TMA Introduction to Strategy 4 — Questions and Answers
Question 1: Which of the following is an example of a 'revenue enhancement' strategy in a turnaround plan?
- Renegotiating supplier contracts to reduce input costs
- Laying off 15% of the workforce to lower payroll expenses
- Re-pricing products upward for high-value customer segments (Correct answer)
- Selling a non-core subsidiary to generate cash
Correct answer: Re-pricing products upward for high-value customer segments
Revenue enhancement strategies increase the top line; re-pricing for high-value segments boosts revenue without necessarily cutting costs.
Question 2: The concept of 'core competency' as defined by Prahalad and Hamel refers to:
- A company's ability to meet minimum regulatory requirements
- A collective skill or technology that provides competitive advantage and is difficult to imitate (Correct answer)
- The firm's largest revenue-generating product line
- A government-issued operating license
Correct answer: A collective skill or technology that provides competitive advantage and is difficult to imitate
Core competencies are deep, integrated capabilities that differentiate the firm and are hard for competitors to replicate.
Question 3: Which term describes the process of identifying the root causes of a company's distress before selecting a turnaround strategy?
- Strategic benchmarking
- Diagnostic analysis (Correct answer)
- Market segmentation
- Competitive profiling
Correct answer: Diagnostic analysis
Diagnostic analysis is the systematic investigation into why a company failed — financial, operational, or strategic causes — before prescribing a remedy.
Question 4: When a turnaround plan focuses on 'asset right-sizing,' management is primarily:
- Acquiring additional fixed assets to increase production capacity
- Divesting or writing down excess or underutilized assets to improve efficiency (Correct answer)
- Revaluing assets upward to improve the balance sheet appearance
- Pledging assets as collateral for new financing
Correct answer: Divesting or writing down excess or underutilized assets to improve efficiency
Asset right-sizing means eliminating or reducing assets that exceed the firm's realistic operational needs to cut costs and free up capital.
Question 5: In Porter's Five Forces framework, 'buyer power' is HIGH when:
- Buyers are fragmented and purchase in small quantities
- There are many differentiated suppliers in the market
- Buyers are concentrated and purchase in large volumes with low switching costs (Correct answer)
- The product is highly specialized with no substitutes
Correct answer: Buyers are concentrated and purchase in large volumes with low switching costs
Concentrated buyers who purchase large volumes and can easily switch suppliers have strong negotiating leverage over pricing and terms.
Question 6: A company experiencing a 'strategic turnaround' — as opposed to an operational turnaround — needs to:
- Primarily reduce headcount and cut operating costs
- Fundamentally redefine its business model, markets, or competitive position (Correct answer)
- Refinance its existing debt on better terms
- Improve its supply chain logistics
Correct answer: Fundamentally redefine its business model, markets, or competitive position
A strategic turnaround requires rethinking the fundamental direction of the business, not just fixing operational inefficiencies.
Question 7: Which of the following metrics is MOST useful for assessing whether a turnaround strategy is improving a company's fundamental earnings power?
- Total assets on the balance sheet
- EBITDA margin trend over consecutive quarters (Correct answer)
- Number of employees retained after restructuring
- Stock price at the time of the turnaround announcement
Correct answer: EBITDA margin trend over consecutive quarters
EBITDA margin trend shows whether core operating profitability is improving, stripping out financing costs and non-cash charges to reveal true earnings power.
TMA Introduction to Strategy 4
Which of the following is an example of a 'revenue enhancement' strategy in a turnaround plan?