SPP Strategy Formulation & Development 5 — Questions and Answers
Question 1: Which of the following best illustrates a 'harvest strategy' in the context of portfolio management?
- Investing heavily to grow a high-potential business unit into a market leader
- Reducing investment in a declining business unit to maximize short-term cash flow before exiting (Correct answer)
- Acquiring competitors to consolidate market share in a growing industry
- Licensing technology to new markets to expand revenue without capital investment
Correct answer: Reducing investment in a declining business unit to maximize short-term cash flow before exiting
A harvest strategy deliberately reduces investment in a business unit (often a Dog or declining Cash Cow) to extract maximum short-term cash flow before divesting or exiting.
Question 2: The 'resource-based view' (RBV) of strategy suggests that competitive advantage stems primarily from:
- The external industry structure and positioning within attractive markets
- Unique, valuable, rare, inimitable, and non-substitutable internal resources and capabilities (Correct answer)
- The company's ability to respond faster than competitors to market changes
- Achieving the lowest cost structure in the industry through scale economies
Correct answer: Unique, valuable, rare, inimitable, and non-substitutable internal resources and capabilities
The RBV, associated with Barney and others, argues that durable competitive advantage comes from internal resources that are Valuable, Rare, Inimitable, and Non-substitutable (VRIN).
Question 3: A strategic planning team is using the 'TOWS Matrix.' How does this tool differ from a standard SWOT analysis?
- TOWS reverses the order of the SWOT categories to prioritize threats over strengths
- TOWS uses the SWOT factors to generate actionable strategic options by cross-referencing internal and external factors (Correct answer)
- TOWS replaces qualitative analysis with quantitative scoring of each SWOT element
- TOWS focuses exclusively on external factors while SWOT addresses both internal and external factors
Correct answer: TOWS uses the SWOT factors to generate actionable strategic options by cross-referencing internal and external factors
The TOWS Matrix takes SWOT findings and generates four strategy types — SO, ST, WO, WT — by systematically cross-referencing strengths/weaknesses with opportunities/threats to produce actionable strategies.
Question 4: When setting strategic priorities, the concept of 'strategic trade-offs' as described by Porter means:
- Choosing between multiple diversification paths based on available capital
- Deliberately choosing NOT to do certain activities in order to maintain a consistent and unique strategic position (Correct answer)
- Balancing short-term profitability against long-term market share investment
- Negotiating budget allocations between competing business units within the organization
Correct answer: Deliberately choosing NOT to do certain activities in order to maintain a consistent and unique strategic position
Porter argues that strategy requires making explicit trade-offs — choosing what not to do — because trying to do everything leads to a 'stuck in the middle' position with no real competitive advantage.
Question 5: An organization's 'strategic vision' is most accurately described as:
- A detailed financial projection of revenue and profitability over a five-year period
- An aspirational description of what the organization intends to become in the future (Correct answer)
- A specific measurable goal the organization plans to achieve within the next quarter
- A summary of the organization's current products, services, and market position
Correct answer: An aspirational description of what the organization intends to become in the future
A strategic vision is a forward-looking, inspirational statement describing the desired future state the organization aspires to achieve, guiding long-term strategic decisions.
Question 6: Which of the following scenarios represents a 'concentric diversification' strategy?
- A car manufacturer acquiring a steel supplier to control raw material costs
- A fitness equipment company launching a line of nutritional supplements targeting the same health-conscious customers (Correct answer)
- A grocery chain purchasing a chain of hardware stores to reduce business cycle risk
- A bank opening branches in new geographic regions to expand its deposit base
Correct answer: A fitness equipment company launching a line of nutritional supplements targeting the same health-conscious customers
Concentric diversification involves adding new but related products/services that appeal to the same customer base, leveraging existing market knowledge and distribution channels.
Question 7: In dynamic competitive environments, 'hypercompetition' (D'Aveni) implies that firms should:
- Seek stable long-term competitive positions and defend them vigorously against all challengers
- Continuously disrupt their own advantages and create temporary positions rather than seeking sustainable equilibrium (Correct answer)
- Focus exclusively on cost reduction to withstand sustained pricing pressure from rivals
- Form industry-wide cartels to stabilize pricing and reduce competitive intensity
Correct answer: Continuously disrupt their own advantages and create temporary positions rather than seeking sustainable equilibrium
D'Aveni's hypercompetition theory argues that sustainable advantage is a myth in fast-moving industries, so firms must continuously create and destroy their own advantages through speed and disruption.
SPP Strategy Formulation & Development 5
Which of the following best illustrates a 'harvest strategy' in the context of portfolio management?