and elsewhere enter the global marke
tplace . At the sa me time, cu stomer expectations for per formance, tre ad
life, and s afety co ntinue to increase . An increasin g va riety of ve hic les
, from the sma ll and innovative gas /electric v ehic les to the larg e SUVs ,
plac e more demands on tire des igners and on tire manufacturing flexib
ility. Establish ed brands s uch as Goody ear and Firestone must look to
new ways to compete and maintain profitability.
Re quir ed:
1. Is the co mpetitive stra tegy of a global tire mak er cost leadership or
differentiation? Explain yo ur answer.
2. Wha t ar e the ethical issues, if any , for tire manufactur ers?

70. In the late 1990 s, the bicycle maker Cannondale Corp. faced a variety of key
strategic issues.
One was the firm's co ntinued dependence on Shimano Inc . of Ja pan to sup
ply many par ts for its bik es, particu lar ly the derailleur , brakes , and
crankset. A particularly troubleso me a spect of this situation was that
Shimano's high- quality and highly innovative par ts were relatively exp ens
ive. Ca nnondale wished to reduc e its dependency on these outso urced
parts. A second issue was the inc reasin g competition from Trek Bicycle
Corp. and S pec ialized Bicycle Co mponents Inc. for bicyc les in the upper -
end range of the mar ket where Ca nnondale co mpeted. Cannondale had
built a successful busin ess on the basis of high quality and innova tive
products . Its c us tomers we re bicyclists who expected the highest quality
and mos t adva nced featur es. Industry analysts pr edicted co nso lidation
in the industry for manufacturers that use Shimano par ts but cannot differ
entiate their pro duc ts effec tively ; these bicycle makers will likely be
force d to compete on pr i ce.
Re quir ed:
1. Co ns ider the use of Shimano parts as one aspect of the va lue chain for
Cannonda le. Describe Ca nnondale's cu rre nt stra tegy . How sh ould this
stra tegy change, if at all, to co mpete effec tively with Trek and Spec ialize
d?
2. Should Cannondale co ntinue to outsour ce Shimano parts? Why or why
not?

Chap ter 02 Imp lement in g Stra teg y: The Valu e Ch ai n, the Bala nced
Scor ec ard a nd the Stra teg y Map Answe r Key
M ul tip le Choi ce Ques tio ns
1. In SWOT analys is, strengths and we aknesses are most easily identified by
looking:
A. At the firm as a potential cus tomer.
B. Inside the firm at its specific
resources. C. At the firm's
competition.
D. At the firm's product.
E. Outside the firm fro m a cons ultant's persp ective.
AA CSB : Refl ec
ti v e Think i ng AICP
A: B B Cri ti c al
Think i ngAICP A:
FN Ri s k Ana l y s is
Ac c es si bi li ty : Key
board Nav i gati o n Bl
ooms : Remem ber
Di ffi c ul ty : 1 E asy

Learnin g Obj ec ti v e: 02 -01 E x pl ai n how to i mpl em ent a c ompeti ti v e s
trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es
threats (SW OT)
anal y s i s .
Topic : SW OT An al y s is
2. In SWOT analys is, oppor tunities and threats are identified by :
A. Co nsu ltation with middle
management. B. Talk ing with
the ra nk and file workers. C.
Lookin g outside the firm.
D. Brainstor ming tec hniques.
E. Reviewing our corpora te stra tegy.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
board Nav i gati o n

Bl ooms : Remem ber
Di ffi c ul
ty : 1 E asyLearnin g Obj ec ti v e: 02 -01 E x pl ai n how to i mpl em ent a c
ompeti ti v e s trategy by us i ng s trengths -we ak nes s es -opportuni ti es
threats (SW OT) anal y s i s .
3. Which of the follow ing does not re present a pos sible oppor tunity for a
manufactur ing firm as a par t of SWOT analysis?
A. De mographic trends .
B. Tec hnological advances in the industry .
C. A patent developed by another firm for
manufactur ing a pr oduc t. D. Ch anges in regula
tion of the industry.
E. Ch anges in the economic env iro nment facing all industries.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and
Di ffi c ul ty : 2 Med ium

trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es
threats (SW OT)
anal y s i s .
4. The balanced sc orecard :
A. Is not co mpr ehensive, since it does n't inclu de all the critica l
success fac tors wh ich co ntribute to competitive success .
B. He lps focus managers' attention to bottom line profits.
C. Is for war d lookin g, stress ing nonfinanc ial meas ures that ca n lead
to benefits in the future. D. Fails to re flect envir onmental and social
effects of the firm's operations.
E. Is heavily we ighted toward the financial critical success fac tors .
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAc c es si bi
li ty : Key board Nav i
gati o n Bl ooms :
Remem ber

Learnin g Obj ec ti v e: 02 -04 Ex pl ai n how to i mpl em ent a c ompeti ti v e s
trategy us i ng the bal anc ed s c orecard and s trate g y map.
Topic : Bal anc ed S c orecard and S trategy Map
5. The balanced sc orecard can be made mor e effective by deve loping it at a
detail lev el so that employe es:
A. Ca n se e how it is put together.
B. Apprecia te all the effor t that goes into its pr epara tion.
C. Respect management for including them in its formulation.
D. Ca n se e how their actions co ntribute to the
success of the firm. E. Do not feel left out.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Underst and
6. The Eur o is:

A. A co mbination of Eur opean nations that co oper ate on
economic and tra de matters . B. A ve rsio n of Disney World
located near Paris .
C. A cu rre ncy used in many European co untries .
D. A cu rre ncy used in all European co untries.
AA CSB : Di v ersi ty
AICP A: B
B Glob alAc c es si bi
gati o n Bl ooms :
Remem ber
trategy by foc us i ng on the exec ution of goal s .
Topic : Ex ec uti on

7. The main objec tive of value cha in analysis is to identify stages of the va
lue chain where the firm ca n:
A. Justify increases in the pr ice of the produc t or se rvice.
B. Incr ease va lue to the cu stomer or re duce
cost in some way. C. Outsource production to
other pro ducers.
D. Impr ove efficiency.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber
trategy us i ng v al ue -c hai n anal y s i s .
Topic : Val ue c hai n anal y s i s
8. It is beco ming more co mmon to see manufac turing firms use the value
chain to take stra tegic steps to improv e the overall pr ofitability of the
firm by :

A. Placing greater emphasis on the va lue ch ain.
B. Mov ing to an emphasis on ups tream activities in the value chain.
C. Mov ing to an emphasis on downstream ac tivities in
the va lue chain. D. Identifyin g mos t pr ofitable
customers .
E. Mov ing to an emphasis on both the upstream and downstream activities in
the va lue chain.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and

9. With regard to cr itical success factors , whic h one of the following would
not be considered a financial measu re of success?
A. Cash flow.
B. Growth in indus try
productivity. C. Sales
growth.
D. Earnings growth.
E. Re duc tion in the cost of inventory.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
FN Meas urement Ac c
es si bi li ty : Key
ooms : Remem ber
trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es

threats (SW OT)
anal y s i s .
10. Which one of the follow ing customer critical success fac tors is bes t
meas ured by wa rra nty ex pense ?
A. Quality.
B. De aler and distrib utor efficiency and
effectiveness . C. Timeliness of delivery .
D. Customer sa tisfac tion.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and
trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es

threats (SW OT)
anal y s i s .

11. Which one of the follow ing is not usually inc luded as a
perspective of the balan ced scor ecard?
A. Financia l Per for
mance. B. Tax Re
porting.
C. Learning and
Growth. D.
Customer Satisfac
tion.
E. Inter nal Business Processes.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber

12. Which of the following best descr ibes the typ e of information that cost
management mus t pr ovid e that is most impor tant for the success of
the or ganization?
A. Short term infor mation for
decision mak ing. B. Re por ted
financ ial information.
C. Re por ted nonfinancial information.
D. Infor mation that addr esses the strategic objectives of
the organiza tion. E. Long- term planning information.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber

13. After cr itical success factors (CSF s) have been identified, the nex t
step in deve loping a competitivestrategyistodevelop relevant and re
liable measure for thes e CSFs.These measuresareimportanttohelp
the organiz ation:
A. Mak e pro fit for any extended period.
B. Incr ease sa les above previous ye ar(s) .
C. Develop policies to enhance customer
profitability. D. Impr ove produc tivity in
selec ted pro duc t areas.
E. Monitor pro gress tow ard ach ieving stra tegic goals.
AA CSB : Refl ec
A: B B Criti c al Think
i ngAICP A: FN Meas
urement Ac c es si bi li
ty : Key board Nav i
gati o n Bl ooms :
Remem ber
Di ffi c ul
ty : 1 E asyLearnin g Obj ec ti v e: 02 -01 E x pl ai n how to i mpl em ent a c
To pi c : Bal anc ed S c orecard and S trategy Map

14. A firm has decid ed to use the balanced scor ecard. Whic h of the following
is not an adva ntage the co mpany will gain by usin g the balanc ed sco
recard ?
A. It link s the firm's CSFs to its strategy .
B. It helps the firm monitor progr ess to achiev ement of its strategic goals .
C. It can provide a bas is for implementing stra tegic ch anges
desir ed by the firm. D. It prov ides a co mprehensive financia l
ove rview of the firm.
E. It helps to coordinate ac tivities in the firm.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and

15. Du ring which step of va lue ch ain analysis will the company discover
whether or not it has a cost advantage, and why?
A. Du ring the first step, when the va lue- chain
activities ar e identified. B. Du ring the first step,
when the co st driver(s) are identified.
C. Du ring the seco nd step, when the firm dev elops a competitive
advantage by either re ducing cost or adding value.
D. The entire purp ose of value cha in analysis is to determine if the
company has a cost advantage ; therefore , it oc curs in all steps.
E. In the third step, wh en the co mpany adopts and implements the
balanced scorecard.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber

16. A loc al pharmac eutical firm has just announce d its discove ry of a revo
lutionary new drug for dieting. Howeve r, due to its deter iora ting re
lationsh ip with its union, the unioniz ed por tions of the co mpany's
employees have thr eatened to strike . In addition, the company's stock
has star ted to drop due to the firm's difficu lty in paying off some of its
debt. In this example, what was the firm's co re co mpetency( ies)?
A. Its re search and deve
lopment. B. Its human
resources abilities. C. Its
financ ing activities.
D. Its ope rating activities.
AA CSB : Ana l y
ti cal Think i ng AICP
A: B B Cri ti c al
Think i ngAICP A:
ooms : Ana l y z e
trategy by us i ng s trengths -we ak nes s es -opportuni ti es

17. Du ring the strengths and weaknesses por tion of a firm's SWOT
analysis, which of the following would not be discovere d?
A. The firm's method of product distribution was not very efficien t.
B. Through co ntinued research and deve lopment, the firm's pr oducts we
re state- of-the- art.
C. Du e to a lack of bar riers to entry into the industry , se veral new
competitor s were beginning to enter the marke t.
D. The production process needed to be reengineered to reduce
unnecessary scrap. E. The firm's employees ar e trained in new
manufactur ing methods each month.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and
Learnin g Obj ec ti v e: 02 -01 E x pl ai n how to im pl em ent a com petiti v e s
trategy by us i
ng s trengths -we

ak nes s es -
opportuni ti es
threats (SW OT)
anal y s i s .
18. When a firm is determining its opp or tunities and thr eats, which of the
follow ing would not be mentioned?
A. An in tense rivalry with a local co mpetitor was beginning
to start a price war . B. The firm just rec eived a patent on its
main product.
C. The success of the firm's latest marketing ca mpaign.
D. In sp ite of its patent, ther e ar e several subs titute produc ts co
nsu mer s co uld use. E. Incr eased competition in some of its key
pr oduct lines.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and

19. The declining value of the U.S. dollar relative to other cu rrencies in re cent
years means that:
A. U.S. exporters will face a gre ater challenge in expor ting
U.S. - made pr oduc ts. B. U.S. firms will be eager to buy
foreign products .
C. U.S. firms will be less profitable.
D. U.S. exporters will have a tempora ry advantage over other
countries in for eign trade. E. The U.S. trade balance will worsen .
AA CSB : Ana l y
ti cal Think
i ng AA
CSB : Di v
ersi ty AICP
A: B B
Glob al
AICP A: FN Ri s k Ana l y s is
board Nav
i gati o n
Bl ooms :
Ana l y z e

Di ffi c ul
ty : 3 Hard
trategy by foc us i ng on the ex ec uti on of goal s .
20. The cause and effect re lationships among cr itica l success factors ar e best
captured in:
A. The balanced sc
orecard . B. Business
intelligence .
C. The value chain.
D. The strategy
map. E. SWOT
analysis.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Remem ber

21. Which of the follow ing typ es of or ganizations ca n most benefit fro m va
lue chain analysis?
A. Serv ice firms.
B. No t- for - pro fit
organizations. C.
Manufactur ing firms .
D. All typ es of organiza tions can benefit fro m va lue ch ain analys is.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and
22. Which of the follow ing would not likely be a per spective of a
balanced scorecard for a co nsu mer products re tailer?

A. Learning and
nal processes .
mance. D. Customer
sa tisfac tion.
E. Research and development.
AA CSB : Refl ec ti v e Think i ng
AICP A: B B
Ind us tryAc c es si bi
gati o n Bl ooms :
Underst and
Topic : Bal anc ed S c orecard and S tra tegy Map

23. Which of the follow ing statements co ncerning value chain analysis is false?
A. The goal of value chain analysis is to find ar eas where a co mpany c
an either add value or re duce cost.
B. The value chain foc uses on the entire pro duction process , as we
ll as the sale of the pr oduc t and ser vice after the sa le.
C. If a co mpany ca nnot co mpete in a sp ecific area of the value ch ain,
it might co nsid er the option of outsourcin g that por tion of the value
chain to so meone who ca n per form it better .
D. Throughout mos t industries , the most successful firms are the ones
that opera te within the entire value chain, ther eby ov erseeing eve ry
asp ect of the va lue chain for the customer.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and
Di ffi c ul ty : 3 Hard

24. Which of the following would likely not be consid ere d par t of the va lue
cha in in a ser vice firm?
A. Inspection of pr
oduc t. B.
Advertising.
C. Employee tra
ining. D.
Customer
service. E.
Materials
handling.
AA CSB : Refl ec
ti v e Think i ng
AICP A: B B
Indus try AICP
A: FN Ri s k
Ana l y s is
Ac c es si bi li ty : Key board Nav i gati o n
Bl ooms : Remem ber

25. When per forming value chain analysis, which of the following should a
firm take into account?
A. The firm's c ompetitive
position. B. Opportunities
to re duce cost.
C. Poss ible oppor tunities where value ca n be added.
D. The decis ion to enter or leav e an activity in
the va lue chain. E. All of thes e answer ch oices
are correct.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber
26. Both cost leadership and differ entiated firms ca n improv e on execution
through:

A. Impr ove d automation and a higher
output of pr oducts. B. Benchmarking and
total quality management.
C. Cost cu tting and downsizing of personnel.
D. Emphasis on research and pr oduc t
deve lopment. E. No ne of these answer
choices are correct.
AA CSB : Refl ec
i ngAICP A: FN Ri s k
Ana l y s isAc c es si
bi li ty : Key board
Nav i gati o n Bl ooms
: Remem ber

27. To increase pro fitability, companies such as IBM and General Electric
have sh ifted their stra tegic focus tow ard :
A. Incr eas ing equipment sales.
B. Impr ovin g so ftwar e applications .
C. Prov iding new and enhance d
customer services. D. No ne of these
answer choices are correct.
AA CSB : Refl ec
ti v e Think i ng
AICP A: B B
Ind us try AICP
A: FN Ri s k
Ana l y s is
Ac c es si bi li ty : Key board Nav i gati o n
Bl ooms : Remem ber
28. Which of the follow ing is not a key benefit of the balan ce d scor ecard
(BSC)?
A. It prov ides a means for implementing stra tegy.

B. It prov ides an objective basis for determining each manager's c
ompensation and advance ment.
C. It prov ides a fra mework for the firm to achieve a desired organiza
tional change in strategy . D. It prov ides a baseline for how a firm's
financ ial opera tions co mpare to co mpetition within
the industry .
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber

29. A stra tegy map is:
A. A detailed flowchar t outlining which firm manag ers are re sponsib le
for each implementation of a firm's strategy and when these
implementations ar e to take plac e .
B. A ca use and effec t diagram of the re lationships among the balanced
sco recard perspectives to sh ow how the achieve ment of cr itical
success factors in each perspective affec ts the achievement of goals
in other per spectives and the overall financ ial p er formance of the
firm.
C. A framew ork for the firm to ach ieve a desir ed organizational
change in stra tegy wh ile mapping the successes of other firms
within the industry .
D. No ne of these answer choices are correct.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber

Topic : Bal an c ed S c orecard and S trategy Map
30. Sustainability is the balancing of sh ort and long ter m goals in all three
dimensions of the co mpany's performance. Those three areas are :
A. Economic, socia l, and env
iro nmental. B. Economic, socia
l, and financ ial.
C. Economic, envir onmental,
and politica l. D. Social,
environmental, and financial.
AA CSB : Refl ec
A: B B Res ource M
anagem e nt AICP A:
ooms : Remem ber
Di ffi c ul ty : 1 Easy
Learnin g Obj ec ti v e: 02 -05 E x pl ai n how to ex pand the bal anc ed s c orecard by
i ntegra ti ng s us tai nabi l i ty.

31. Ov er the past several ye ars it has become increasingly important for firms
to impr ove ac hievement towards their social and envir onmental res
ponsib ilities. What is the best way the management accountant can help
the firm improve on sus tainability?
A. Participate in progra ms of env iro nmental organiza tions.
B. Develop and implement a legal staff and public relations staff for
dealing with sustainability issues that may affect the firm.
C. Develop and implement a sus
tainability scorecard. D. Risk
management.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber

32. In terms of strategic cost management for not- for - pro fit organ iza tions,
which of the follow ing is false?
A. No t- for - pro fit organizations ca n benefit fro m stra tegic cost
management since they must pr ove their effec tiveness and
efficiency to a number of differ ent stakeholders.
B. The balanced sc orecard can be used to measure the or ganization's per
formance.
C. Value chain analysis c an be used for analyzing the organiza tion's pro
duct desig n, pr oduct testing, adve rtising, and production processes.
D. SWOT analysis is most helpful for non- pro fit organizations
wh en it deals with the or ganization's co mpetitive thr eats,
opportunities , and cr itical success factors.
AA CSB : Refl ec
ti v e Think i ng
AICP A: B B
Ind us try AICP
A: FN Ri s k
Ana l y s is
board Nav i
gati o n Bl
ooms :
Remem ber

Di ffi c ul ty
: 1 E asy

33. In or der to remain competitive in the contempora ry bus iness environment,
several firms ha ve star ted training their employe es to stop viewing pro
blems as s trictly functional - that is, as only a marke ting pro blem, or an
accounting pro blem, for example. What does this tre nd illustrate abou t
stra tegic management?
A. There has been a renewed emphasis on integr ative think ing and so
lvin g pro blem cr oss - functionally.
B. Func tional barr iers are an inherent part of a co
mpany's value chain. C. Firms ar e increas ingly s eeing
the va lue of bus iness intelligence .
D. SWOT analysis is desig ned to break down functional barriers.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Remem ber
Di ffi c ul ty
: 2 Med iumLearnin g Obj ec ti v e: 02 -01 E x pl ai n how to i mpl em ent a c

34. Which of the follow ing organiz ations presents awards to firms that
excel at execution of stra tegy, based on criteria such as leader ship,
marketing, stra tegic plann ing and process management?
A. Inter national Organization for
Standardiza tion. B. Malco lm Baldrige
National Quality Program.
C. Global Re porting
Initiative . D. World
Resources Ins titute.
E. American Ins titute of Ce rtified Public Accountants.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Remem ber

35. The financia l cr itical success factor of profitability can be measured by :
A. Co mmunity serv ice activities .
B. Customer retur ns and co
mplaints. C. Nu mber of
product defects.
D. Nu mber of desig n ch anges.
E. Earnings from operations.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and
36. Us ing value- chain analysis, a firm ca n deve lop a co mpetitive adva ntage
by s pec ifica lly lookin g for ways to:
A. Add va lue and reduce cost.

B. Impr ove manufacturing
productivity. C. Impr ove cus
tomer se rvice .
D. Impr ove produc t quality.
E. Re duce or ganiz ational risk.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and

37. Value activities can best be defined as:
A. Activities that firms in the industry mus t per form to improve a pro duc
t.
B. Activities that firms in the industry mus t per form in the
process of pr oduc ing the or pr ovid ing the se rvice .
C. Activities that firms in the industry mus t per form in the process of
closing dow n a product line, inc luding cus tomer service.
D. Activities that firms in the industry mus t per form to cons ider ways
of mark eting a pr oduc t. E. Activities that firms in the industry mus t
per form in the process of co nsidering new
pr oduc ts, inc luding customer service.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Remem ber
trategy us i ng v al ue -c hai n anal y sis.
38. The Wor ld Res ources Institute has defined:

A. Typ es of cost manag ement.
B. Ca tegor ies for env ironmental
performance indicators. C. Methods for ach
ieving sustainab ility.
D. Ca tegor ies for ec onomic per formance indic ators .
AA CSB : Refl ec ti v e Think i ng
AICP A: B
gati o n Bl ooms :
Remem ber

39. A firm su cceeds on its ability to deliver products to customers more
quickly than riva l co mpanies in its indus try . This sk ill is an exa
mple of the firm's:
A. Co re competency.
B. Research
effectiveness. C.
Production efficiency
.
D. Cost co ntro l effectiveness .
E. Value-chain analysis.
AA CSB : Refl ec
A: B B Res ource M
anagem e nt Ac c es si
bi li ty : Key board Nav
i gati o n Bl ooms :
Remem ber
Learnin g Obj ec ti v e: 02 -01 E x pl ai n how to im pl em ent a com petiti v e s
trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es

threats (SW OT)
anal y s i s .
40. SWOT analysis, a valuable analys is tool, stand s for:
A. Stre ngths - Wor kability - Oppor tunities - Threats.
B. Stra tegies - Weaknesses -
Opportunities - Thre ats. C. Stre ngths -
Weaknesses - Observa tions - Threats. D.
Stre ngths - Weaknesses - Opportunities -
Threats. E. Stra tegies - Weaknesses -
Obse rva tions - Thre ats.
AA CSB : Refl ec
A: BB Criti c al Think
i ngAICP A: FN Ri s k
Ana l y s isAc c es si
bi li ty : Key board
Nav i gati o n Bl ooms
: Remem ber
trategy by us i
ng s trengths -we

ak nes s es -
opportuni ti es
threats (SW OT)
anal y s is.

41. Which of the follow ing perspec tives of a Balanced Scorecard would most
likely be the ultimate goal in a strategy map for a public co mpany?
A. Learning and
nal processes .
mance. D. Customer
service.
E. Employees and co mmunity.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber
Learnin g Obj ec ti v e: 02 -04 Ex pl ai n how to i mpl em ent a c ompeti ti v e s
42. Some of the indicators of a gr ow ing conce rn for sus tainability include:

A. The liquidity crisis and su b-pr ime
loan scandals. B. The global economic
recession.
C. The increased use of value cha in analysis.
D. The increased concern about
climate change. E. The increased use
of the balance d scorecard .
AA CSB : Refl ec
A: B B Res ource M
Remem ber

43. Patagon ia, mak er of clo thing and gear for outdoor enthusiasts , is
very co nscious of sustainability issues. The company chose not
to pr oduc e a pro duc t because:
A. The cost of manufactur ing the product exce eded its target cost.
B. There was not su fficien t demand for the pr oduc t at
the planned price. C. The environmental impact of tox ic
was te was unacceptable.
D. The environmental impact of producing the product in terms of carbon
emissions and
energy co nsumptions was unacceptable.
E. The company co uld not justify adding another pro duc t when
there we re acceptable alternatives alrea dy in the co mpany's
product offerings.
AA CSB : Ana l y
ti cal Think i ng AICP
A: B B Res ource M
anagem e nt AICP A:
ooms : Ana l y z e

44. The increase of the U.S. dollar relative to other currencies has c aused firms
in the U.S.to:
A. Experience incr eas ing sales
in the U.S. B. Experience incr eas
ing sales worldwide .
C. Co nsider strategic ally beneficial inves tments ove rseas.
D. Re quire bus iness partners to mak e payments in advance.
AA CSB :
Di v ersi ty
AICP A: BB Gl
ob alAICP A:
FN Ri s k Ana l
y s is
board Nav
i gati o n
Bl ooms :
Ana l y z e
Di ffi c ul
ty : 3 Hard

45. NAFTA and WTO refer to:
A. Org anizations with exp ertise in business pr
ocess impr ove ment. B. Laws and organizations
which regulate interna tional trade.
C. Laws and regulations re garding sustainability.
D. Org anizations and trade gro ups that work for global eco nomic
development.
AA CSB :
Di v ersi ty
AICP A: B
B Glob al
AICP A: B
B Le gal
board Nav i
gati o n Bl
ooms :
Remem ber
Di ffi c ul ty
: 2 Med ium

46. The five steps of stra tegic dec ision - mak ing include all of the following
steps except:
A. Obtain information and co nduc
t analyses. B. De termine the
organization's stra tegy.
C. Identify the alternative actions .
D. Co ntinue an on - going eva luation of
the pro blem. E. Ch oose and implement
the des ired action.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
FN Dec i s i on Mak i
ngAc c es si bi li ty :
Key board Nav i gati o
n Bl ooms : Remem
ber

47. A final step in the SWOT analysis is to identify quantitative measures for
the:
A. Value propositions.
B. Co mpetitor analyses.
C. Cr itical success factors.
D. Value propositions and also cr itical success factors .
E. Co mpetitor analyses and also cr itical success factors.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber
trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es
threats (SW OT)
anal y s i s .

48. Which of the follow ing is leas t likely to be a cr itica l success fac tor for a
cost leader ship firm?
A. Financia l meas ure of
performance. B. Learning and
gr owth indicator .
C. Measure of opera tional
efficiency. D. Brand
recognition.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Remem ber
trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es

threats (SW OT)
anal y s i s .

49. All of the follo wing are required resources for differentiation except:
A. Product engineer ing.
B. Co rpora te reputation
for quality. C. Intens e su
pervision of labor.
D. Stro ng marketing ca pability.
AA CSB : Refl ec
A: B B Res ource M
anagem e nt AICP A:
ooms : Underst and
50. All of the follo wing are required resources for cos t leadership except:
A. Substantial capital
inves tment. B. Stro ng
marketing ca pability.

C. Products des igned for ease of
manufac turing . D. Process engineer
ing skills.
AA CSB : Refl ec
A: B B Res ource M
anagem e nt AICP A:
ooms : Underst and

51. Which of the follow ing is not a ter m us ed for a phase of the va lue chain?
A.
Operations.
B.
Upstream.
C. Downstre am.
D. Sustainability.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Remem ber
52. Which of the follow ing measu res wo uld likely be found on the financial
persp ective section of a balanced scorecard?
A. Sales growth.
B. Customer retention.

C. Efficiency of manufactur ing.
D. Incr ease in number of sa les s taff.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Underst and

53. A meas ure of res earch and deve lopment on the balance d scor ecard cou ld
include:
A. Marke t share.
B. Nu mber of new pr
oducts . C. Sales
growth.
D. Cash flows.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Remem ber
54. Which of the follow ing is not a reason why global companies choose to
re port on cor porate re sponsib ility?

A. Ethic al cons ider
ations . B. Innovation
and learning. C. Risk
management.
D. Marke t
share. E.
Saves time.
AA CSB :
Di v ersi ty
AA CSB :
Eth i c s
AICP A: B
B Glob al
AICP A: FN Ri s k Ana l y s is
board Nav i
gati o n Bl
ooms :
Underst and
Di ffi c ul ty :
1 E asy

55. Which of the following is not an env ironmental performance indica tor?
A. Fossil fuel use.
B. Ca rbon
emissio ns. C.
Fresh water usa
ge.
D. Percentage of employ ees with flu vacc inations.
AA CSB : Refl ec
A: B B Cri ti c al
Think i ngAICP A:
ooms : Underst and
56. The Global Repor ting Initiative is an independent group that par tners
with other gro ups to address the measurement of sus tainability, inc
luding a partnersh ip with:

A. The U.S. government.
B. The U.S. De par tment of
Defens e. C. The United
Nations.
D. The Eur opean Commission.
AA CSB : Di v ersi ty
AICP A: B
gati o n Bl ooms :
Remem ber
Topic : Bal anc ed Sc orecard and S trategy Map

57. Michael Porter's five competitive for ces inclu de which one of the
following?
A. Global co mpetition.
B. Intens ity of demand by
customers . C. Bargaining
pow er of co mpetitor s.
D. Intens ity of riva lry among co mpetitors.
AA CSB : Refl ec
A: B B Res ource M
Remem ber
trategy by us i
ng s trengths -we
ak nes s es -
opportuni ti es
threats (SW OT)
anal y s i s .

58. Effective execution of the cost leadership strategy requir es all of the follow
ing except:
A. Incen tives base d on meeting strict
quantitative goals. B. Fr equent, detailed
control repor ts.
C. Tight cost contro l.
D. Stru cture d organiza tion and policies .
E. Stro ng coordination among func tions: rese arch, pr oduct
development, manufac turing , and marke ting.
AA CSB : Refl ec
i ngAc c es si bi li ty :
Key board Nav i gati o
n Bl ooms : Underst
and

59. The differentiation strategy re quires all of the following res ources, except:
A. Stro ng marketing ca pability.
B. Long tradition in the indus try or
unique skills. C. Product engineer
ing.
D. Products des igned for ease of manufac ture .
E. Co rpora te reputation for quality or technology leadership.
AA CSB : Refl ec
A: B B Cri ti c al
gati o n Bl ooms :
Underst and
trategy by foc us i ng on the exec ution of goal s .
Ess ay Ques tio ns

60. Automobile engines have become more co mplex over the past twenty y
ears, partly as a result of env ironmental co ncerns abou t exhaust
contaminants. Engineers have deve loped two basic approach es to so lvin
g the co ntaminant pr oblem. The firs t emphasize d the ca talytic conve
rter, a modifica tion of the automobile exh aust system designed to break
down pollutants. The second emphas ize d redesign of the automobile
engine's co mbus tion process , wh ich adds more than twice the cos t of
the ca talytic c onverter alone. Howeve r, redesig ning the co mbus tion
pro cess usu ally results in improve d full efficiency.
Re quire d:
(a ) Co mment on the strategic adva ntage of re desig ning the co mbustion
process ve rsus sim ply adding a catalytic conve rter.
(b ) Wha t are the ethical ques tions, if any, that shou ld be addressed in the
above decision?
(a ) This illustrates the basic c onflict betwe en higher ups tream costs
with higher dow nstream bene fits ve rsus lowe r initial co st to meet
minimum standards or require ments. The advantage of inc reased gas
mileage and lowe red pollution will have to be "sold" to the consumer as
bene ficia l, not only to the auto's own er, but also to socie ty in the form
of a cleaner env iro nment.
(b ) Several ethic al issues are involved in this decision. What responsib
ility does the auto co mpany have re gard ing a cleaner environment and

reduce d use of oil, a non - renewable re source? What re sponsibility does
the auto company have in meeting, if not ex ceedin g, government regula
tions on pollution control? What respons ibility do we as auto buyers have
to a cleaner environment and pr otection of natura l resourc es? Strategic
long - range plann ing wo uld require co nsid era tion of options that cost
more to pr oduce but g enerate higher future bene fits, even if those
benefits do not accru e directly to the manufacturer.
AA CSB : Ana l y
ti cal Think i ng
AA CSB :
Comm u ni c ati
onAA CSB :
Eth i c s
AICP A: B B Cri
ti c al Think i ng
AICP A: FN Dec i
s i on Mak i ngBl
ooms : Ana l y z e
L earning Obj ec ti v e: 02 -03 E x pl ai n how to i mpl em ent a c
ompeti ti v e s trategy us i ng v al ue -c hai n anal y s i s . Learnin g
Obj ec ti v e: 02 -05 E x pl ai n how to ex pand the bal anc ed s c
orecard by i ntegra ti ng s us tai nabi l i ty.

61. Studeb aker Cor pora tion, one of the ear lies t auto manufacturers, prosper
ed in the late 1940 's and into the 1950's. Its advertising after World War
II emphasize d quality of design and pr oduc tion. The corp ora tion also
used the stabil ity of its work force in its advertisements, often featur ing
pictur es of father and s on workin g sid e by side in its factories .
Re quir ed:
(a ) From just this brief description of Studebaker Corporation, which
type of competitive stra tegy- cost leadershi p or differ entiation,- wo
uld you guess Studebake r was using? Exp lain yo ur choice.
(b ) Give n your answer in Part (a ), speculate on what mar ket fac tors
might have ca used the
co rpora tion to go into bankruptcy and cease pro duc tion in the mid -
1960s.
(a ) Studebaker attempted to ac hieve a dis tinctive quality image in its
adver tising as a way to differ entiate itself from other auto company
products . Presumably, by emphasiz ing the desig n and the way the car
was made, the firm was try ing to impress that Studeb aker would be
more des ira ble than competitive autos . Additionally, the adve rtise
ments tried to appeal to masses hear ts and not jus t need for trans por
tation and this clearly is not a cost leadership issue. (Its ca rs were

competitive ly pr ice d, but the company was not a cost leader , nor did it
attempt to focus on a particu lar segment of the auto - buying public.)
(b ) If differentiation was the chose n answer , it follows that the stress on
quality eventually led
to highe r cost (a nd prices) that made the ca r less c ompetitive . In fact,
this was par tly the re aso n the company failed, but futuris tic des ign
resu lted in a look the public was not ready to accept. If the students
chose cos t leaders hip as the answer , their exp lanation would have to
be evaluated on the basis of its logic and originality.
AA CSB : Ana l y
ti cal Think i ng
AA CSB : Comm
u ni c ati onAICP
A: B B Cri ti c al
Think i ng AICP
A: FN Dec i s i on
Mak i ng Bl ooms
: Ana l y z e
Bl ooms : Ev al uate
Di ffi c ul ty
: 2 Med iumLearnin g Obj ec ti v e: 02 -01 E x pl ai n how to i mpl em ent a c

62. Many products in the marketplace today ar e built fro m components des
igned and manufactured by sub -co ntrac tors. While the ex tent of this
prac tice is not well known to co nsu mers, manufacture and sale of multi-
component units that us e parts from many differe nt co mpanies
continues to grow.
Re quire d:
If the as se mbling company is us ing value - chain analysis in its stra
tegic planning, co mment on the following:
(a ) The cos t jus tifica tion for subcontracting.
(b ) The willingness of consu mers to buy pr oducts they know contain
subcontracted parts. (c) The pro blems of quality c ontrol facin g the
assembling company.
(a ) If a firm can consistently buy qua lity items delivered on time for less
than it costs to make the sa me items in -house , there is a need for strong
subjective reaso ns for not subcontracting. (b ) Most produc ts ar e
purchased because they are pr ice - and quality -c ompetitive . Little brand
name loya lty re mains among consumers, espec ially wh en it cos ts more

. The cons umer has adjusted to the marke tplace wh ere use of su bco
ntracted co mponents is common and accepted. The asse mbler pr ovid es
the wa rranty, which is only as g ood as the company giving it.
(c ) On -site quality control wo uld seem to better ensure quality than
would a guar antee fro m a su pplier . However, subcontra ctors that
specialize in component manufac ture can and do operate at high quality
leve ls. Components ca n be checked for quality just before assembly, and
penalty clauses ca n be wr itten into co ntrac ts to ens ure high quality
levels for co mponents pr oduced by s ubcontractors.
AA CSB :
Comm u ni c ati
onAA CSB : Refl
ec ti v e Think i ng
AICP A: B B Cri
ti c al Think i ng
AICP A: FN Ris k
Ana l y s is Bl
ooms : Underst
and Di ffi c ul ty :
2 Med ium

63. Exeter Indus tries produces and markets s eve ral lines of food and bev era
ge produc ts. The co mpany plans to expand its market to cover a new
geographical ar ea, and the firs t pr oduc ts to be introduced into this new
market are three of Exeter's c offees. A meeting of the mark eting co
mmittee has been ca lled to determine the pric ing and promotional
strategy for the introduction of these coffees. Exe ter has adop ted the
differ entiation stra tegy and is using the marke ting committee to come up
with the proper way to execute this s trategy in the firm's pr icing and
promotional po licy .
Mark Williams, vice president of marketing, has su gges ted that Exeter
continue its policy of
pr emium pricing for Rich Roas t Coffee in the new mark et. "Rich Roas
t is a superior blend of Braz ilian coffees and should have little difficu
lty gaining cust omer acceptance . The use of other pro motional
strategies doesn't appear necessary at this time."
Ca ro l Ra ndolph, general sales manager, agree d with this strategy for
Rich Roast but
re commended a differ ent appr oach for Vitality Co ffee, Exeter's bra nd
of de ca ffeinated coffee. "Vitality is an unknown name in this region and
will requir e a determined pro motional effor t to gain market share from
other very c ompetitive products. We could try penetration pric ing or
packaging options combined with either manufac turer's co upons or
rebates . Whatever stra tegy we selec t, we sh ould hit the mark et hard if
we want to be successful."

Da n Felton has been appointed regional sales manager for the new
geographica l area and is co ncerned about the acceptance of Mellow
Roast Coffee, a blend of re gular and decaffeinated co ffees. "This is a
brand new type of coffee in this region and may jus t sit on the sh elf
unless we deve lop an effective adve rtisin g ca mpaign ." Pric ing or
packaging options will be worthless unless the product gains some visib
ility and the targeted customer base is made aware of the bene fits of
Mellow Ro ast. We need a good s logan like "A gentle wak eup without ca
ffeine stress!"
Re quir ed:
Mark Williams has s uggested the co ntinuance of premium pr icin g for
Rich Roast Co ffee. Explain the stra tegic ro le of premium pricing, and
describe the eco nomic c ircu mstances in the marke tplace that wo uld
enco ura ge the use of this pric ing strategy . (CMA ada pted)
The strategic ro le of premium pr icing includes the following :
• cr eating an image of a top - of- the - line, high -quality pro duct.
• es tablishing brand loyalty.
• the pr oduc t or serv ice can be significantly differentiated to justify a
premium pr ice .

• demand is pr ice inelastic, that is, pric ing does not significantly affect
demand.
• pr oduc tion and marketing fac ilities are inade quate to serve a large
marke t.
• the firm is unab le to reduce cos t to the level necessary to co mpete
in a cost leade r sh ip manner.
AA CSB :
Comm u ni c ati
onAA CSB : Refl
ec ti v e Think i ng
AICP A: B B Cri
ti c al Think i ng
AICP A: FN Dec i
s i on Mak i ngBl
ooms : Underst
and Di ffi c ul ty :
2 Med ium
threats (SW OT)
anal y s i s . Learnin g Obj ec ti v e: 02 -02 E x pl ai n how to i mpl em ent
a c ompeti ti v e s trategy by foc us i ng on the ex ec uti on of goal s .

64. Williams Instruments manufactures sp ecialized surgical equip ment for
hospitals and c linics throughout the wor ld. One of Williams' mos t
popular products , compris ing 40% of its reve nues and 35% of its
profits, is a blood pressure measur ing dev ice . Average pr oduction and
sales ar e 400 units per month. Williams has achieved its success in the
mar ket thr ough excellent customer service and pro duc t re liability. The
manufactur ing process consis ts pr imar ily of assembly of components
pur chase d from va rious electro nic firms, plus a sma ll amount of
metalw orkin g and finish ing. The manufactur ing opera tions cost $600
per unit. The purch ased par ts cost Williams $800, of wh ich $300 is for
parts which Williams could manufacture in its ex isting fac ility for $100
in materials for each unit, plus an investment in l abor and equipment wh
ich would cost $175 ,000 per month.
Also, Williams is consid ering outsourcing to another firm, Matrix
Concepts, Inc., the marke ting,
dis tribution, and servicing for its units. This would save Williams
$75,000 in monthly materials and la bor costs. The cost of the co ntract
would be $125 per pro duc t.
Re quire d:
(1 ) Prepare a value ch ain analys is for Williams to as sist in the decis
ion whether to manufacture or buy the parts, and wh ether to contract
out the marketing, dis tribution, and se rvicin g of the units.

(2 ) Should Williams continue to: (a ) purchase the par ts or manufactur e
them? (b) prov ide the marke ting, distrib ution and service, or outsource
this ac tivity to Matrix? Exp lain your answers .
V alue Act iv ity Opti on O n e- Ma nuf
actur e
Opti on T w o- Buy
First: Raw Materials
Williams n ot in volve
d at this step in t he val
ue ch ain
ue ch ain
Second: Manuf
acture of parts for t
he equipm ent
ue ch ain ; the cost is
$50 0 to W illia ms
ue ch ain ; the cost of
these parts is $ 500 to
W ill iams (Note: $50 0
is the $8 00 t otal l ess
$30 0 for purch ased p
arts t hat
coul d be ma nuf
actured)
Third:
Manufac ture
of compo nents
Williams p urchases $3
00 of these parts
Williams ma nuf
actures these parts for
$10 0 each p lus mo
nthly costs of $175,0
00

Fourth: Assembly Williams ’ costs are $60
0
Williams ’ costs are
$60 0
Fift h: Marketing,
distributi on and
serv ice
Williams ’ costs are
$75,0 00 p er
month
Williams co ntra cts
these services o ut t o
Matrix f or $125 per
pro ductCosts Summar y :
Costs which
diff er between the t
wo opti ons
Purchas e of co mpon
ents:
$300 × 40 0 = $120,000
Unit costs for
manufactur e of compo
nents ($ 100 × 400) +
monthly cost of $175,0
00 f or lab or and equ i
pment = $215, 000
T he t ot al cost of p
urc has e is l ess th
an t he co st of m
anuf actur e, by $
95, 000.
Monthly cost fo r
marketing, distrib
ution a nd service:
$75,0 00
Monthly cost of Matrix
contrac t:
$125 × 400 = $50,00 0
T he t ot al cost of t h
e Matrix c ontract is l
ess than t he c ost of
th e ins ide serv ic e,
by $25,0 00
2. (a ) The cost to purchase is $95,000 less than the cost to manufac ture.
Therefor e, Williams sh ould purchas e the co mponen ts (b) The cost of
the monthly marketing, dis tribut ion, and se rvice in hous e is $25 ,000
more, than the cost of the outside contrac t. Sinc e Williams is a
manufacturer of spec ialized instruments, it is like ly to co mpete on the
basis of product differ entiation rather than cos t. Therefore, Williams
should ch oo se the option in each case that advances the firm's strategy,
and consider cost sav ings a second pr iority. If the firm can ac hieve
higher quality by manufactur ing the co mponents, then it should do so, ev
en if this cr eates a higher cos t of $95,000. Similarl y, the dec ision abou t
marketing, distribution and se rvice should be made with the firm's
strategy in mind.

AA CSB :
Comm u ni c ati on
AA CSB : Kno wl
edge A ppl i c ati on
AICP A: B B Cri ti c
al Think i ngAICP
A: FN Dec i s i on
Mak i ngAICP A:
FN Meas urement Bl
ooms : App l y

65. Lev is Stra uss and Co, maker of Levi' s familiar 501 and Made and Cr
afted brands of jeans, als o makes a brand that was introduce d for disco
unt retailers s uch as Walmart and Kmart. Lev i's s tra tegy with the new
jeans (the Signature brand) was to sell a compe titively priced pair of
jeans . The jeans ar e about one - half or les s the price of the familiar 501
and Made and Cr afted jeans. To get co sts dow n Lev i's:
• Us es c heaper fabr ics and materials.
• Shuns costly mass - market adv ertising.
• Stric tly limits the number of fits, styles , and colors.
Re quire d:
1. Ass ess the new stra tegy at Lev i. Wha t do yo u think ar e the potential
bene fits and risks?
2. Ho w will the firm's va lue ch ain and balanced scorecard change
as a resu lt of the new stra tegy?
1. The risks of the new line are that it might pull the company what has
been a tradition of differ entiated pr oduc ts (501, 505) to cost leadership
(the Signature line), leavin g consumers co nfused about the Lev i
brand. The risks of the new br and include:
• co uld tur n off depar tment store customer s of Lev i's core jeans
• the new brand of jeans could end up look ing and feeling shoddy
• after a per iod of buzz, may sink below the rad ar
• cu stomers may get bored and want more var iety

Micha el Porter's obse rva tion might be that the firm is in ris k of
getting "stuck in the middle" between the cost leadership and
differentiation stra tegies .
2. The firm's va lue chain will likely ch ange little, as the manufacture of
the jeans will con tinue to be pro duced in low -cost facilities worldwide .
The larges t differ ence in the jeans will be in the fabrics use d, the des
ign, and the v ariety of jeans offered. The balance d scor ecard for Levi' s
is not likely to change much either , as noted above for the va lue chain.
Lev i Strauss uses the BSC in its s har ed serv ices center in Eugene , Ore
gon.
AA CSB : Ana l y
ti cal Think i ng
AA CSB : Comm
u ni c ati onAICP
A: B B Cri ti c al
Think i ng

AICP A: FN Ri
s k Ana l y s isAICP
A: Res ourc e mana
gemen t Bl ooms :
Ana l y z e
Bl ooms : Ev al uate
trategy by foc us i ng on the ex ec uti on of goa ls.
Learnin g Obj ec ti v e: 02 -03 E x pl ai n how to i mpl em ent a c
ompeti ti v e s trategy us i ng v al ue -c hai n anal y s i s . Learnin g Obj ec ti v e:
02 -04 E x pl ai n how to i mpl em ent a c ompeti ti v e s trategy us i ng the bal anc
ed s c orecard and s trate g y map.

luxury hotel industry .
Gor don has succe eded through excellenc e in des ign, ca re ful attention
to quality in manufactur ing and in cus tomer se rvice , and thr ough co
ntinuous product innova tion. The manufactur ing process at Gor don
begins with a close consu ltation with each customer so that the finished
pro duct exac tly meets the cus tomer's spec ifications. This commonly
means unique designs, special fabr ics, and high levels of manufactur ing
quality. In addition, Gordon believes that a key c ompetitive edge it has
ove r other co mpetitors is that it has an outstanding des ign staff that is
able to wo rk with customers to come up with product des igns that go
beyond the customer's expectations .
Anticipa ting a grow th in the demand for lux ury hotel rooms, Gord on
has expanded its operations to inc lude one new manufactur ing plant, and
by refitting so me of the older plants with newe r, more efficient equip
ment. The ins tallation of the new equipment has ca use d so me delays in
filling some customer orders , and Gordon has s hifted pro duc tion from
those plants with the delays to other manufac turing plants. The result has
been an incre ase in some pr ocess ing cos ts, transportation costs , and
delays in meeting customer ord er deadlines . Also, the introduction of the
new equip ment has cre ated some tens ions with employees who see the
new , more efficient equipment as a potential threat to their job security.
There is als o so me dis agr eement among managers as to whether the
new equipment will improve or re duce quality.

Re quire d:
Develop a SWOT analys is for Gord on Manufactur ing. Lis t one or more
items in each ca tegory.
There ar e likely to be a wide va riety of answ ers. Here are some
repr ese ntative items. S trengths
Re putation for quality, produc t design, customer service, and innov ation
Wea knesses
De lays in meeting customer orders
Potential labor problems due to labor concerns about new equipment
Un known effect of new equipment on product quality.

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