SPP Strategy Formulation & Development 4 — Questions and Answers
Question 1: According to Porter's Generic Strategies, a firm pursuing a 'differentiation focus' strategy is targeting:
- The entire market with a unique, premium-priced offering
- A narrow market segment with a highly differentiated product or service (Correct answer)
- The broadest possible market with the lowest available price point
- Multiple segments simultaneously using a cost-plus pricing model
Correct answer: A narrow market segment with a highly differentiated product or service
Differentiation focus combines a narrow target market (focus) with distinctive attributes that justify premium pricing, creating a defensible position within a specific segment.
Question 2: When applying the Value Chain Analysis to strategy formulation, 'primary activities' include:
- Human resource management, technology development, and procurement
- Inbound logistics, operations, outbound logistics, marketing and sales, and service (Correct answer)
- Infrastructure, legal, finance, and information technology support
- Firm infrastructure, human resources, technology, and procurement functions
Correct answer: Inbound logistics, operations, outbound logistics, marketing and sales, and service
Porter's Value Chain identifies five primary activities — inbound logistics, operations, outbound logistics, marketing/sales, and service — directly involved in creating and delivering value.
Question 3: A strategy that involves two or more companies cooperating to achieve mutual goals while remaining independent is known as:
- Horizontal integration
- A strategic alliance (Correct answer)
- Conglomerate diversification
- Corporate restructuring
Correct answer: A strategic alliance
A strategic alliance is a formal agreement between independent firms to pursue shared objectives by combining resources, capabilities, or technologies without full merger.
Question 4: Which of the following is an example of an 'emergent strategy' as described by Henry Mintzberg?
- A five-year strategic plan developed by the executive team and cascaded to divisions
- A strategic direction that develops through experimentation and adaptation to market conditions (Correct answer)
- A strategy explicitly formulated to respond to a competitive threat identified during environmental scanning
- An acquisition strategy approved by the board after formal due diligence and analysis
Correct answer: A strategic direction that develops through experimentation and adaptation to market conditions
Emergent strategies arise unplanned from patterns in actual organizational decisions and actions, contrasting with deliberate strategies that follow prescribed plans.
Question 5: In the context of competitive strategy, 'switching costs' serve as a barrier to entry primarily because:
- They increase the supplier's bargaining power over the new entrant
- They make it expensive or difficult for customers to change from an incumbent's product to a new entrant's offering (Correct answer)
- They require new entrants to invest heavily in manufacturing infrastructure
- They force new entrants to match incumbents' research and development expenditures
Correct answer: They make it expensive or difficult for customers to change from an incumbent's product to a new entrant's offering
High switching costs lock customers into existing relationships, making it difficult for new entrants to attract customers away from established competitors even with superior offerings.
Question 6: What does 'strategic stretch' refer to in the strategy formulation process?
- Extending the planning horizon from three to ten years
- Leveraging existing resources and capabilities in new ways to reach ambitious goals beyond current means (Correct answer)
- Expanding geographically into international markets without changing the core product
- Adding new product lines to an existing portfolio to increase revenue diversification
Correct answer: Leveraging existing resources and capabilities in new ways to reach ambitious goals beyond current means
Strategic stretch, from Hamel and Prahalad, refers to the creative use and leveraging of current resources to pursue goals that exceed current apparent capacity.
Question 7: A company's 'sustainable competitive advantage' is best defined as:
- An advantage that is tied to environmentally sustainable business practices
- A competitive edge that is difficult for rivals to imitate and can be maintained over time (Correct answer)
- A short-term pricing advantage achieved through temporary cost reductions
- An advantage derived exclusively from superior financial capital and balance sheet strength
Correct answer: A competitive edge that is difficult for rivals to imitate and can be maintained over time
A sustainable competitive advantage is one that persists over time because it is difficult for competitors to replicate, often rooted in unique resources, capabilities, or market positions.
SPP Strategy Formulation & Development 4
According to Porter's Generic Strategies, a firm pursuing a 'differentiation focus' strategy is targeting: