Certified Management Accountant Strategic Management 5 — Questions and Answers
Question 1: Which of the following best illustrates a 'related diversification' strategy?
- A food company acquiring a real estate firm
- A car manufacturer acquiring a steel producer to secure raw materials
- An airline acquiring a hotel chain to offer travel packages (Correct answer)
- A technology company entering the pharmaceutical industry
Correct answer: An airline acquiring a hotel chain to offer travel packages
Related diversification involves moving into businesses that share strategic fit — resources, technologies, or customer bases — such as an airline and hotel chain serving the same travel customers.
Question 2: The primary purpose of scenario planning in strategic management is to:
- Predict the most likely future state of the environment with precision
- Prepare organizations for multiple plausible future environments by developing flexible strategies (Correct answer)
- Eliminate uncertainty by gathering more market research data
- Create detailed operational budgets for each business unit
Correct answer: Prepare organizations for multiple plausible future environments by developing flexible strategies
Scenario planning develops several distinct plausible futures and prepares strategic responses to each, building organizational flexibility rather than predicting a single outcome.
Question 3: A firm with a 'defender' strategic orientation, as described by Miles and Snow, is most likely to:
- Continuously seek new market opportunities and develop new products
- Protect a stable, narrow market domain through operational efficiency (Correct answer)
- Respond quickly to competitor innovations by rapidly imitating them
- Simultaneously pursue aggressive growth and cost reduction
Correct answer: Protect a stable, narrow market domain through operational efficiency
Miles and Snow's Defender organizations focus on maintaining a secure position in a narrow market by achieving high efficiency, often avoiding innovation in favor of stability.
Question 4: Which of the following is the BEST measure of whether a company's strategy is creating shareholder value?
- Revenue growth rate exceeding industry average
- Economic Value Added (EVA) consistently positive over time (Correct answer)
- Market share increasing relative to competitors
- Debt-to-equity ratio below industry benchmark
Correct answer: Economic Value Added (EVA) consistently positive over time
Economic Value Added (EVA) measures whether returns exceed the cost of capital, directly indicating whether strategy creates or destroys shareholder value.
Question 5: In the context of strategic management, 'dynamic capabilities' refer to:
- A firm's ability to produce high volumes of output efficiently
- The capacity to integrate, build, and reconfigure internal competencies in response to environmental changes (Correct answer)
- Financial flexibility to fund acquisitions during economic downturns
- Management's ability to respond quickly to day-to-day operational issues
Correct answer: The capacity to integrate, build, and reconfigure internal competencies in response to environmental changes
Dynamic capabilities, developed by Teece, Pisano, and Shuen, describe higher-order abilities to sense opportunities, seize them, and transform organizational assets as environments evolve.
Question 6: A company's 'strategic business unit' (SBU) is best characterized as:
- A temporary project team formed to address a specific strategic challenge
- A self-contained division with its own strategy, competitors, and profit responsibility (Correct answer)
- The corporate headquarters function responsible for overall strategic planning
- A joint venture with a strategic partner for a specific product line
Correct answer: A self-contained division with its own strategy, competitors, and profit responsibility
An SBU is an autonomous division or unit within a larger organization that develops its own business-level strategy and is accountable for its own profitability.
Question 7: Which of the following scenarios best represents a 'stuck in the middle' strategic position, as described by Porter?
- A firm that successfully combines low cost with premium differentiation
- A firm that neither achieves the lowest costs nor offers meaningful differentiation, resulting in below-average returns (Correct answer)
- A firm that targets both large and small market segments simultaneously
- A firm that uses multiple distribution channels to reach diverse customer groups
Correct answer: A firm that neither achieves the lowest costs nor offers meaningful differentiation, resulting in below-average returns
Porter warned that firms 'stuck in the middle' fail to commit to either cost leadership or differentiation, resulting in no sustainable competitive advantage and poor profitability.
Certified Management Accountant Strategic Management 5
Which of the following best illustrates a 'related diversification' strategy?