TMA Introduction to Strategy 2 — Questions and Answers
Question 1: In turnaround management, which of the following best describes a 'stabilization strategy'?
- Expanding market share through aggressive acquisitions
- Stopping the financial bleeding and halting the decline before repositioning (Correct answer)
- Divesting all non-core assets immediately
- Launching new product lines to drive revenue growth
Correct answer: Stopping the financial bleeding and halting the decline before repositioning
Stabilization focuses on stopping losses and halting decline as the first phase before longer-term strategic repositioning.
Question 2: Which analytical framework categorizes a firm's activities into primary and support activities to identify sources of competitive advantage?
- PEST Analysis
- Balanced Scorecard
- Value Chain Analysis (Correct answer)
- Ansoff Matrix
Correct answer: Value Chain Analysis
Porter's Value Chain Analysis decomposes a firm's operations into primary activities (inbound logistics, operations, etc.) and support activities to locate cost or differentiation advantages.
Question 3: A distressed company serving a niche market with specialized products is most likely pursuing which generic strategy?
- Cost leadership
- Differentiation focus (Correct answer)
- Broad differentiation
- Cost focus
Correct answer: Differentiation focus
Differentiation focus targets a narrow market segment with unique, premium offerings rather than competing on price or breadth.
Question 4: Which of the following is a PRIMARY indicator used to detect the early warning signs of financial distress in strategic planning?
- Increasing gross margin percentage
- Declining current ratio and rising debt-to-equity ratio (Correct answer)
- Growth in operating cash flow
- Expansion of product portfolio
Correct answer: Declining current ratio and rising debt-to-equity ratio
A falling current ratio signals liquidity problems, while a rising debt-to-equity ratio signals excessive leverage — both early financial distress warnings.
Question 5: The concept of 'strategic fit' in turnaround management refers to:
- Alignment between a company's resources, capabilities, and its chosen strategy (Correct answer)
- The degree to which a company matches its competitors' pricing
- Ensuring all departments use the same IT systems
- Matching executive compensation to industry benchmarks
Correct answer: Alignment between a company's resources, capabilities, and its chosen strategy
Strategic fit means that a firm's internal capabilities and resources are aligned with the demands of its chosen external strategy.
Question 6: When conducting a SWOT analysis for a distressed firm, which quadrant addresses factors OUTSIDE the company's control that pose threats?
- Strengths
- Weaknesses
- Opportunities
- Threats (Correct answer)
Correct answer: Threats
The Threats quadrant of SWOT captures external environmental factors beyond management's control that could further harm the firm.
Question 7: In strategic turnaround planning, 'operational restructuring' primarily involves:
- Renegotiating debt covenants with lenders
- Cutting costs, improving processes, and eliminating inefficiencies in day-to-day operations (Correct answer)
- Acquiring a competitor to gain scale
- Issuing new equity to reduce leverage
Correct answer: Cutting costs, improving processes, and eliminating inefficiencies in day-to-day operations
Operational restructuring targets the internal operations of the business — reducing costs, streamlining processes, and improving efficiency.
TMA Introduction to Strategy 2
In turnaround management, which of the following best describes a 'stabilization strategy'?