CHAPTER 1The Nature of Strategic ManagementTrue/FalseIntroduction1.The underpinnings of strategic management hinge on managers gaining an understanding of competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders and customers worldwide.Ans: T Page: 4

2.Although the Internet has increased in popularity, it has actually led to increases in company expenses.Ans: F Page 4

3.Consumer e-commerce is five times greater than business-to-business e-commerce.Ans: F Page 4

What Is Strategic Management?

4.Optimizing for tomorrow the trends of today is the purpose of strategic management.Ans: F Page: 5

5.Even though useful, strategic planning has been cast aside by corporate America since the early 1990s.Ans: F Page: 5

6.Resource allocation is included in strategy-formulation activities.Ans: T Page: 5

7.The terms strategic management and strategy implementation are synonymous.Ans: F Page: 5

8.A vision statement is, in essence, a company’s game plan.Ans: F Page: 5

9.Strategy implementation is often considered to be the most difficult stage in the strategic-management process because it requires personal discipline, commitment and sacrifice.Ans: T Page: 6

10.The final stage in strategic management is strategy implementation.Ans: F Page 6

11.Strategy formulation, implementation and evaluation activities occur at three hierarchical levels in a large diversified organization: corporate, divisional and functional.Ans: T Page: 6

12.One of the fundamental strategy evaluation activities is reviewing external and internal factors that are the bases for current strategies.Ans: T Page: 6

13.An objective, logical, systematic approach for making major decisions in an organization is a way to

describe the strategic-management process.Ans: T Page: 714.Strategic management is an attempt to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty.Ans: T Page: 7

15.Analytical and intuitive thinking should complement each other.Ans: T Page: 7

16.According to Albert Einstein, “Knowledge is far more important than intuition.”Ans: F Page 7

17.Management by intuition can be defined as operating from the “I’ve-already-made-up-my-mind-don’t-bother- me-with-the-facts mode.”Ans: F Page 7

18.By monitoring external events, companies should be able to identify when change is required.Ans: F Page: 8

Key Terms in Strategic Management

19.Anything the firm does especially well compared to rival firms could be considered a competitive advantage.Ans: T Page 8

20.Once a firm acquires a competitive advantage, they are usually able to sustain the competitive advantage for an extended period of time.Ans: F Page 9

21.Newspaper companies in the United States provide a good example of how a company can sustain a competitive advantage over the long term.Ans: F Page 9

22.In order for a firm to achieve sustained competitive advantage, a firm must continually adapt to changes in external trends and events and effectively formulate, implement, and evaluate strategies that capitalize upon those factors.Ans: T Page: 9

23.Strategists are usually found in higher levels of management and have considerable authority for decision-making in the firm.Ans: T Page: 10

24.The middle manager is the most visible and critical strategic manager.Ans: F Page: 10

25.All strategists have similar attitudes, values, ethics and concerns for social responsibility.Ans: F Page: 10

26.A vision statement answers the question, “What is our business?,” whereas a mission statement answers, “What do we want to become?”Ans: F Page: 10-11

27.In the last five years, the position of chief strategy officer (CSO) has diminished in comparison to other top management ranks of many organizations.Ans: F Page: 10

28.A clear mission statement describes the values and priorities of an organization.Ans: T Page: 10

29.As of 2004, Wal-Mart was the largest corporation in the world.Ans: T Page 11

30.Strengths and weaknesses are determined relative to competitors.Ans: T Page: 12

31.In a multidivisional firm, objectives should be established for the overall company and not for each division.Ans: F Page: 13

32.Objectives should be measurable, quantitative, challenging, realistic, consistent and prioritized.Ans: T Page: 13

33.Annual objectives are long-term milestones that organizations must achieve to reach short-term objectives.Ans: F Page: 13

34.Annual objectives are especially important in strategy formulation.Ans: F Page: 13

35.According to research, a healthier workforce can more effectively and efficiently implement strategies.Ans: T Page: 13

The Strategic-Management Model

36.Identifying an organization’s existing vision, mission, objectives and strategies is the final step for the strategic management process.Ans: F Page: 15

37.Once an effective strategy is designed, modifications are rarely required.Ans: F Page: 15

38.Application of the strategic-management process is typically more formal in larger and well-established organizations.Ans: T Page: 15

Benefits of Strategic Management

39.Followed by commitment, understanding is the most important benefit of strategic management.Ans: T Page: 16

40.The changes that occurred at Disney after Robert Iger took over as CEO exemplifies the fact that more and more organizations are centralizing the strategic-management process.Ans: F Page: 16

41.Firms with planning systems more closely resembling strategic-management theory generally exhibit superior long-term financial performance relative to theirindustry.Ans: T Page: 17

42.Low-performing firms typically underestimate their competitor’s strengths and overestimate their own firm’s strengths.Ans: T Page: 17

43.According to Greenley, strategic management provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities.Ans: T Page: 18

Why Some Firms Do No Strategic Planning

44.The poor reward structure is one reason managers do not engage in strategic planning.Ans: T Page: 18

45.Crises and fires in an organization allows managers the training and time for effective strategic planning.Ans: F Page: 17

Pitfalls in Doing Strategic Planning

46.Top managers making many intuitive decisions that conflict with the formal plan is one pitfall managers should avoid in strategic planning.Ans: T Page: 19

47.Managers must be very formal in strategic planning because formality induces flexibility and creativity.Ans: F Page: 19

Guidelines for Effective Strategic Management

48.An integral part of strategy implementation must be to evaluate the quality of the strategic-management process.Ans: F Page: 19

49.Strategic-management must be a self-reflective learning process that familiarizes managers and employees in the organization with key strategic issues and feasible alternatives for resolving those issues.Ans: T Page: 20

Business Ethics and Strategic Management

50.Today, managers and employees can be found personally liable if they ignore, conceal, or disregard a pollution problem.Ans: T Page: 21

51.Merely having a code of ethics is not sufficient to ensure ethical business behavior.Ans: T Page: 23

52.An integral part of the responsibility of all managers is to provide ethical leadership by constant example and demonstration.Ans: T Page: 23

Comparing Business and Military Strategy

53.In most situations, business strategy is very different than military strategy.Ans: F Page: 25

The Nature of Global Competition

54.International operations can be as simple as exporting a product to a single foreign country.Ans: T Page: 28

55.One risk in international operations is that nationalistic factions could seize the operations.Ans: T Page: 29

Conclusion

56.All organizations have a strategy from their inception, even if the strategy is informal, unstructured, and sporadic.Ans: T Page: 30

57.Nonprofit organizations have less need for strategic management because they are not interested in making a profit.Ans: F Page: 30

58.Firms can be more proactive with strategic management.Ans: T Page: 30

Introduction

59.The term “environment” includes all of the following except:a.air.b.water.c.firms.d.natural resources.e.fauna.Ans: c Page: 4

60. The one factor that has most significantly impacted the nature and core of buying and selling in nearly all industries has beena.the Internet.b.political borders.c.corporate greed.d.customer and employee focus.e.the government.Ans: a Page: 4

What Is Strategic Management?61. What can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives?a.Strategy formulationb.Strategy evaluationc.Strategy implementationd.Strategic managemente. Strategic leadingAns: d Page: 5

62. ____________ is used to refer to strategic formulation, implementation and evaluation, with ______________ referring only to strategic formulation.a.Strategic planning; strategic managementb.Strategic planning; strategic processingc.Strategic management; strategic planningd.Strategic management; strategic processinge.Strategic implementation; strategic focusAns: c Page: 5

63. During what stage of strategic management are a firm’s specific internal strengths and weaknesses determined?a.Formulationb.Implementationc.Evaluationd.Feedbacke.Goal-settingAns: a Page: 5

64. An important activity in __________ is taking corrective action.a.strategy evaluationb.strategy implementationc.strategy formulationd.strategy leadershipe.all of the aboveAns: a Page: 6

65. What step in the strategic development process involves mobilizing employees and managers to put strategies into action?

a.Formulating strategyb.Strategy evaluationc.Implementing strategyd.Strategic advantagee.Competitive advantageAns: c Page: 6

66. What types of skills are especially critical for successful strategy implementation?a.Interpersonalb.Marketingc.Technicald.Conceptuale.ThinkingAns: a Page: 6

67. Which phase of strategic management is called the action phase?a.Strategy formulationb.Strategy implementationc.Strategy evaluationd.Allocating resourcese.Measuring performanceAns: b Page: 6

68. __________ is not a strategy-implementation activity.a.Taking corrective actionsb.Establishing annual objectivesc.Devising policiesd.Allocating resourcese.Motivating employeesAns: a Page: 6

69. Strategy evaluation is necessary becausea.internal and external factors are constantly changing.b.the SEC requires strategy evaluation.c.competitors change their strategies.d.the IRS requires strategy evaluation.e.firms have limited resources.Ans: a Page: 6

70. Which statement best describes intuition?a.It represents the marginal factor in decision-making.b.It represents a minor factor in decision-making integrated with analysis.c.It should be coupled with analysis in decision-making.d.It is better than analysis in decision-making.e.It is management by ignorance.Ans: c Page: 7

71. _________ and _________ are external forces transforming business and society today.

a.E-commerce; strategyb.E-commerce; globalizationc.Strategy; globalizationd.Corporate culture; stakeholderse.Stakeholders; strategyAns: b Page: 8

72. Anything that a firm does especially well compared to rival firms is referred to as:a.competitive advantage.b.comparative advantage.c.opportunity cost.d.sustainable advantage.e.an external opportunity.Ans: a Page: 8

Key Terms in Strategic Management73. The trends in newspaper circulation in the United States provide support for which statement?a.Sustainable competitive advantage is easy to maintain.b.Several firms can have similar competitive advantages.c.Some products are relatively immune to changes in the external environmentd.Most competitive advantages are hard to sustaine.Competition is generally good for companies and consumersAns: d Page 9

74. Which individuals are most responsible for the success and failure of an organization?a.Strategistsb.Financial plannersc.Personnel directorsd.Stakeholderse.Human resource managersAns: a Page: 10

75. The first step in strategic planning is generally:a.Developing a vision statementb.Establishing goals and objectivesc.Making a profitd.Developing a mission statemente.Determining opportunities and threatsAns: a Page: 10

76. What are enduring statements of purpose that distinguish one business from other similar firms?a.policiesb.mission statementsc.objectivesd.rulese.employee conduct guidelinesAns: b Page: 10

77. The largest company in the world is:a.Honda Motorb.ING Groupc.Wal-Martd.Ford Motor Companye.Royal Dutch/Shell GroupAns: d Page: 10

78. Usually, external opportunities and threats are:a.uncontrollable by a single organization.b.controlled by governments.c.not as important as internal strengths and weaknesses.d.key functions in strategy implementation.e.key functions in strategy exploitation.Ans: a Page: 12

79. Specific results an organization seeks to achieve in pursuing its basic mission are:a.strategiesb.rulesc.objectivesd.policiese.missionAns: c Page: 13

80. Internal __________ are activities in an organization that are performed especially well.a.opportunitiesb.competenciesc.strengthsd.managemente.factorsAns: c Page: 13

81. What are the means by which long-term objectives will be achieved?a.strategies.b.strengths.c.weaknesses.d.policies.e.opportunities.Ans: a Page: 13

82. Long-term objectives should be all of the following except:a.measurable.b.continually changing.c.reasonable.d.challenging.e.consistent.Ans: b Page: 13

83. __________ can best be described as short-term in nature.a.Mission statementsb.Tenurec.Annual objectivesd.Strategiese.ManagementAns: c Page: 13

84. In which phase of strategic management are annual objectives especially important?a.formulationb.controlc.evaluationd.implementatione.managementAns: d Page: 13

85. What are guides to decision making?a.lawsb.rulesc.policiesd.procedurese.goalsAns: c Page: 13

The Strategic-Management Model86. The strategic-management processa.occurs once a year.b.is a sequential process.c.is a continuous process.d.applies mostly to companies with sales greater than $100 million.e.applies mostly to small businessesAns: c Page: 13

87. Which of the following is not included in the strategic management model?a.Measure and evaluate performance.b.Perform internal research to identify customers.c.Establish long-term objectives.d.Implement strategies.e.Develop mission and vision statements.Ans: b Page: 14

Benefits of Strategic Management88. Strategic management enables an organization to __________, instead of companies just responding to threats in their business environment.a.be proactiveb.determine when the threat will subsidec.avoid the threats

d.defeat their competitorse.foresee into the futureAns: a Page: 16

89. The act of strengthening employees’ sense of effectiveness by encouraging and rewarding them to participate in decision-making and exercise initiative and imagination is referred to as:a.Authoritarianismb.Proactionc.Empowermentd.Transformatione.DelegationAns: c Page: 16

90. How do line managers become “owners” of the strategy?a.by attending top manager meetingsb.by gathering information about competitorsc.by involvement in the strategic-management processd.by becoming a shareholder of the firme.by buying off top managersAns: c Page: 16

91. The changes that occurred when Robert Iger took over the reigns at Disney, demonstrate which current trend in organizations?a.increased formalization of the strategic management processb.increased structuring of strategic managementc.increased decentralizing of strategic managementd.increased emphasis on strategic planninge.increased central planning of the strategic management processAns: c Page 16

92. According to research, organizations using strategic management are __________ than those that do not.a.more profitableb.more complexc.less profitabled.less statice.less complexAns: a Page: 17

93. According to Greenley, strategic management offers all of these benefits except thata.it provides an objective view of management problems.b.it creates a framework for internal communication among personnel.c.it encourages a favorable attitude toward change.d.it maximizes the effects of adverse conditions and changes.e.it gives a degree of discipline and formality to the management of a business.Ans: d Page: 17- 18

Why Some Firms Do No Strategic Planning94. What is not a reason given for poor or no strategic planning in organizations?

a.Wasting of timeb.Being content with successc.Fire-fightingd.Poor reward structuree.Trust of managementAns: e Page: 18-19

Pitfalls in Doing Strategic Planning95. All of these are pitfalls an organization should avoid in strategic planning except:a.using plans as a standard for measuring performance.b.using strategic planning to gain control over decisions and resources.c.failing to involve key employees in all phases of planning.d.too hastily moving from mission development to strategy formulation.e.being so formal in planning that flexibility and creativity are stifled.Ans: a Page: 19

96. What is not a pitfall an organization should avoid in strategic planning?a.Failing to communicate the plan to employeesb.Involving all managers rather than delegating planning to a “planner”c.Top managers not actively supporting the strategic planning processd.Doing strategic planning only to satisfy accreditation or regulatory requirementsAns: b Page: 19

97. Which of the following statements is false?a.Open-mindedness is an important guideline for effective strategic management.b.Strategic management must become a self-perpetuating socialist mechanism.c.No organization has unlimited resources.d.Strategic decisions require trade-offs.e.Strategic management must be a self-reflective learning process.Ans: b Page: 20

 

Business Ethics and Strategic Management

98. Principles of conduct that guide decision-making are known asa.human rights.b.the Constitution.c.business ethics.d.nonprofit organization policies.e.social responsibility requirements.Ans: c Page: 20

99. A (n) ____________ can provide a basis on which policies can be devised to guide daily decisions and behavior at the work site.a.list of guidelinesb.policy for safety

c.vision statementd.code of business ethicse.annual objectiveAns: d Page: 23

100.Because they must take the __________ of the firm, strategists’ salaries are high compared to those of other individuals in the organization.a.moral risksb.social risksc.environmental risksd. societal criticisme. employee criticismAns: a Page: 23

101.What can be created by ethics training and an ethics culture?a.Competitive responsibilityb.Competitive advantagec.Strategic advantaged.Employee cooperatione.Comparative advantageAns: c Page: 25

102.Which of these business actions is (are) always considered to be unethical?a.poor product or service safetyb.using nonunion labor in a union shopc.dumping flawed products in a foreign marketd.insider tradinge.all of the aboveAns: e Page: 25

103.Ethical standards come out of __________ in a final analysis.a.governmentb.competitorsc.history and heritaged.stakeholder analysise.community involvementAns: c Page: 25

Comparing Business and Military Strategy104.A strong __________ heritage underlies the study of strategic management.a.militaryb.governmentc.politicald.sociale.culturalAns: a Page: 25

105.Military strategy is based on an assumption of __________, whereas business strategy is based on an

assumption of __________.a.conflict; cooperationb.conflict; competitionc.cooperation; conflictd.competition; conflicte.cooperation; competitionAns: b Page: 26

The Nature of Global Competition106.____________ are organizations that conduct business operations across national borders.a.Domestic firmsb.Multinational corporationsc.Parent companiesd.Government-backed companiese.FranchisesAns: b Page: 28

107.A(n) __________ refers to a firm investing in international operations, while the _________ is the country where that business is conducted.a.parent company; host countryb.home country; parent companyc.parent country; host companyd.host company; home countrye.exporting company; importing companyAns: a Page: 28

108.The greatest advantage of international operations is:a.Reduced tariffs and taxesb.Spreading economic risks over a wider number of marketsc.Access to global technology, culture and business practicesd.Gaining new customerse.Less-intense competitionAns: d Page: 28

109.All of these are potential disadvantages of an international operation except:a.overestimated weaknesses and underestimated strengths of competitors.b.differing languages, cultures and value systems.c.reduced tariffs and taxes.d.complexity due to a multiple monetary system.e.all of these are potential disadvantages.Ans: c Page: 29

Essay Questions110.Compare and contrast strategic planning with strategic management.Strategic planning is more often used in the business world, whereas strategic management is often used in academia. Sometimes, strategic management is used to refer to strategy formulation, implementation and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow

the trends of today.Page: 5

111.Which stage in the strategic-management process is most difficult? Explain why.Strategy implementation is the most difficult stage in the strategic-management process because it requires personal discipline, commitment and sacrifice. Successful strategy implementation hinges upon managers’ ability to motivate employees, which is more of an art than a science.Page: 6

112.Explain the relationship between strategic management and competitive advantage for firms. How can a firm achieve sustained competitive advantage?Ans: Strategic management is all about gaining and maintaining competitive advantage. Competitive advantage is anything a firm does especially well compared to rival firms. When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage. Getting and keeping competitive advantage is essential for long-term success of an organization. A firm must strive to achieve sustained competitive advantage by (1) continually adapting to changes in external trends and events and internal capabilities, competencies and resources, and by (2) effectively formulating, implementing and evaluating strategies that capitalize upon those factors.Page: 8-9

113.Define what strategists are. Describe what they do in an organization.Strategists are individuals who are most responsible for the success or failure of an organization. They help an organization gather, analyze and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, identify business threats and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision-making in the firm.Page: 9

114.Define and discuss the differences between vision and mission statements.Many organizations today develop a vision statement that answers the question “What do we want to become?” Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of your vision.” The vision of the Institute of Management Accountants is “Global leadership in education, certification, and practice of management accounting and financial management.” Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” It addresses the basic question that faces all strategists: “What is our business?” A clear mission statement describes the values and priorities of an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization.Page: 11

115.Discuss some forces that influence the formality of strategic-management systems.Firms that compete in complex, rapidly changing environments, such as technology companies, tend to be more formal in strategic planning. Firms that have many divisions, products, markets and technologies also tend to be more formal in applying strategic-management concepts. Greater formality in applying the strategic-management process is usually positively related with the cost, comprehensiveness, accuracy and success of planning across all types and sizes of organization.

Page: 14-15

116.List 10 major benefits of strategic management, as stated by Greenley.There are 14 benefits stated by Greenley. Students are to list any 10 of the following: (1) it allows for identification, prioritization and exploitation of opportunities, (2) it provides an objective view of management problems, (3) it represents a framework for improved coordination and control of activities, (4) it minimizes the effects of adverse conditions and changes, (5) it allows major decisions to better support established objectives, (6) it allows more effective allocation of time and resources to identified opportunities, (7) it allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions, (8) it creates a framework for internal communication among personnel, (9) it helps integrate the behavior of individuals into a total effort, (10) it provides a basis for clarifying individual responsibilities, (11) it encourages forward thinking, (12) it provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities, (13) it encourages a favorable attitude toward change, and (14) it gives a degree of discipline and formality to the management of a business.Page: 16-17

117.Give at least seven reasons why some firms do no strategic planning.Ans: Some reasons for poor or no strategic planning are as follows:Poor reward structures, fire-fighting, waste of time, too expensive, laziness, content with success, fear of failure, overconfidence, prior bad experience, self-interest, fear of the unknown, honest difference of opinion, and suspicion.Page: 17-18

118.What are the pitfalls in strategic planning that management in an organization should watch out for or avoid? Identify any five pitfalls.There are 13 pitfalls. Students should list any five of the following: (1) using strategic planning to gain control over decisions and resources; (2) doing strategic planning only to satisfy accreditation or regulatory requirements; (3) too hastily moving from mission development to strategy formulation; (4) failing to communicate the plan to employees, who continue to work in the dark; (5) top managers making many intuitive decisions that conflict with the formal plan; (6) top managers not actively supporting the strategic-planning process; (7) failing to use plans as a standard for measuring performance; (8) delegating planning to a “planner” rather than involving all managers; (9) failing to involve key employees in all phases of planning; (10) failing to create a collaborative climate supportive of change; (11) viewing planning to be unnecessary or unimportant; (12) becoming so engrossed in current problems that insufficient or no planning is done; and (13) being so formal in planning that flexibility and creativity are stifled.Page: 18

119.Explain the significance of the ISO (International Organization for Standardization). What are the purposes of ISO 9000, ISO 14000, and ISO 14001?Ans: The ISO is based in Geneva, Switzerland and is a network of the national standards institutes of 147 countries. The ISO is the world’s largest developer of standards and is widely accepted worldwide. ISO standards are voluntary, since the organization has no legal authority to enforce their implementation. However, many companies that are not ISO certified often cannot get work. ISO 9000 focuses on quality control and ISO 14000 focuses on operating in an environmentally-friendly manner. ISO 14000 refers to a series of voluntary standards in the environmental field. ISO 14001 is similar to ISO 14000 because it is also an environmental standard. ISO 14001 is a standard for Environmental Management Systems. Standards include environmental auditing, environmental performance evaluation, environmental labeling, and life-style assessment. ISO 14001 standards offer a universal technical standard for environmental compliance.Page: 21-22

120.Explain what Drucker means when he says, “Trees die from the top.”

“Trees die from the top,” can be explained as ‘top management creates organizational spirit.’ When top management’s spirit dies, so does the rest of the company’s spirit. This leads to the downfall, or death, of the company.Page: 22-24

121.Compare and contrast business and military strategy.Business and military strategy are very similar. A key aim of both business and military strategy is “to gain competitive advantage.” They both also try to use their own strengths to exploit competitor’s weaknesses. Happiness is not a result of accidental strategies in either business or military organizations. The element of surprise provides great competitive advantages in both military and business strategy; information systems that provide data on opponents’ or competitors’ strategies and resources are also vitally important. Finally, both business and military organizations must adapt to change and constantly improve to be successful.While business and military strategy are the same in many ways, they have one major difference—business strategy is formulated, implemented and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict.Page: 24-25

122.What are the advantages and disadvantages of having international operations? Explain.International operations create many advantages for a company: 1) Foreign operations can absorb excess capacity, reduce unit costs and spread economic risks over a wider number of markets; 2) foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials and/or cheap labor;3) competitors in foreign markets may not exist, or competition may be less intense than in domestic markets; 4) foreign operations may result in reduced tariffs, lower taxes and favorable political treatment in other countries; 5) joint ventures can enable firms to learn the technology, culture and business practices of other people and to make contacts with potential customers, suppliers, creditors and distributors in foreign countries;6) many foreign governments and countries offer varied incentives to encourage foreign investment in specific locations; and 7) economies of scale can be achieved from operations in global rather than solely domestic markets. Larger-scale production and better efficiencies allow higher sales volumes and lower price offerings.

There are also numerous potential disadvantages of having internal operations: 1) nationalistic factions could seize foreign operations; 2) firms confront different and often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic and competitive forces when doing business internationally. These forces can make communication difficult between the parent firm and subsidiaries; 3) weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated. Keeping informed about the number and nature of competitors is more difficult when doing business internationally;4) language, culture and value systems differ among countries, and this can create barriers to communication and problems managing people; 5) gaining an understanding of regional organizations is difficult but is often required in doing business internationally;6) dealing with two or more monetary systems can complicate international business operations; and 7) the availability, depth and reliability of economic and marketing information in different countries varies extensively, as do industrial structures, business practices and the number and nature of regional organizations.

CHAPTER 2The Business Vision and Mission

1. Vision and mission statements can often be found in the front of annual reports.Ans: T2. Although it is important for companies to have a clearly defined mission statement, research has shown that less than 50% of all companies have used a mission statement in the previous five years.Ans: F

What Do We Want To Become?

3. The foundation for development of a comprehensive mission statement is provided by a clear vision.Ans: T4. The mission statement should be short—preferably one sentence.Ans: F5. When developing a vision statement, input should be received from as many managers as possible.Ans: T6. If an organization chooses to have both a mission and a vision, the mission statement should be established first.Ans: F

What Is Our Business?7. According to Peter Drucker, asking the question “What is our business?” is synonymous with asking the question “What is our vision?”Ans: F8. A declaration of an organization’s “reason for being” is the mission statement.Ans: T9. A mission statement, sometimes called a creed statement, can be defined as an “enduring statement of purpose that distinguishes one organization from other similar enterprises.”Ans: T10. There is no need for a mission statement in small, nonprofit organizations.Ans: F11. A mission statement is a declaration of an organization’s financial status.Ans: F12. A mission statement can sometimes be called a statement of philosophy.Ans: T13. Carefully prepared statements of vision and mission are widely recognized as the first step in strategic management.Ans: T14. An important question a mission statement should answer is, “What do we want to become?”Ans: F15. Whereas the mission statement answers the question “What do we want to become?,” the vision statement answers the question “What is our business?”Ans: F16. In order to motivate a workforce effectively, both profit and vision are needed.Ans: T17. When developing a mission statement, it is usually advisable to involve as few managers as possible.Ans: F18. The first step in the process of developing a mission statement is to ask all participants to prepare what they believe the organization’s mission should be.Ans: F19. According to Campbell and Yeung, the process of developing a mission statement should create an “emotional bond” and “sense of mission” between the organization and its employees.Ans: T20. According to Campbell and Yeung, an organization’s vision is associated with behavior and with the present.Ans: F

The Importance of Vision and Mission Statements

21. According to King and Cleland, carefully developed and written mission statements ensure unanimity of purpose within the organization.Ans: T22.Mission statements are sometimes difficult to derive because top management may disagree over company objectives.Ans: T23. The most important time for a company to develop a mission and vision statement is when the company is experiencing financial difficulty.Ans: F24. In multidivisional organizations, each division should develop a mission statement independent of the parent company.Ans: F25. Mission statements provide managers with a unit of direction that transcends individual, parochial and transitory needs by promoting a sense of shared expectations among all levels and generations of employees.Ans: T26. A sense of shared expectations among all levels and generations of employees is promoted with a mission statement.Ans: T27. When a company has been successful and/or unsuccessful, the question “What is our business?” should be asked.Ans: T

Characteristics of a Mission Statement28. A mission statement is usually a simple statement of specific beliefs.Ans: F29. A mission statement should be broad enough to reconcile differences among an organizations various stakeholders.Ans: F30. Stakeholders of an organization include stockholders, customers and creditors, but not competitors.Ans: F31. Individuals who own stock in a corporation are considered stakeholders.Ans: T32. Stakeholders both affect and are affected by an organization’s strategic decisions.Ans: T33. Mission statements should be stated with high level of precision.Ans: F34. The relative attention an organization will devote to meeting the claims of various stakeholders is indicated in a good mission statement.Ans: T35. Precision might stifle creativity in the formulation of an acceptable mission or purpose.Ans: T36. In most cases, several paragraphs are required to effectively state a mission statement.Ans: F37. An effective mission statement generates the impression a firm is successful, has direction, and is worthy of time, support and investment.Ans: T

38. According to Vern McGinnis, to be effective, all a mission statement need to do is define what the organization is and what the organization aspired to be.Ans: T39. It is generally a good idea to use the mission statement as a guide when completing an external and internal analysis.Ans: F40. Good mission statements identify the utility of a firm’s products to its customers.Ans: T41. Individual sales over the Internet greatly exceed business-to-business sales over the Internet.Ans: F42. Attracting customers is a major reason for developing a mission statement.Ans: T43. In Europe,Germany has experienced the greatest annual growth rate in consumer purchases over the Internet.Ans: F44. Social policy should be designed and articulated during the strategy-implementation stage.Ans: F45. During the strategy-implementation process, social policy should be set and administered.Ans: T46. Social policy should be reaffirmed or changed during strategy implementation.Ans: F47. Corporate policies related to mandatory retirement are a growing concern in many counties.Ans: T48. According to a survey completed in 2005, Proctor & Gamble scored very low in corporate responsibility.Ans: F49. According to the Nobel Laureate Milton Friedman, organizations have tremendous social obligations.Ans: FComponents of a Mission Statement50. A firm’s philosophy in a mission addresses the question, “What is the firm’s distinctive competence?”Ans: F

CHAPTER 2The Business Vision and Mission

1. Vision and mission statements can often be found in the front of annual reports.Ans: T2. Although it is important for companies to have a clearly defined mission statement, research has shown that less than 50% of all companies have used a mission statement in the previous five years.Ans: F

What Do We Want To Become?3. The foundation for development of a comprehensive mission statement is provided by a clear vision.Ans: T

4. The mission statement should be short—preferably one sentence.Ans: F5. When developing a vision statement, input should be received from as many managers as possible.Ans: T6. If an organization chooses to have both a mission and a vision, the mission statement should be established first.Ans: F

What Is Our Business?7. According to Peter Drucker, asking the question “What is our business?” is synonymous with asking the question “What is our vision?”Ans: F8. A declaration of an organization’s “reason for being” is the mission statement.Ans: T9. A mission statement, sometimes called a creed statement, can be defined as an “enduring statement of purpose that distinguishes one organization from other similar enterprises.”Ans: T10. There is no need for a mission statement in small, nonprofit organizations.Ans: F11. A mission statement is a declaration of an organization’s financial status.Ans: F12. A mission statement can sometimes be called a statement of philosophy.Ans: T13. Carefully prepared statements of vision and mission are widely recognized as the first step in strategic management.Ans: T14. An important question a mission statement should answer is, “What do we want to become?”Ans: F15. Whereas the mission statement answers the question “What do we want to become?,” the vision statement answers the question “What is our business?”Ans: F16. In order to motivate a workforce effectively, both profit and vision are needed.Ans: T17. When developing a mission statement, it is usually advisable to involve as few managers as possible.Ans: F18. The first step in the process of developing a mission statement is to ask all participants to prepare what they believe the organization’s mission should be.Ans: F19. According to Campbell and Yeung, the process of developing a mission statement should create an “emotional bond” and “sense of mission” between the organization and its employees.Ans: T20. According to Campbell and Yeung, an organization’s vision is associated with behavior and with the present.Ans: F

The Importance of Vision and Mission Statements

21. According to King and Cleland, carefully developed and written mission statements ensure unanimity of purpose within the organization.Ans: T22.Mission statements are sometimes difficult to derive because top management may disagree over company objectives.Ans: T23. The most important time for a company to develop a mission and vision statement is when the company is experiencing financial difficulty.Ans: F24. In multidivisional organizations, each division should develop a mission statement independent of the parent company.Ans: F25. Mission statements provide managers with a unit of direction that transcends individual, parochial and transitory needs by promoting a sense of shared expectations among all levels and generations of employees.Ans: T26. A sense of shared expectations among all levels and generations of employees is promoted with a mission statement.Ans: T27. When a company has been successful and/or unsuccessful, the question “What is our business?” should be asked.Ans: T

Characteristics of a Mission Statement28. A mission statement is usually a simple statement of specific beliefs.Ans: F29. A mission statement should be broad enough to reconcile differences among an organizations various stakeholders.Ans: F30. Stakeholders of an organization include stockholders, customers and creditors, but not competitors.Ans: F31. Individuals who own stock in a corporation are considered stakeholders.Ans: T32. Stakeholders both affect and are affected by an organization’s strategic decisions.Ans: T33. Mission statements should be stated with high level of precision.Ans: F34. The relative attention an organization will devote to meeting the claims of various stakeholders is indicated in a good mission statement.Ans: T35. Precision might stifle creativity in the formulation of an acceptable mission or purpose.Ans: T36. In most cases, several paragraphs are required to effectively state a mission statement.Ans: F37. An effective mission statement generates the impression a firm is successful, has direction, and is worthy of time, support and investment.Ans: T

38. According to Vern McGinnis, to be effective, all a mission statement need to do is define what the organization is and what the organization aspired to be.Ans: T39. It is generally a good idea to use the mission statement as a guide when completing an external and internal analysis.Ans: F40. Good mission statements identify the utility of a firm’s products to its customers.Ans: T41. Individual sales over the Internet greatly exceed business-to-business sales over the Internet.Ans: F42. Attracting customers is a major reason for developing a mission statement.Ans: T43. In Europe,Germany has experienced the greatest annual growth rate in consumer purchases over the Internet.Ans: F44. Social policy should be designed and articulated during the strategy-implementation stage.Ans: F45. During the strategy-implementation process, social policy should be set and administered.Ans: T46. Social policy should be reaffirmed or changed during strategy implementation.Ans: F47. Corporate policies related to mandatory retirement are a growing concern in many counties.Ans: T48. According to a survey completed in 2005, Proctor & Gamble scored very low in corporate responsibility.Ans: F49. According to the Nobel Laureate Milton Friedman, organizations have tremendous social obligations.Ans: FComponents of a Mission Statement50. A firm’s philosophy in a mission addresses the question, “What is the firm’s distinctive competence?”Ans: F

MGT603 Strategic Management Solved MCQs from Book by David (chap 3)CHAPTER 3

The External Assessment

True/False

Introduction

1. Industry analysis is also referred to as external strategic management audit.

Ans: T Page: 82

2. An external audit focuses on identifying and evaluating trends and events within the control of management.

Ans: F Page: 82

 

The Nature of an External Audit3. The aim of an external audit is to develop an exhaustive list of every possible factor that could influence the business.

Ans: F Page: 83

4. External audits attempt to identify key variables that offer actionable responses.

Ans: T Page 83

5. Five major categories of external variables are: (1) economic forces, (2) social and cultural forces, (3) political, governmental and legal forces, (4) technological forces and (5) demographic forces.

Ans: F Page: 83

6. As many managers and employees as possible should be involved in the process of performing an external audit.

Ans: T Page: 83

7. To perform an external audit, a company first must gather competitive intelligence and information about social, cultural, demographic, environmental, economic, political, legal, governmental and technological trends.

Ans: T Page: 84

8. Freund argues that key external factors must not be hierarchical.

Ans: F Page: 84

The Industrial Organization (I/O) View

9. Research findings suggest that a greater percentage of a firm’s profitability can be explained by the industry than can be explained by the firm’s internal factors.

Ans: F Page: 85

 

Economic Forces

10. An economic trend in America is the increasing numbers of two-income households.

Ans: T Page: 85

11. Economic factors do not have much impact on the attractiveness of strategies.

Ans: F Page: 85

12. An increase in interest rates is directly related to an increase in discretionary income and an increase in the demand for discretionary goods.

Ans: F Page: 85

13. Motor vehicle firms in the United States are vulnerable when the value of the dollar falls.

Ans: F Page: 86

14. A low value of the dollar means lower exports and higher imports.

Ans: F Page: 86

15. In 2005, the Yen rose to a five-year high against the dollar.

Ans: T Page 86

16. The economic standard of living varies little between cities and countries.

Ans: F Page 86

17. The cost of living in London is greater than the cost of living in New York City.

Ans: T Page 87

18. The cost of living in Boston is greater than the cost of living in New York City.

Ans: F Page 87

19. According to the Wall Street Journal, the political bureaucracy in Russia has been able to stimulate economic progress, free enterprise, and entrepreneurship.

Ans: F Page 87

20. Russian businesses are more likely to fall victim to illegal actions by officials and policemen than by criminals.

Ans: T Page 87

 

Social, Cultural, Demographic and Environmental Forces

21. The United States is getting older and less Caucasian.

Ans: T Page: 88

22. It is predicted that, by 2025, over 18% of the population in the United States will be over 65 years old.

Ans: T Page 88

23. Recent consumption trends in the United States indicate that wine consumption is increasing at 5% while beer consumption is increasing at 10%.

Ans: F Page 88

24. Hispanics are expected to become a larger minority group in the United States than African Americans by 2021.

Ans: T Page: 88

25. In the

United States, the population has been moving from the south and west to the Northeast and Midwest.

Ans: F Page: 89

26. In 2003,China replaced Mexico as the largest exporter to the United States.

Ans: T Page 89

 

Political, Governmental and Legal Forces27. Political, governmental, and legal factors are considered key threats for most small and large organizations.

Ans: F Page 90

28. Political forecasts can be the most important part of an external audit for firms that depend heavily on government contracts.

Ans: T Page: 83

29. Within the European Union (EU), tax rates have been standardized to end competitive tax breaks among member countries.

Ans: F page 90

 

Technological Forces30. The Internet is changing the very nature of many industries by altering product life cycles and changing the historical trade-off between production standardization and flexibility.

Ans: T Page: 93

31. In practice, critical technology decisions are too often delegated to lower organizational levels or are made without an understanding of their strategic implications.

Ans: T Page: 94

 

Competitive Forces32. A characteristic that describes the most competitive companies in America is “whether it’s broke or not, fix it—make it better; not just products, but the whole company if necessary.”

Ans: T Page: 96

33. “Innovate or evaporate; particularly in technology-driven businesses, nothing quite recedes like success,” is a characteristic given that describes the most competitive companies in America.

Ans: T Page: 96

34. Corporate intelligence can be defined as a systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals.

Ans: F Page 96

35. Internal opportunities can be represented by major competitors’ weaknesses.

Ans: F Page: 96

36. According to Business Week, there are less than 500 corporate spies now actively engaged in intelligence activities.

Ans F: Page 96

37. According to Business Week, and 9 out of 10 large companies have employees dedicated solely to gathering competitive intelligence.

Ans: T Page: 96

38. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions.

Ans: T Page: 97

39. Competitive intelligence is not considered corporate espionage because 95 percent of the information a company needs to make strategic decisions is available and accessible to the public.

Ans: T Page: 97

40. Because companies are fearful of corporate espionage, cooperative agreements between competitors are becoming less popular.

Ans: F Page 98

41. Learning from the partner is a major reason why U.S. firms enter into cooperative agreements.

Ans: F Page: 99

42. Market commonality is the extent to which the type and amount of a firm’s internal resources are comparable to a rival.

Ans: F page 99

 

Competitive Analysis: Porter’s Five-Forces Model43. According to Michael Porter, five competitive forces create vital opportunities and threats to organizations: (1) new entrants, (2) substitute products or services, (3) bargaining power of suppliers, (4) bargaining power of buyers, and (5) rivalry among existing firms.

Ans: T Page: 100

44. The first step for using Porter’s Five-Forces Model is to evaluate the relative strength of each competitive force.

Ans: F Page 101

45. Bargaining power of consumers is usually the most powerful of Porter’s five competitive forces.

Ans: F Page: 101

46. Significant barriers to entry are not always sufficient to keep some new firms from entering industries with higher-quality products, lower prices and substantial marketing resources.

Ans: T Page: 102

47. Laser eye surgery would be considered a substitute product for eyeglasses and contact lenses.

Ans: T Page 102

48. Forward integration is used by firms to gain control or ownership of suppliers.

Ans: F Page: 102

49. The bargaining power of consumers can be the most important force impacting competitive advantage.

Ans: T page 103

Forecasting Tools and Techniques50. Forecasts are educated assumptions about future trends and events.

Ans: T Page: 104

51. Qualitative forecasts are most appropriate when historical data are available and when the relationships among key variables are expected to remain the same in the future.

Ans: F page 104

52. Quantitative forecasts become less accurate as historical relationships become less stable.

Ans: T Page: 104

53. Linear regression is based on the assumption that the future will be different from the past.

Ans: F Page: 104

54. Linear regression is a popular technique for qualitative forecasts.

Ans: F Page 104

55. Without reasonable assumptions, the strategy-formulation process could not proceed effectively.

a. Ans: T Page: 104

The Global Challenge56. Globalization is a process of worldwide integration of strategy formulation, implementation and evaluation activities.

Ans: T Page: 106

57. A global strategy seeks to meet the needs of customers worldwide with the lowest cost at the highest value.

Ans: T Page: 106

58. Rampant corruption and the absence of a legal system are risks that still restrain firms from initiating business with

China.

Ans: T Page: 106

59.China is the world’s fastest-growing economy.

Ans: T Page 107

60. Hong Kong serves as the gateway to China.

Ans: T Page: 108

Industry Analysis: The EFE Matrix61. In an EFE Matrix, opportunities often receive higher weights than threats, but threats too can receive high weights if they are especially severe or threatening.

Ans: T Page: 109

62. Regardless of the number of key opportunities and threats included in an External Factor Evaluation Matrix, the highest possible total weighted score for an organization is 4.0, and the lowest possible total weighted score is 0.0.

Ans: F Page: 109

The Competitive Profile Matrix (CPM)63. Both a Competitive Profile Matrix and an EFE Matrix have the same meaning in the weights, ratings and total weighted scores.

a. Ans: T Page: 111

64. The critical success factors in a Competitive Profile Matrix are often the same as those in an EFE Matrix.

a. Ans: F Page: 111

Multiple ChoiceThe Nature of an External Audit65. __________ is not part of an external audit.

a. Analyzing competitorsb. Analyzing financial ratiosc. Analyzing available technologiesd. Studying the political environmente. Analyzing social, cultural, demographic and geographic forces

Ans: b Page: 83

66. Identifying and evaluating key social, political, economic, technological and competitive trends and events comprisea. developing an effective mission statement.b. conducting an internal audit.c. performing an external audit.d. formulating strategy.e. implementing strategy.

Ans: c Page: 83

67. The process of performing an external audit needs to include:a. only top level managers, as it’s a planning function.b. as many managers and employees as possible.c. primarily front-line supervisorsd. between 15 to 20 managers for it to be valide. stockholders and external government agencies

Ans: b Page: 83

68. To perform an external audit, a company first must:a. get an approval from the Securities and Exchange Commissionb. perform an internal auditc. gather competitive intelligence and information about external trendsd. hire a consultant to develop a comprehensive strategic plan.e. all of theseAns: c Page: 8469. Freund emphasizes that key external factors should be all of these except:a. important to achieving long-term and annual objectives.b. measurable.c. relatively few in number.d. applicable to all competing firms.e. hierarchical in the sense that some will pertain to the overall company while others will be more narrowly focused.Ans: c Page: 84

GT603 Solved MCQs from Book by David (chap 4) CHAPTER 4

The Internal Assessment   The Nature of an Internal Audit1.Opportunities are a firm’s distinctive competencies that cannot be easily matched or imitated by competitors.Ans: F Page: 123 2.The process of performing an internal audit, compared to the external audit, provides more opportunity for participants to understand how their jobs, departments and divisions fit into the whole organization.Ans: T Page: 123 3.An internal audit task force of managers could be charged with determining a specific number (usually 10 to 20) of the most important strengths and weaknesses.Ans: T Page: 124

The Resource-Based View 4.Proponents of the resource-based view argue that external factors are more important than internal factors for a firm in achieving and sustaining competitive advantage Ans: F Page: 125 5.The basic premise of the research-based view is that the mix, type, amount and nature of a firm’s internal resources should be considered first and foremost in devising strategies that can lead to sustainable competitive advantageAns: T Page: 125 

Integrating Strategy and Culture 6.The subtle, elusive and largely unconscious forces that shape the workplace are captured by the organizational culture. Ans: T Page: 126 7.Cultural products include values, beliefs, stories, and language.Ans: T Page: 126 8.Metaphors are handed-down narratives of some wonderful event that is based on history but has been embellished with fictional detail.Ans: F Page 127 9.A ritual is a standardized, detailed set of techniques and behaviors that manage anxieties but seldom produce intended, technical consequences of practical importance.Ans: T Page 127 10.In China, business behaviors revolve around guanxi, or personal relations.Ans: T Page: 128 11.Linkages between a firm’s culture and strategies often determine success.Ans: T Page: 128 12.The U.S. understanding of Far Eastern cultures is a strength its firms have in competing with Pacific Rim firms.Ans: F Page: 129 13.In China, to show that you enjoyed your meal, you should completely finish your food.Ans: F Page 129 14.The smile is one form of communication that works the same worldwide.Ans: T Page 129 15.In the U.S., personal achievement and accomplishments are more important than time spent with the family and the quality of relationships espoused by some cultures.

Ans: T Page: 130 16.Punctuality, in general, is revered in all cultures of the world.Ans: F Page: 130 17.In the United States, an amicable relationship is often mandatory before conducting business.Ans: F Page: 131

Management 18.Allocating resources is one of the five basic activities (functions) performed by managers.Ans: F Page: 131 19.The only certain thing about the future of any organization is change.Ans: T Page: 131 20.Organizing is the cornerstone of effective strategy formulation.Ans: F Page: 132 21.Planning should be performed mostly by middle management and then presented to top management for analysis and approval.Ans: F Page: 132 22.Controlling is the management function that is most important for the evaluation stage of the strategic management process.Ans: T Page 132 23.The purpose of organizing is to achieve coordinated effort by defining task and authority relations.Ans: T Page: 133 24.Motivation is one explanation why some people work hard and others do not.Ans: T Page: 134 25.The management function of organizing is included in human resource management.Ans: F Page: 135 26.The controlling function of management is synonymous to strategy formulation.Ans: F Page: 127 

Marketing 27.There are seven basic functions of marketing: customer analysis, selling, product and service planning, pricing, distribution, marketing research and opportunity analysis.Ans: T Page: 136 28.A form of customer analysis is administering customer surveys.

Ans: T Page: 136 29.Successful strategy formulation generally rests upon the ability of an organization to sell some product or service.Ans: F Page: 137 30.A new trend is to base advertising rates solely on sales rates with regard to advertising products or services on the Internet.Ans: T Page: 137 31.The Internet was the fastest-growing segment of U.S. advertising spending in 2004 compared to 2003.Ans: T Page 137 32.Pfizer, which has the world’s largest drug sales force, was planning on increasing their sales force by 15% in 2005.Ans: F Page 137 33.Test marketing is used more frequently by industrial companies than consumer goods companies.Ans: F Page: 137 34.Five major stakeholders that affect pricing decisions are consumers, governments, suppliers, distributors and competitors.Ans: T Page: 138 35.Distribution involves warehousing, marketing research, distribution channels, wholesaling and retailing.Ans: F Page: 138 36.Distribution becomes especially important when a firm is striving to implement a product development or backward integration strategy.Ans: F Page: 138 37.Marketing research is the systematic gathering, recording and analyzing of data about problems relating to the marketing of goods and services.Ans: T Page: 139 38.An opportunity analysis is an appraisal of the costs, benefits and risks associated with marketing decisions.Ans: T Page: 139

Finance/Accounting 39.Three areas, according to James Van Horne, comprise the functions or basic decision areas of finance: the investment decision, the financing decision and the earnings decision.Ans: F Page: 141 40.Financial ratios are not applicable to nonprofit organizations.Ans: F Page: 141 

41.Dividend decisions concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time and the repurchase or issuance of stock.Ans: T Page: 141 42.The idea that paying dividends results in a higher stock price is a myth. Ans: T Page: 141 43.Activity ratios measure how effectively a firm is using its resources.Ans: T Page: 143 44.Leverage ratios measure a firm’s ability to meet maturing short-term obligations.Ans: F Page: 143 45.Total assets turnover ratio is calculated by dividing sales by fixed assets.Ans: F Page 144 46.Financial ratio analysis rarely has to go beyond the actual calculation and interpretation of ratios.Ans: F Page 145 47.A limitation of financial ratios is the fact that they are based on accounting data.Ans: T Page: 145

Production/Operations  48.Capacity decisions concern the design of the physical production system.Ans: F Page: 147 49.In most industries, only minor costs of producing a product or service are incurred within operations, so production/operations does not have great value as a competitive weapon in a company’s overall strategy.Ans: F Page: 148 50.Increased efficiency, quality, productivity and job satisfaction can come from cross-training workers.Ans: T Page: 149

Research and Development  51.Four common approaches to determine R&D budget allocations used successfully are: (1) finance as many project proposals as possible; (2) use a percentage-of-sales method; (3) budget for R&D about what competitors spend; or (4) decide how many successful new products are needed and work backwards to estimate the required R&D investment.Ans: T Page: 151 52.Internal R&D and contract R&D are the two basic forms of R&D in organizations.Ans: T Page: 151 53.Spending on research and development is steadily decreasing in the United States.

Ans: F Page: 152

Management Information Systems 54.The functions of information systems are growing in importance because organizations are becoming more complex, decentralized and globally dispersed.Ans: T Page: 153 Value Chain Analysis (VCA)55.Value Chain Analysis can enable a firm to better identify its own strengths and weaknesses especially as compared to competitors’ Value Chain Analyses.Ans: T Page: 154 56.Although a useful step in the strategic management process, value chain analysis can rarely help a firm monitor whether its prices and costs are competitive.Ans: F Page 155 57.Benchmarking is an analytical tool used to determine whether a firm’s value chain activities are competitive compared to rivals.Ans: T Page 157 

The IFE Matrix 58.Internal Factor Evaluation Matrix is a summary step when conducting an internal strategic-management audit.Ans: T Page: 157

59.The Internal Factor Evaluation Matrix should include from 10 to 20 key factorsAns: T Page: 15  Multiple Choice

The Nature of an Internal Audit 60.A firm’s strengths that cannot be easily matched or imitated by competitors are calleda.  internal audits.b.distinctive competencies.c.  external audits.d.special properties.e.  internal properties.Ans: b Page: 115 61.Who should perform an internal audit?a.  A private auditing firmb.The organization’s accounting departmentc.  Managers from different units of the organizationd.A team of top-level managers and lower-level employees

e.The chief executive officerAns: c Page: 116 62._______ exemplifies the complexity of relationships among the functional areas of business.a.  Government auditb.External auditc.  Financial ratio analysisd.Environmental scanninge.  Distribution strategyAns: c Page: 116 The Resource Based Web63.The internal resource categories used in the resource-based approach are physical resources, human resources anda.  financial resources.b.shareholder resources.c.  organizational resources.d.natural resources.e.  technological resources.Ans: c Page: 117 64.Organizational resources include all of the following except:a.  employee training.b.firm structure.c.  planning processes.d.information systems.e.  copyrights.Ans: a Page: 117 65.Empirical indicators are resources that are either rare, hard to imitate, ora.  expensive.b.inexpensive.c.  easily substitutable.d.not easily substitutable.e.  inefficient.Ans: d Page: 117

Integrating Strategy and Culture 66.A pattern of behavior developed by an organization as it learns to cope with its problems of external adaptation and internal integration that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think and feel is calleda.  dysfunctional behavior.b.groupthink.c.  behavior modification.d.organizational culture.e.  internal audit effect.

Ans: d Page: 118 67.Which of the following is not a cultural product?a.  Ritesb.Emotionsc.  Ritualsd.Sagase.  SymbolsAns: b Page: 118 68.A standardized, detailed set of techniques and behaviors that manage anxieties, but seldom produce intended, technical consequences of practical results are calleda.  folktales.b.ritesc.  metaphorsd.ritualse.  valuesAns: d Page: 119 69.What are historical narratives describing the unique accomplishments of a group and its leaders, usually in heroic terms.a.  ritesb.sagasc.  storiesd.mythse.  folktalesAns: b Page: 119 70.Life-directing attitudes that serve as behavioral guidelines are calleda.  values.b.rites.c.  beliefsd.metaphorse.  legendAns: a Page: 119 71.In Europe, it is generally true that the farther __________ on the continent, the more participatory the management style.a.  southb.eastc.  westd.northe.  southeastAns: d Page: 120 72.Americans place an exceptionally high priority on __________ whereas many foreigners place more worth on __________.a.  time; relationships

b.relationships; timec.  silence; timed.silence; relationshipse.  close personal distance; ample personal distanceAns: a Page: 122

Management 73.What is the essential bridge between the present and the future that increases the likelihood of achieving desired results?a.  Motivatingb.Planning c.  Controllingd.Staffinge.  Organizing 74.All of the following are basic duties of a manager except:a.  staffing.b.planning.c.     consolidating .d.organizing.e.  motivating. 75.What is an up-front investment in success?a.     Planning b.Organizingc.  Motivatingd.Staffinge.  Controlling 76.Which function of management includes areas such as job design, job specification, job analysis and unity of command?a.  planningb.organizingc.  motivatingd.staffinge.  controllingAns: b Page: 124 77.Who does a planning horizon of two to five years applies to?a.  top managementb.general managementc.  middle managementd.lower managemente.  all levels of managementAns: a Page: 124 78.Synergy is

a.  synthetic energy.b.when a team effort is used to achieve desired results. c.  when individuals work separately to achieve desired results.d.when financial expectations of the firm are decided upon.e.  employee energy.  79.Which management function includes breaking tasks into jobs, combining jobs to form departments and delegating authority?a.  motivatingb.staffingc.     organizing d.controllinge.  planning

 80.Which function of management is concerned with span of control and chain of command?a.  planningb.organizing c.  controllingd.directinge.  evaluating 81.Which of the following is the process of influencing people to accomplish specific objectives?a.  Staffingb.Motivatingc.  Planningd.Controllinge.  OrganizingAns: b Page: 126 82._______ is a major component in motivation.a.  Forecastingb.Organizational structurec.  Recruitingd.Management developmente.     Communication  83.Staffing involves all of these activities except:a.  recruiting.b.transferring.c.  customer analysis.d.managing union relations.e.  training and developing.Ans: c Page: 127

84. Which function of management includes all of those activities undertaken to ensure actual operations conform to planned operations?a. Planningb. Organizingc. Motivatingd. Staffinge. ControllingAns: e Page: 12785. The first step in the controlling function of management is toa. take corrective actions.b. restrict breaks employees take.c. evaluate expense reports.d. establish performance standards.e. measure individual and organizational performance.Ans: d Page: 12786. All of the following are key questions that can reveal internal strengths and weaknesses in the management department except:a. Is the organization’s structure appropriate?b. Are reward and control mechanisms effective?c. Are the organization’s products positioned well among competing products?d. Does the firm use strategic management concepts?e. Do managers delegate authority well?Ans: c Page: 128

Marketing87. Opportunity analysis is one of the basic functions ofa. marketing.b. management.c. computer information systems.d. production/operations.e. research and development.Ans: a Page: 128

88. _______ can reveal the demographic characteristics of an organization’s customers.

a. Customer profilingb. Test marketingc. Market developmentd. The vision statemente. TelemarketingAns: a Page: 128

89. ________ is not considered to be a function of marketing.a. Market segmentationb. Marketing researchc. Customer analysisd. Opportunity analysis

e. DistributionAns: a Page: 12890. Selling includes all of these marketing activities except:a. advertising.b. dealer relations.c. customer analysis.d. publicity.e. sales promotion.Ans: c Page: 12991. What marketing function includes test marketing?a. selling products/servicesb. pricingc. customer analysisd. product/service planninge. distributingAns: d Page: 12992. The Robinson-Patman Act affects a company’sa. pricing methods.b. trucking methods.c. cost of products.d. employee costs.e. culture.Ans: a Page: 12993. Distribution includesa. customer analysis.b. pricing.c. warehousing.d. advertising.e. test marketing.Ans: c Page: 130

Opportunity Analysis94. Which of the following is not a key question that can reveal internal strengths and weaknesses of the marketing department?

a. Does the firm have an effective sales organization?b. Is our product quality good?c. Are markets segmented effectively?d. Are the firm’s products and services priced appropriately?e. Does the firm have good liquidity?Ans: e Page: 132

Finance/Accounting

95. Which of these is the allocation and reallocation of capital and resources to projects, products, assets and divisions of an organization?a. Investment decision

b. Dividend decisionsc. Financing decisionsd. Restructuring decisionse. Strategic decisionAns: a Page: 13396. Which decision concerns determining the best capital structure for the firm and includes examining various methods by which the firm can raise capital.a. investmentb. dividendsc. financingd. capital budgetinge. implementationAns: c Page: 13397. What category of ratios measures a firm’s ability to meet maturing short-term obligations?a. Profitabilityb. Liquidityc. Leveraged. Activitye. GrowthAns: b Page: 13598. What category of ratios includes return on total assets and return on stockholders’ equity?a. leverageb. activityc. profitabilityd. growthe. liquidityAns: c Page: 13599. What category of ratios measures how effectively a firm can maintain its economic position in the growth of the economy and industry?a. profitabilityb. liquidityc. leveraged. activitye. growthAns: e Page: 135

Production/Operations100. According to Roger Schroeder, which of the following is not a basic function of production management?a. Capacityb. Inventoryc. Workforced. Transportatione. QualityAns: d Page: 139101. _______ management deals with inputs, transformations and outputs that vary across industries and markets.a. Marketing

b. Financialc. Research and Developmentd. Production/operationse. DistributionAns: d Page: 139

Research and Development102. ______ has been successful in determining R&D budget allocations.a. Financing as many project proposals as possibleb. Using the percentage of sales methodc. Budgeting for R&D about what competitors spendd. Deciding how many successful new products are needede. All of the above have been usedAns: e Page: 143

Management Information Systems103. Which of the following ties all business functions together and provides the basis for all managerial decisions?a. Managementb. Marketingc. Informationd. Technologye. WorkforceAns: c Page: 144104. A management __________ receives raw material from both the external and internal evaluation of an organization.a. advisorb. information systemc. consultantd. strategic systeme. accountantAns: b Page: 144105. __________ become(s) __________ only when they are evaluated, filtered, condensed, analyzed and organized for a specific purpose, problem, individual, or time.a. Information; datab. Information; materialc. Data; informationd. Data; competitive advantagese. competitive advantages; materialAns: c Page: 144-145

The Value Chain106. The process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products is calleda. the resource-based approach.b. value chain analysis.c. strategic cost analysis.d. the internal factor evaluation matrix.

e. cost-benefit analysis.Ans: b Page: 146107. The initial step to implementing value chain analysis isa. attaching a cost to each discrete activity.b. establishing costs in terms of time.c. establishing costs in terms of money.d. converting the cost data into information by looking for competitive cost strengths and weaknesses.e. dividing a firm’s operations into specific activities or business processes.Ans: e Page: 146-147

The IFE Matrix108. Which of the following is the first step in developing an IFE Matrix?a. Determining the organization’s structureb. Summing the weighted scores for each variablec. Identifying the organization’s strengths and weaknessesd. Identifying the organization’s functions of businesse. Determining the lead strategistAns: c Page: 147109. The IFE Matrix should be _____________ in multidivisional firms.a. constructed for each divisionb. all-inclusivec. constructed only for the major divisionsd. developed before the EFE Matrixe. revised monthlyAns: a Page: 148

Essay Questions110. Explain the resource-based view and its relation to strategic management.

The resource-based view (RBV) approach to competitive advantage contends that internal resources are more important than external factors for a firm in achieving and sustaining competitive advantage, in contrast to the I/O theory. According to this view, organizational performance is determined by physical resources, human resources and organizational resources. RBV theory asserts that resources are actually what help a firm exploit opportunities and neutralize threats. The theory also asserts that in order to maintain a competitive advantage, a resource must either be rare, not easily substitutable, or hard to imitate. The RBV has continued to grow in popularity and continues to seek a better understanding of the relationship between resources and sustained competitive advantage.

111. Identify and give an example of six cultural products.Student answers will vary. However, they should include and give examples for any of the following: rites, ceremonial, ritual, myth, saga, legend, story, folktale, symbol, language, metaphors, values, belief and heroes/heroines. These products are explained further in Table 4-1 on page 127112. Identify any five differences when comparing American versus foreign cultures.The chapter gives 11 differences between U.S. and foreign managers. Please refer to.

113. Identify the five basic functions of management, and describe each function.The five basic functions of management are planning, organizing, motivating, staffing and controlling. Please refer to Table 4-3 on page 132 in the text for the descriptions of each function.

114. What four basic steps comprise the controlling function of management?The controlling function of management is particularly important for effective strategy evaluation. Controlling consists of four basic steps:(1) establishing performance standards,(2) measuring individual and organizational performance,(3) comparing actual performance to planned performance standards and(4) taking corrective actions.115. There are seven basic functions of marketing. List and define these functions.The seven basic functions of marketing are(1) customer analysis,(2) selling products/services,(3) product and service planning,(4) pricing,(5) distribution,(6) marketing research and(7) opportunity analysis. Students should define each of these functions.

116. According to James Van Horne, what are the three decisions that comprise the functions of finance? Describe each function.The three basic functions of finance, according to James Van Horne, are the investment decision, the financing decision and the dividend decision. The investment decision is the allocation and reallocation of capital and resources to project, products, assets and divisions of an organization. The financing decision determines the best capital structure for the firms and includes examining various methods by which the firm can raise capital. Dividend decisions concern issues such as the percentage of earning paid to stockholders, the stability of dividends paid over time and the repurchase or issuance of stock.117. Identify the reasons dividends are sometimes paid out even when funds could be better reinvested in the business or when the firm has to tap outside sources to pay the dividends.

Dividends are sometimes paid out even when funds could be better reinvested in the business or when the firm has to obtain outside sources of capital. The reasons for these situations are as follows.(1) Paying cash dividends is customary. Failure to do so could be thought of as a stigma. A dividend change is considered a signal about the future.(2) Dividends represent a sales point for investment bankers. Some institutional investors can buy only dividend-paying stocks.(3) Shareholders often demand dividends, even in companies with great opportunities for reinvesting all available funds.(4) A myth exists that paying dividends will result in a higher stock price.

118. Discuss what needs to be completed, besides the calculation and interpretation of ratios, to complete an effective financial ratio analysis.The analysis should be conducted on three separate fronts:1. How has each ratio changed over time? This information provides a means of evaluating historical trends. It is important to note whether each ratio has been increasing, decreasing, or nearly constant historically. For example, a 10 percent profit margin could be bad if the trend has been down 20 percent each of the last three years. But a 10 percent profit margin could be excellent if the trend has been up, up, up. Therefore, calculate the percentage change in each ratio from one year to the next to assess historical financial performance on that dimension. Identify and examine large percent changes in a financial ratio from one year to the next.2. How does each ratio compare to industry norms? A firm’s inventory turnover ratio may appear impressive at first

glance, but may pale when compared to industry standards or norms. Industries can differ dramatically on certain ratios. For example grocery companies such as Kroger have a high inventory turnover whereas automobile dealerships have a lower turnover. Therefore, comparison of a firm’s ratios within its particular industry can be essential in determining strength/weakness.3. How does each ratio compare with key competitors? Oftentimes competition is more intense between several competitors in a given industry or location than across all rival firms in the industry. When this is true, financial ratio analysis should include comparison to those key competitors. For example, if a firm’s profitability ratio is trending up over time and compares favorably to the industry average, but it is trending down relative to its leading competitor, there may be reason for concern.

119. Discuss the limitations of financial ratio analysis.There are some limitations of financial ratio analysis. The first is that financial ratios are based on accounting data, and firms differ in their treatment of such items as depreciation, inventory valuation, R&D expenditures, pension plan costs, mergers and taxes. Second, seasonal factors can influence comparative ratios. A third limitation is that departures from industry averages do not always indicate a firm is doing especially well or badly.120. According to Roger Schroeder, there are five basic functions or decision areas in production. Describe these five functions.The five basic functions or decision areas in production are process, capacity, inventory, workforce and quality. Please refer to Table 4-5 on page 147 in the text for descriptions of each function or decision area.121. Four basic approaches exist to determine R&D budget allocations. What are these approaches? Which one would you recommend for a pharmaceutical company? Why?The four approaches to determining commonly used R&D budget allocations are:(1) financing as many project proposals as possible;(2) using a percentage-of-sales method;(3) budgeting about the same amount competitors spend for R&D; and(4) deciding how many successful new products are needed and working backward to estimate the required R&D investment.Students should recommend the fourth approach for a pharmaceutical company, deciding how many successful new products are needed, and work backward to estimate the required R&D investment, because most firms have no choice but to continually develop new and improved products because of changing consumer needs and tastes, new technologies, shortened product life cycles and increased domestic and foreign competition. Students should also mention that different strategies require different R&D capabilities, so no one approach will be appropriate for all companies at all times.

122. Discuss the five steps involved in performing an IFE Matrix.The first step is to list ten to twenty internal factors, including strengths and weaknesses using percentages, ratios and comparative numbers. The second step is to assign a weight that ranges from 0.00 (not important) to 1.0 (all-important) to each factor based on its relative importance. The third step is to assign a 1 to 4 rating to each factor to indicate whether that factor represents a major weakness, a minor weakness, a major strength, or a minor strength. Next, multiply each factor’s weight by its rating to determine a weighted score for each variable. Finally, sum the weighted scores for each variable to determine the total weighted score for the organization.

MGT603 Solved MCQs from Book by David (chap 5)

CHAPTER 5Strategies in ActionTrue/False 

Long-Term Objectives

 

1.                  Long-term objectives represent the results expected from pursuing certain strategies.

 

Ans: T                         Page: 168

 

2.                  Objectives provide direction and allow for organizational synergy.

Ans: T                         Page: 168 

3.                  Strategic objectives include those associated with growth in revenues, growth in earnings, higher dividends, larger profit margins and improved cash flow.

            Ans: F                         Page 169 

4.                  Strategic objectives include larger market share, quicker on-time delivery than rivals, quicker design-to-market times than rivals, lower costs than rivals, and wider geographic coverage than rivals.

Ans: T                         Page: 169 

5.                  “If it ain’t broke, don’t fix it” refers to managing by crisis.Ans: F                         Page: 170 

6.                  The overall aim of the Balanced Scorecard is to balance financial objectives with strategic objectives.

Ans: F                         Page: 170 

7.                  Since a combination strategy is not risky, many organizations pursue a combination of two or more strategies simultaneously.

Ans: F                         Page: 171 

8.                  Horizontal integration is seeking ownership or increased control over competitors.

            Ans: T                         Page 173 

9.                  Divestiture is selling all of a company’s assets, in parts, for their tangible worth.

            Ans: F                         Page 173 

10.              A chief executive officer is located in the divisional level of a large firm.

Ans: F                         Page: 174 

Integration Strategies 

11.              Gaining ownership or increased control over distributors or retailers is called forward integration strategy. 

Ans: T                         Page: 174

 

12.              Franchising is an effective means of implementing forward integration.

Ans: T                         Page: 174 

13.              A growing trend is for franchisers to buy out their part of the business from their franchisees.

Ans: F                         Page: 175 

14.              Forward integration strategy is especially effective when the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward.Ans: T                         Page: 175 

15.              A strategy of seeking ownership or increased control of a firm’s supplier is backward integration.

Ans: T                         Page: 175 

16.              If a firm’s present suppliers are expensive and unreliable in meeting the firm’s needs for parts, components and/or raw materials, the firm should pursue a horizontal integration strategy.

Ans: F                         Page: 176 

17.              Horizontal integration is an appropriate strategy when the competitors of an organization are doing poorly.

Ans: F                         Page: 176 

Intensive Strategies

18.              Market penetration, market development, product development and joint venture are intensive strategies.

Ans: F                         Page: 177

 

19.              When the correlation between dollar sales and dollar marketing expenditures has historically been low, market penetration is an appropriate strategy.

Ans: F                         Page: 178 

20.              Market development includes introducing present products into new geographic areas.

Ans: T                         Page: 178 

21.              An appropriate strategy when an organization has excess production capacity is market development.

Ans: T                         Page: 178 

22.              Increasing advertising expenditures can be a market development strategy.

Ans: F                         Page: 179 

23.              Product development is a strategy that seeks increased sales by improving or modifying present products or services.

Ans: T                         Page: 179 

24.              Product development is an appropriate strategy when an organization has successful products that are in the maturity stage of the product life cycle.

Ans: T                         Page: 179 

Diversification Strategies

25.              There are four basic types of diversification: concentric, conglomerate, forward and backward.

Ans: F                         Page: 180 

26.              Most companies favor related diversification strategies in order to exploit common use of a well-known brand name.

            Ans: T                         Page 180 

27.              The related diversification strategy is effective when an organization has a weak management team.

Ans: F                         Page: 181 

28.              Unrelated diversification is an appropriate strategy when an organization’s present channels of distribution can be used to market the new products to current customers.

Ans: T                         Page: 182 

29.              Donald Trump starting TrumpUniversity in 2005 is a good example of unrelated diversification.

Ans: T                         Page: 183 

30.              Unrelated diversification may be an especially effective strategy when an organization’s basic industry is experiencing increasing annual sales and profits.

            Ans: F                         Page 184 

Defensive Strategies 

31.              Retrenchment and turnaround are the same strategy.

Ans: T                         Page: 184 

32.              Although bankruptcy can be an effective type of retrenchment strategy, it does not allow firms to avoid major debt obligations and to void union contracts.

            Ans: F                         Page 185 

33.              Chapter 7 bankruptcy is a liquidation procedure used only when a firm sees no hope of being able to operate successfully or to obtain necessary creditor agreement.

Ans: T                         Page: 185 

34.              Chapter 9 bankruptcy applies to municipalities.

Ans: T                         Page: 185 

35.              Chapter 13 bankruptcy is similar to Chapter 11, but available only to large corporations.Ans: F                         Page: 185

 

36.              Divestiture is the selling of land a firm owns.

Ans: F                         Page: 186 

37.              Liquidation is often appropriate when retrenchment and divestiture have failed. 

Ans: T                         Page: 188 

Michael Porter’s Five Generic Strategies 

38.              According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and integration.

 Ans: F                         Page: 188 

39.              For consumers who are price sensitive, cost leadership emphasizes producing standardized products at very low per-unit cost.Ans: T                         Page: 188 

40.              A best-value strategy offers products or services to a wide range of customers at the lowest price on the market.            Ans: F                         Page 188 

41.              A low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the market.            Ans: T                         Page 188 

42.              Jiffy Lube International would be a good example of a firm seeking the best-value focus strategy.            Ans: F                         Page 188 

43.              A differentiation strategy can only be achieved with a small target market.

            Ans: F                         Page 189 

44.              Gaining a differentiation advantage is a primary reason for pursuing forward, backward, and horizontal integration strategies. 

            Ans: F                         Page 189 

45.              A cost leadership strategy can be especially effective when most buyers use the product in the same way. 

            Ans: T                         Page 190 

46.              The most effective differentiation bases are those that are hard or expensive for rivals to duplicate. 

            Ans: T                         Page 191 

47.              A differentiation strategy can be especially attractive when the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources. 

            Ans: F                         Page 193 

48.              In a turbulent, high-velocity market, a lead-change strategy is best whenever the firm has the resources to pursue this approach. 

            Ans: T                         Page 193 

Means for Achieving Strategies 

49.              Cooperative arrangements and joint ventures between competitors are becoming increasingly popular. 

Ans: T                         Page: 193 

50.              Joint ventures tend to fail when managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture. 

Ans: T                         Page: 196 

51.              Divestiture would be an appropriate strategy when a need exists to introduce a new technology quickly. 

Ans: F                         Page: 196 

Merger/Acquisition 

52.              An acquisition occurs when a large organization purchases a smaller one or vice versa. 

Ans: T                         Page: 197 

53.              When an acquisition or merger is not desired by both parties, it is called a takeover or hostile takeover.Ans: T                         Page: 197

54.              A leveraged buyout occurs when a firm’s management and other private investors use borrowed funds to buy out the firm’s shareholders.Ans: T                         Page: 20055.              First mover advantage refers to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms.Ans: T                         Page: 20056.              Companies are avoiding outsourcing more and more because it is more expensive than traditional methods and it does not allow a firm to concentrate on core competencies.Ans:  F                                    Page: 201Strategic Management in Nonprofit and Government Organizations57.              The nonprofit sector is America’s largest employer.Ans: T                         Page: 18558.              Strategists in governmental organizations operate with far more strategic autonomy than their counterparts in private firms.Ans: F                         Page: 187Strategic Management in Small Firms59.              All sizes and types of organizations can utilize and benefit from strategic-management concepts and techniques.Ans: T                         Page: 18760.              Research shows strategic management in small firms is more formal than in large firms, but large firms that engage in strategic management outperform those that do not.Ans: F                         Page: 187Multiple ChoiceLong-Term Objectives61.              Long-term objectives are needed at which level(s) in an organization?a.                   Corporateb.                  Divisionalc.                   Functionald.                  All of thesee.                   None of theseAns: d                         Page: 168 62.              Financial objectives involve all of the following except:

a.                   growth in revenues.

b.                  larger market share.

c.                   higher dividends.

d.                  greater return on investment.

e.                   a rising stock price.

Ans: b                          Page: 169 

63.              What principle is based on the belief that the true measure of a really good strategist is the ability to solve problems? 

a.                   Managing by crisis

b.                  Managing by objectives

c.                   Managing by extrapolation

d.                  Managing by exception

e.                   Managing by hope                   Ans: a                          Page: 170 

64.              What principle is built on the idea that there is no general plan for which way to go and what to do? 

a.                   Managing by crisis

b.                  Managing by extrapolation

c.                   Managing by objectives

d.                  Managing by hope

e.                   Managing by exception

Ans: e                          Page: 170 

65.              All of the following are important factors in the Balanced Scorecard except: 

a.                   customer service.

b.                  employee morale.

c.                   product quality.

d.                  business ethics.

e.                   stockholder equity.

            Ans: e                          Page: 170 

66.              Which level of strategy is most likely not present in small firms? 

a.                   Corporate/company

b.                  Functional

c.                   Divisional

d.                  Operational

e.                   All of these are present in small firms

Ans: c                          Page: 160 

67.              All of the following are important factors in the Balanced Scorecard except: 

a.                   customer service.

b.                  employee morale.

c.                   product quality.

d.                  business ethics.

e.                   stockholder equity.

            Ans: e                          Page: 172 

68.              Budget Rent-a-Car opening car rental shops in Wal-Mart stores is an example of which type of strategy? 

a.                   forward integration

b.                  backward integration

c.                   horizontal integration

d.                  related diversification

e.                   unrelated diversification

            Ans: a                          Page 173

 

69.              Goodyear Tire & Rubber Co. selling its North American farm-tire business to Titan International is an example of which type of strategy?

a.                   related diversification

b.                  unrelated diversification

c.                   retrenchment

d.                  divestiture

e.                   liquidation

            Ans: d                         page 173 

70.              Advanced Medical Optics using acquisitions to obtain all medical aspects of eye care, from laser surgery to contacts to implants for all ages is an example of which type of strategy?

a.                   forward integration

b.                  backward integration

c.                   horizontal integration

d.                  market development

e.                   product development 

Ans: d                         Page 173 

71.              Which of the following is most likely not included in the functional level of a small company? 

a.                   Finance

b.                  Marketing

c.                   R & D

d.                  Department managers

e.                   Human resource managers

Ans: d                         Page: 174 

Integration Strategies 

72.              Integration strategies are sometimes collectively referred to as which of these strategies? 

a.                   Horizontal integration

b.                  Diversification

c.                   Vertical integration

d.                  Stuck-in-the-middle

e.                   Hierarchical integration

Ans: c                          Page: 174 

73.              Web sites to sell products directly to consumers are examples of which type of strategy? 

a.                   backward integration

b.                  product development

c.                   forward integration

d.                  horizontal integration

e.                   conglomerate diversification

Ans: c                          Page: 174

 

74.              Which of these strategies is effective when the number of suppliers is small and the number of competitors is large?

a.                   Conglomerate diversification

b.                  Forward integration

c.                   Concentric diversification

d.                  Backward integration

e.                   Horizontal diversification

Ans: d                         Page: 176 

75.              Backward integration is effective in all of these except: 

a.       when an organization competes in an industry that is growing rapidly.

b.      when an organization has both capital and human resources to manage the new business of supplying its own raw materials.

c.       when an organization needs to acquire a needed resource quickly.

d.      when the advantage of stable prices are not important.

e.       when present suppliers have high profit margins.

Ans: d                         Page: 176 

76.              What refers to a strategy of seeking ownership of or increased control over a firm’s competitors? 

a.                   Forward integration

b.                  Conglomerate diversification

c.                   Backward integration

d.                  Horizontal integration

e.                   Concentric diversification

Ans: d                         Page: 176 

77.              In which situation would horizontal integration be an especially effective strategy? 

a.                   When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the federal government for “tending substantially” to reduce competition.

b.                  When an organization competes in a slowing industry.

c.                   When decreased economies of scale provide major competitive advantages.

d.                  When an organization has neither the capital nor human talent needed to successfully manage an expanded organization.

e.                   When competitors are succeeding due to managerial expertise or having particular resources an organization possesses.

Ans: a                          Page: 177

MGT603 Solved MCQs from Book by David (chap 5b)

Intensive Strategies78. Which strategy seeks to increase market share of present products or services in present markets through greater marketing efforts.a. market penetrationb. forward integrationc. market developmentd. backward integratione. product developmentAns: a Page: 16779. When a domestic company first begins to export to India, it is an example ofa. horizontal integration.b. backward integration.c. forward integration.d. concentric diversification.e. market development.Ans: e Page: 17880. Which strategy generally entails large research and development expenditures?a. market penetration

b. retrenchmentc. forward integrationd. product developmente. divestitureAns: d Page: 17981. All of the following situations are conducive to market development except:a. when an organization competes in a high-growth industry.b. when an organization is very successful at what it does.c. when new untapped or unsaturated markets exist.d. when an organization has excess production capacity.e. when an organization’s basic industry is becoming rapidly global in scope.Ans: a Page: 179Which strategy is appropriate when an organization competes in an industry characterized by rapid technological developments?a. retrenchmentb. product developmentc. backward integrationd. liquidatione. market penetrationAns: b Page: 179

Diversification Strategies83. Adding new, unrelated products or services for present customers is calleda. forward integration.b. related diversification.c. backward integration.d. conglomerate diversification.e. unrelated diversification.Ans: e Page: 18284. Which strategy should an organization use if it competes in a no-growth or a slow-growth industry.a. divestitureb. related diversificationc. backward integrationd. unrelated diversificatione. retrenchmentAns: b Page: 18185. Which of the following is not an example of when an organization should use an unrelated diversification strategy?a. When revenues derived from an organization’s current products or services would increase significantly by adding the new unrelated, products.b. When an organization’s present channels of distribution can be used to market the new products to current customers.c. When the new products have counter-cyclical sales patterns compared to an organization’s present products.d. When an organization competes in a highly competitive and/or a no-growth industry.e. When the organization has a strong management team.Ans: e Page: 18486. Adding new, unrelated products or services is calleda. forward integration.

b. related diversification.c. backward integration.d. conglomerate diversification.e. unrelated diversification.Ans: d Page: 184

 Defensive Strategies87. Win-Dixie closing one-third of its stores and eliminating 22,000 jobs in an attempt to emerge from bankruptcy would be an example of:a. divestiture.b. backward integration.c. liquidation.d. retrenchment.e. forward integration.Ans: d Page: 18488. What kind of strategy is retrenchment?a. A turnaround or reorganization strategyb. An expansion strategyc. A conglomerate strategyd. An intensive strategye. An offensive strategyAns: a Page: 18489. Bankruptcya. should never be used as a strategy.b. should be used only when one is legally forced to do so.c. can be an effective type of retrenchment strategy.d. should only be used for large firms.e. should only be used for small, private firms.Ans: c Page: 18590. Which chapter of the bankruptcy code applies to municipalities?a. Chapter 7b. Chapter 8c. Chapter 9d. Chapter 12e. Chapter 13

91. The Family Farmer Bankruptcy Act of 1986 createda. Chapter 7.b. Chapter 8.c. Chapter 9.d. Chapter 12.e. Chapter 13.Ans: d Page: 18592. Retrenchment would be an effective strategy when an organizationa. has shrunk so quickly that major internal reorganization is needed.b. is one of the stronger competitors in a given industry.c. is plagued by inefficiency, low profitability, poor employee morale and pressure from stockholders to improve performance.

d. has decided to capitalize on opportunities, maximize threats, take advantage of strengths and overcome weaknesses.e. does not have a clearly distinctive competence and has failed to meet its objectives and goals consistently over time.Ans: c Page: 18593. What term refers to selling a division of an organization.a. Joint ventureb. Divestiturec. Concentric diversificationd. Liquidatione. Horizontal integrationAns: b Page: 18694. Which strategy should be implemented when a division is responsible for an organization’s overall poor performance?a. backward integrationb. divestiturec. forward integrationd. cost leadershipe. related diversificationAns: b Page: 18695. Selling all of a company’s assets in parts for their tangible worth is calleda. joint venture.b. divestiture.c. concentric diversification.d. liquidation.e. unrelated integration.Ans: d Page: 18696. Which strategy would be effective when the stockholders of a firm can minimize their losses by selling the organization’s assets.a. integrationb. differentiationc. diversificationd. cost leadershipe. liquidationAns: e Page: 188

Michael Porter’s Five Generic Strategies97. Under which strategy would you offer products or services to a wide range of customers at the lowest price available on the market?a. low-costb. best-valuec. low-cost focusd. best-value focuse. differentiationAns: b Page: 18898. According to Porter, which strategy offers products or services to a small range of customers at the lowest price available on the market?a. low-cost

b. best-valuec. low-cost focusd. best-value focuse. differentiationAns: c Page: 18899. Under which condition would a cost leadership strategy be especially effective?a. When there are many ways to differentiate the product or service and many buyers perceive these differences as having value.b. When buyer needs and uses are diversec. When few rival firms are following a similar approachd. When technological change is fast paced and competition revolves around rapidly evolving product features.e. When the products of rival sellers are essentially identical and supplies are readily available from any of several eager sellers.Ans: e Page: 190100. Under which condition would a differentiation strategy be especially effective?a. When the target market niche is large, profitable and growingb. When technological change is fast paced and competition revolves around rapidly evolving product features.c. When industry leaders do not consider the niche to be crucial to their own success.d. When the industry has many different niches and segments, thereby allowing a company to pick a competitively attractive niche suited to its own resources.e. When few, if any, other rivals are attempting to specialize in the same target segment.Ans: b Page: 192

Means for Achieving Strategies101. What occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity.a. Retrenchmentb. A joint venturec. Liquidationd. Forward integratione. DivestitureAns: b Page: 193102. All of the following are cooperative arrangements except:a. R&D partnerships.b. joint-bidding consortia.c. cross-licensing agreements.d. cross-manufacturing agreements.e. marketing plans.Ans: e Page: 193103. Which of the following is not a reason joint ventures fail?a. Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture.b. The venture may not be supported equally by both partners.c. The venture may benefit the partnering companies but may not benefit the customers who then complain about poorer service or criticize the companies in other ways.d. Stakeholders from both partners are equally satisfied.e. The venture may begin to compete more with one of the partners than the other.Ans: d Page: 196

104. Which strategy would be most appropriate when the distinctive competencies of two or more firms complement each other especially well?a. Conglomerate diversificationb. Divestiturec. Joint ventured. Retrenchmente. IntegrationAns: c Page: 196

Merger/Acquisition105. When two organizations of about equal size unite to form one enterprise, which of these occurs?a. hostile takeoverb. mergerc. acquisitiond. LBOe. divestiture106. Mergers and acquisitions are created for all of the following reasons except toa. gain new technology.b. reduce tax obligations.c. gain economies of scale.d. smooth out seasonal trends in sales.e. increase its number of employees.107. When companies take over functional operations of other firms, such as human resources, information systems, payroll, accounting, or customer service, this is calleda. marketing.b. outsourcing.c. licensing.d. franchising.e. divestiture.

Strategic Management in Small Firms108. According to journalists’ findings, what is a serious obstacle for many small business owners.a. a lack of business ethicsb. an excess of employees and managerial staffc. a lack of experience in networkingd. a lack of strategic-management knowledgee. having too many suppliersEssay Questions109. Define and give an example of three integrative strategies.The three integrative strategies are forward integration, backward integration and horizontal integration. Forward integration is the gaining of ownership or increased control over distributors or retailers. An example of forward integration is Gateway Computer Company opening its own chain of retail computer stores. Backward integration is the seeking of ownership or increased control of a firm’s suppliers. J.P. Morgan outsourcing its technology operations to firms such as EDS and IBM is an example of backward integration. Horizontal integration is the seeking of ownership or increased control over competitors. An example of horizontal integration is when Reader’s Digest Association acquired Reiman Publications LLC.Page: 174-177

110. List some guidelines for when forward integration would be a particularly good strategy to pursue.Some guidelines for when forward integration would be an especially effective strategy are: (1) when an organization’s present distributors are especially expensive, unreliable, or incapable of meeting the firm’s distribution needs; (2) when the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward; (3) when an organization competes in an industry that is growing and is expected to continue to grow markedly; (4) when an organization has both the capital and human resources needed to manage the new business of distributing its own products; (5) when the advantages of stable production are particularly high; and (6) when present distributors or retailers have high profit margins.Page: 175

111. Define and give an example of three intensive strategies.Market penetration, market development and product development are the three types of intensive strategies. Seeking increased market share for present products or services in present markets through marketing efforts is called market penetration. An example of this is when American Express launched a $100 million + advertising campaign in 2002 to boost its lead over Citigroup in the credit card industry. Market development is introducing present products or services into new geographic areas. South African Breweries PLC trying to acquire Miller Brewing Company for about $5 billion is an example of market development. Product development is seeking increased sales by improving present products or services ordeveloping new ones. An example of product development is Miller Brewing Company developing the new Skyy Blue citrus and “vodka-flavored” malt beverage.Page: 177-179

112. List some guidelines for when market development would be a particularly good strategy to pursue.Market development would be an effective strategy in all of the following situations: (1) when new channels of distribution are available that are reliable, inexpensive and of good quality; (2) when an organization is very successful at what it does; (3) when new untapped or unsaturated markets exist; (4) when an organization has the needed capital and human resources to manage expanded operations; (5) when an organization has excess production capacity; and (6) when an organization’s basic industry is becoming rapidly global in scope.Page: 178

113. Define and give an example of the two diversification strategies.Related and unrelated are the two types of diversification strategies. Businesses are said to be related when their value chains posses competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value chains are so dissimilar that no competitively valuable cross-business relationships exist. An example of related diversification is Amazon.com Inc.’s recent move to sell personal computers though its online store. An example of unrelated diversification is Trump Entertainment Resorts starting Trump university, an online business university.Pages: 181-183

114. List some guidelines for when related diversification would be a particularly good strategy to pursue.Six guidelines for when related diversification may be an effective strategy are: (1) when an organization competes in a no-growth or a slow-growth industry; (2) when adding new, but related, products would significantly enhance the sales of current products; (3) when new, but related, products could be offered at highly competitive prices; (4) when new, but related, products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys; (5) when an organization’s products are currently in the declining stage of the product’s life cycle; and (6) when an organization has a strong management team.Page: 181

115. Define and give examples of joint venture, retrenchment, divestiture and liquidation.A joint venture is when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity. An example of this is when Dell Computer and EMC Corporation created a sales and development alliance. Retrenchment is regrouping through cost and asset reduction to reverse declining sales and profit. Net2Phone cutting 110 jobs in 2002 as part of its restructuring plan is an example of retrenchment. Selling a division or part of an organization is called divestiture. An example of this is Tyco International selling off its plastics department, which accounts for about 4 percent of Tyco’s sales. Liquidation is the selling off of a company’s assets, in parts, for their tangible worth. When Service Merchandise liquidated in 2002, it closed all of its 216 stores in 32 states.Page: 184-188

116. Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and 13.Chapter 7 bankruptcy is a liquidation procedure used only when a corporation sees no hope of being able to operate successfully or to obtain the necessary creditor agreement. Chapter 9 bankruptcy applies to municipalities. Chapter 11 bankruptcy allows organizations to reorganize and come back after filing a petition for protection. Chapter 12 bankruptcy provides special relief to family farmers with debt equal to or less than $1.5 million. Chapter 13 bankruptcy is a reorganization plan similar to Chapter 11, but it is available only to small businesses owned by individuals with unsecured debts of less than $100,000 and secured debts of less than $350,000.Page: 185

117. Discuss Michael Porter’s five generic strategies.According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Porter calls these bases generic strategies. Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive. Two alternative types of cost leadership strategies can be defined. Type 1 is a low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market. Type 2 is best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market.; the best value strategy aims to offer customers a range of products or services at the lowest price available compared to a rival’s products with similar attributes. Differentiation is a strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive. A low-cost focus strategy offers products or services to a smallrange of customers at the lowest price available on the market. A best-value focus strategy offers products or services to a small range of customers at the best price-value available on the market.Page: 188

118. What are the characteristics of a firm that is successfully pursuing a cost leadership strategy?A successful cost leadership strategy usually permeates the entire firm, as evidenced by high efficiency, low overhead, limited perks, intolerance of waste, intensive screening of budget requests, wide spans of control, rewards linked to cost containment and broad employee participation in cost control efforts.Page: 190

119. Discuss four common problems that cause joint ventures to fail.One problem that causes joint ventures to fail is that managers who should collaborate daily in operating the venture are not involved in forming or shaping the venture. A second problem is if the venture benefits the partnering companies but may not benefit customers who then complain about poorer service or criticize the companies in other ways. A third problem occurs if the venture is not supported equally by both partners, which creates problems. A final problem that can cause a joint venture to fail is that the venture may begin to compete more with one of the partners than the other.

Page: 196

120. Name at least six reasons for performing mergers or acquisitions.Reasons include: 1) to provide improved capacity utilization; 2) to make better use of the existing sales force; 3) to reduce managerial staff; 4) to gain economies of scale; 5) to smooth out seasonal trends in sales; 6) to gain access to new suppliers, distributors, customers, products and creditors; 7) to gain new technology; and 8) to reduce tax obligations.Page: 198

HAPTER 6

Strategy Analysis and Choice

 True/False 

The Nature of Strategy Analysis and Choice

 

1.         An organization’s present strategies, objectives and mission provide a basis for generating and evaluating feasible alternative strategies, coupled with the external and internal audit information.

 

            Ans: T                         Page: 196-197

 

2.         Strategic analysis and choice largely involves making objective decisions based on subjective information.

           

            Ans: F                         Page: 197

 

3.         Identifying and evaluating alternative strategies shouldn’t involve the managers and employees who earlier assembled the organizational vision and mission statements, performed the external audit and conducted the internal audits.

 

            Ans: F                         Page: 198

 

A Comprehensive Strategy-Formulation Framework

 

4.         The first stage of the strategy-formulation framework is the input stage, followed by the matching stage.

 

            Ans: T                         Page: 198

 

5.         Stage 2 in the strategy-formulation framework involves a single technique, the Quantitative Strategic Planning Matrix.

 

            Ans: F                         Page: 198

 

6.         The Internal Factor Evaluation Matrix and the External Factor Evaluation Matrix are part of the final stage of the strategyformulation framework.

           

            Ans: F                         Page: 198

 

7.         The Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the Boston Consulting Group (BCG) Business Portfolio Matrix, the Internal-External (IE) Business Portfolio Matrix and the Grand Strategy Matrix are included in stage two of the strategy-formulation framework.

 

            Ans: T             Page: 198

           

The Input Stage

 

8.         Basic input information for the matching and decision stage matrices is provided by the information derived from SPACE, TOWS and BCG matrices.

 

Ans: F                         Page: 198

 

9.         Strategists themselves, not analytical tools, are always responsible and accountable for strategic decisions.

 

            Ans: T                         Page: 199

 

10.       The divisions of an organization should utilize strategy-formulation analytical tools to develop their own strategies and objectives.

 

             Ans: T                        Page: 199

 

11.       Good intuitive judgment is always needed to determine appropriate weights and ratings in the input stage matrices.

 

Ans: T                         Page: 199

           

The Matching Stage

 

12.       The number of internal factors and external factors in the matching stage is reduced to generate feasible strategies.

 

Ans: F                         Page: 199

 

13.       The purpose of matching key factors is to generate feasible alternative strategies.

 

Ans: T                         Page: 199

 

14.       To effectively formulate competitive strategies, an organization should match its external opportunities and threats.

 

Ans: F                         Page: 199

15.       SO strategies are based on using a firm’s internal strengths to take advantage of external opportunities and threats.

 

Ans: F                         Page: 200

 

16.       Matching strengths with weaknesses is how SW strategies are created.

 

Ans: F                         Page: 200

 

17.       A TOWS Matrix is composed of four cells for four types of strategies it creates.

 

Ans: F                         Page: 200

 

18.       The purpose of each stage 2 matching tool is to generate feasible alternative strategies, not to select or determine which strategies are best.

 

Ans: T                         Page: 200

 

19.       Only to get into a situation where they can work from strengths to take advantage of opportunities, organizations generally will pursue the other three types of strategies (WO, ST, or WT).

 

Ans: T                         Page: 200-202

 

20.       From matching an internal weakness with an external threat, a WT strategy in the TOWS Matrix could result.

 

Ans: F                         Page: 201

 

21.       WT strategies are defensive tactics.

 

Ans: T                         Page: 201

 

22.       Matching techniques include both the SPACE Matrix and the TOWS Matrix.

 

Ans: T                         Page: 203

 

23.       The ES and CA dimension variables in a SPACE Matrix are assigned a numerical value ranging from –1 (best) to –6 (worst).

 

Ans: T                         Page: 204

 

24.       The most important determinants of an organization’s overall strategic position are considered to be the two internal dimensions, financial strength (FS) and competitive advantage (CA), and the two external dimensions, industry strength (IS) and environmental stability (ES).

 

Ans: T                         Page: 204

 

25.       The SPACE Matrix axes are labeled aggressive, conservative, defensive and competitive.

 

Ans: F                         Page: 204

 

26.       The four strategies of the SPACE Matrix are aggressive, conservative, offensive and defensive.

 

Ans: F                         Page: 204

 

27.       The appropriate strategies are intensive, integration, defensive and diversification when a firm’s directional vector is located in the aggressive quadrant of the SPACE Matrix.

 

Ans: F                         Page: 205

 

28.       Conservative strategies in a SPACE Matrix most often include intensive strategies and concentric diversification.

 

Ans: T                         Page: 205

 

29.       Integration and diversification strategies are most often included in competitive strategies in a SPACE Matrix.

 

Ans: F                         Page: 205

 

30.       Relative market share position is given on the x-axis of the BCG Matrix.

 

Ans: T                         Page: 206

 

31.       The midpoint on the x-axis of a BCG Matrix, which corresponds to a division that has half the market share of the leading firm in the industry, is typically set at 0.05.

 

Ans: F                         Page: 206

 

32.       In performing SPACE analysis, barriers to entry into market are best categorized as a competitive advantage (CA) variable.

 

Ans: F                         Page: 206

33.       In the SPACE Matrix, growth potential, profit potential and financial stability could all fall under the category of industry strength.

 

Ans: T                         Page: 206

 

34.       By examining the relative market share and industry growth rate of each division relative to all other divisions with the BCG matrix, a multidivisional organization is allowed to manage its portfolio of businesses.

 

Ans: T                         Page: 206

 

35.       Product quality is an important consideration in the BCG Matrix.

 

Ans: F                         Page: 206

 

36.       Technical know-how, market share and product life cycle are some examples of areas to consider when evaluating a company’s competitive advantage.

 

Ans: T                         Page: 206

 

37.       The Boston Consulting Group Matrix is good for firms with many “profit centers.”

 

Ans: T                         Page: 206

 

38.       The company’s total sales and number of employees are key considerations in the Boston Consulting Group Matrix.

 

Ans: F                         Page: 206

 

39.       The firm should pursue conservative strategies if the coordinates of a SPACE directional vector are (1,4).

 

Ans: F                         Page: 207

 

40.       A firm should pursue defensive strategies if the coordinates of a SPACE directional vector are (2,3).

 

Ans: F                         Page: 207

 

41.       The firm should pursue aggressive strategies if the coordinates of a SPACE directional vector are (5,4).

 

Ans: T                         Page: 207

 

42.       A firm should pursue competitive strategies if the coordinates of a SPACE directional vector are (4,6).

 

Ans: F                         Page: 207

 

43.       Star, question mark, cash cow and dogs are the four quadrants exhibited by the SPACE Matrix.

 

Ans: F                         Page: 208

 

44.       The size of the circle in a BCG Matrix corresponds to the proportion of corporate revenue generated by that business unit. The pie slice indicates the proportion of corporate profits generated by that division.

 

Ans: T                         Page: 208

 

45.       Divisions with a low relative market share position and a high industry growth are called question marks in the BCG Matrix.

 

Ans: T                         Page: 208

 

46.       Cash cows represent the organization’s best long-run opportunities for growth and profitability.

 

            Ans: F                         Page: 209

 

47.       Divisions in Quadrant IV are called dogs because the organization must decide whether to strengthen them by pursuing intensive strategies or engaging in joint venture.

 

Ans: F                         Page: 210

 

48.       The major overall benefit of the BCG Matrix is that it draws attention to the cash flow, investment characteristics and needs of an organization’s various divisions.

 

Ans: T                         Page: 210

 

49.       Dogs on the BCG Matrix usually become stars after market penetration.

 

Ans: F                         Page: 210       

 

50.       Generally, the BCG Matrix and the IE Matrix are used only in formulating strategies in multidivisional firms.

 

Ans: T                         Page: 211

 

51.       Viewing businesses as star, cash cow, dog, or question mark is an oversimplification.

 

Ans: T                         Page: 211

 

52.       The BCG Matrix does not reflect whether or not various divisions or their industries are growing over time.

 

Ans: T                         Page: 211

 

53.       Having no temporal qualities, the BCG Matrix is a snapshot of an organization at a given point in time.

 

Ans: T                         Page: 211

 

54.       Both IE and BCG Matrices are called portfolio matrices.

 

Ans: T                         Page: 211

 

55.       On the x-axis of the IE Matrix, an internal factor evaluation score of 2.5 represents a weak internal position.

 

Ans: F                         Page: 212

 

56.       BCG Matrix requires more information about the divisions than the IE Matrix.

 

Ans: F                         Page: 212

 

57.       The IE Matrix can be divided into three major regions that have different strategy implications: grow and build, hold and maintain and harvest or divest.

 

Ans: T                         Page: 212-213

 

58.       The Grand Strategy Matrix is based on two evaluative dimensions, market share and market growth.

 

Ans: F                         Page: 213

 

59.       Positioned in or around cell IX in the IE Matrix, successful organizations are able to achieve a portfolio of businesses.

 

Ans: F                         Page: 213

 

60.       According to the Grand Strategy Matrix, when a Quadrant I firm is too heavily committed to a single product, then concentric diversification may reduce the risks associated with a narrow product line. 

            Ans: T                         Page: 214

 

61.       Quadrant III organizations compete in rapid-growth industries and have weak competitive positions, according to the Grand Strategy Matrix.

 

            Ans: F                         Page: 214

 

The Decision Stage

 

62.       The Quantitative Strategic Planning Matrix is an excellent decision stage analytical tool.

 

Ans: T                         Page: 215

 

63.       Small companies could skip Stages 1 and 2 of the strategy-formulation framework and develop a QSPM.

 

Ans: F                         Page: 216

 

64.       To objectively evaluate feasible alternative strategies identified in Stage 2, the QSPM uses input information derived from Stage 1.

 

Ans: T                         Page: 216

 

65.       The left column of a QSPM consists of information taken directly from the Internal Factor Evaluation Matrix and the External Factor Evaluation Matrix.

 

Ans: T                         Page: 216

 

66.       Alternative strategies derived from the TOWS Matrix, SPACE Matrix, BCG Matrix, IE Matrix and Competitive Profile Matrix are included in the QSPM’s top row.

 

Ans: F                         Page: 216

 

67.       Any number of sets of alternative strategies can be included in the QSPM, and any number of strategies can comprise a given set.

 

Ans: T                         Page: 216

 

68.       Step 1 of a QSPM assigns weights to each key external and internal factor.

 

            Ans: F                         Page: 217

69.       The Sum Total Attractiveness Scores are defined by the product of multiplying the weights (step 2) by the attractiveness scores (step 4) in each row of the QSPM.

 

Ans: F                        

Page: 218

 

70.       Total attractiveness scores are defined as the sum of the attractiveness scores in a given column of the QSPM.

 

Ans: F                         Page: 218

 

71.       The relative desirability of one strategy over another is indicated by the magnitude of the difference between the total attractiveness scores in a given set of strategic alternatives.

 

Ans: F                         Page: 218

 

72.       Two limitations of the Quantitative Strategic Planning Matrix are weights and ratings.

 

Ans: F                         Page: 219

 

73.       A positive feature of OSPM is that sets of strategies can be examined sequentially or simultaneously.

 

Ans: T                         Page: 219

 

74.       One positive feature of OSPM is that it does not require intuitive judgments and educated assumptions.

 

Ans: F                         Page: 219

Cultural Aspects of Strategy Choice

 75.       Culture includes the set of shared values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firm.

 

Ans: T                         Page: 219

 

76.       Generally, small organizations have a business plan whereas large organizations have culture.

 

Ans: F                         Page: 219

 

77.       Culture is the unique way an organization does business. 

            Ans: T                         Page: 219

 

78.       Whenever two firms merge, it becomes especially important to evaluate and consider culture-strategies linkages.

 

            Ans: T                         Page: 220

 

The Politics of Strategy Choice

 

79.       Successful strategists establish additional hurdles or tests for strongly supported ideas that are considered unacceptable, but which are best not opposed openly.

 

Ans: T                         Page: 220-221

 

80.       Successful top managers keep a low political profile on acceptable proposals.

 

Ans: F                         Page: 221

 

81.       By continuously chatting and informally questioning, successful CEOs stay abreast of how things are progressing and know when to step in to intervene.

 

Ans: T                         Page: 221

 

82.       Successful strategists minimize their own political exposure on issues that are highly controversial and in circumstances where opposition from major power centers was likely.

 

Ans: T                         Page: 221

 

83.       Equifinality means it is often possible to achieve similar results using different means or paths.

 

Ans: T                         Page: 221

 

84.       Satisficing means it is often possible to achieve similar results using different means or paths.

 

Ans: F                         Page: 221

 

85.       Shifting focus from specific issues to more general ones may increase strategists’ options for gaining organizational commitment.

 

Ans: T                         Page: 221

 

The Role of a Board of Directors

 

86.       Now averaging 18 members rather than 12 as they did a few years ago, the trend in America is toward larger boards.

 

Ans: F                         Page: 222

 

87.       Boards of directors are composed mostly of outsiders who are becoming more involved in an organization’s strategic management.

 

            Ans: T                         Page: 222

 

88.       Business Week recommends board members retire at age 65.

 

Ans: F                         Page: 223

 

89.       Business Week recommends the entire board of directors be up for election annually.

 

Ans: T                         Page: 223

 

90.       The board of directors of Trans Union Corporation, according to a ruling by the Supreme Court of Delaware in 1985, violated the interests of shareholders when they hastily accepted a takeover bid from the Marmon Group.

 

Ans: T                         Page: 224

 

91.       The impact of increasing legal pressures on board members is that directors are demanding access to more financial performance information on a regular basis.

 

Ans: T                         Page: 224

 

92.       Boards of directors today are composed mostly of outsiders who are becoming more involved in the company’s strategic-management activities.

 

Ans: T                         Page: 224

 

93.       There are on average five times more outsiders on the board than insiders at American firms.

 

Ans: F                         Page: 224

 

Conclusion 

94.       Rather than just react to management initiatives, board directors must assume a more activist stance in management development.

 

Ans: T                         Page: 225

 

Multiple Choice 

The Nature of Strategy Analysis and Choice

 

95.       Strategy analysis and choice largely involves making __________ decisions based on __________ information.a.         long-term; short-term

b.                  subjective; objective

c.                   short-term; long-term

d.                  subjective; short-term

e.                   objective; subjective

 

            Ans: b                          Page: 196

 

A Comprehensive Strategy-Formulation Framework

 

96.       Stage 1 consists of IFE, EFE and CPM. What stage is this in the strategy formulation framework?

            a.         Output

            b.         Decision

c.                   Input

d.                  Matching

e.                   Functional

 

            Ans: c                          Page: 198

 

97.       Which stage in the strategy-formulation framework focuses on generating feasible alternative strategies?

a.         Input

b.         Output

c.         Decision

d.         Stage 3

e.         Matching

 

            Ans: e                          Page: 198

 

98.       The ________ stage involves a single technique, QSPM.            a.         Stage 2

            b.         Decision

            c.         Input

d.                  Matching

e.                   Stage 1

 

            Ans: b                          Page: 198

 

99.       A(n) __________ reveals the relative attractiveness of alternative strategies and thus provides an objective basis for selecting specific strategies.

            a.         TOWS

b.                  SPACE

c.                   QSPM

d.                  IFE

e.                   CPM

 

            Ans: c                          Page: 198

 

100.     Each of the nine techniques included in the strategy formulation framework rely on the use of

a.                   strictly factual data.

b.                  luck.

c.                   financial formulas and statistics.

d.                  intuition and analysis.

e.                   synergy.

 

            Ans: d                         Page: 198

 

The Input Stage

 

101.     The __________ stage includes an Internal Factor Evaluation Matrix and a Competitive Profile Matrix.

a.         input

b.         matching

c.         decision

d.         penetration

e.         research

     

Ans: a                          Page: 198                   

 

102.     __________ is not an input stage matrix.            a.         IFE

b.                  IE

c.                   CPM

d.                  EFE

 

            Ans: b                          Page: 198

 

The Matching Stage

 

103.     __________ is not a Stage 2 matching technique.

            a.         The SPACE Matrix

            b.         The Grand Strategy Matrix

c.                   The Competitive Profile Matrix

d.                  The Business Portfolio Matrix

e.                   The TOWS Matrix

 

            Ans: c                          Page: 198

 

104.     The __________ of the strategy formulation framework contains the TOWS Matrix, the SPACE Matrix, the Grand Strategy Matrix and the Competitive Profile Matrix.

            a.         input stage

            b.         matching stage

c.                   decision stage

d.                  output stage

e.                   None of the above

 

            Ans: e                          Page: 199

 

105.     __________ is not a TOWS strategy.

            a.         SO

            b.         WO

            c.         SW

            d.         ST

            e.         WT

 

            Ans: c                          Page: 200

 

106.     Poor product quality, coupled with reliable suppliers, would suggest

            a.         WT strategies.

            b.         WO strategies.

            c.         ST strategies.

d.                  SO strategies.

 

            Ans: b                          Page: 200

 

107.     Matching internal strengths with external opportunities is part of which section of the TOWS Matrix?

a.         The WT cell

b.         The WO cell

c.         The ST cell

d.         The SO cell

e.         The center four cells

 

            Ans: d                         Page: 200

 

108.     The most ideal situation for a company to be in on the TOWS Matrix would be if they had all

            a.         SO strategies.

            b.         WO strategies.

            c.         ST strategies.

d.                  WT strategies.

 

            Ans: a                          Page: 200

 

109.     Which strategies aim at improving internal weaknesses by taking advantage of external opportunities?

a.         SO

b.         WO

c.         SW

d.         ST

e.         WT

 

            Ans: b                          Page: 200

 

110.     The purpose of each Stage 2 matching tool is to

            a.         identify the strengths, weaknesses, opportunities and threats of the firm.

            b.         generate the feasible alternative strategies for the firm.

c.                   pick the best strategy for the firm to carry out.

d.                  decide who the company’s major competitors are.

 

            Ans: b                          Page: 200

 

111.     If an organization were to match high employee turnover with increased local competition, what type of strategies would be appropriate?

            a.         SO strategies

            b.         WO strategies

            c.         ST strategies

d.                  WT strategies

 

            Ans: d                         Page: 201

 

112.     Which strategies use a firm’s strengths to avoid or reduce the impact of external threats?

a.                     SW

b.                    WO

c.                     SW

d.                    ST

e.                     WT

 

Ans: d                         Page: 201

 

113.     __________ strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats.

            a.         SO

            b.         WO

c.                   SW

d.                  ST

e.                   WT

 

            Ans: e                          Page: 201

 

114.     A TOWS Matrix is composed of __________ cells.

            a.         four

            b.         six

            c.         nine

            d.         eight

e.                   two

 

            Ans: c                          Page: 201

 

115.     Which of the following is not a step of a TOWS Matrix?

a.                   List the firm’s key external threats

b.                  Match strengths with external opportunities and record the resultant SO strategies in the appropriate cell

c.                   Match internal weaknesses with external threats and record the resultant WT strategies

d.                  List the firm’s external weaknesses

e.                   List the firm’s external threats

 

            Ans: d                         Page: 202

          

116.     Which of these is not a SPACE Matrix quadrant?            a.         Aggressive

            b.         Defensive

c.                   Competitive

d.                  Offensive

e.                   Conservative

 

            Ans: d                         Page: 204

 

117.     __________ reveals whether aggressive, conservative, defensive, or competitive strategies are most appropriate.

            a.         Grand Strategy Matrix

            b.         SPACE Matrix

            c.         Competitive Profile Matrix

            d.         TOWS Matrix

e.                   QSPM

 

            Ans: b                          Page: 204

 

118.     The two positive-rated dimensions on SPACE Matrix are

            a.         FS and CA.

            b.         CA and ES.

c.                   FS and IS.

d.                  IS and ES.

e.                   FS and ES.

 

            Ans: c                          Page: 204

 

119.     A firm located in the aggressive quadrant of the SPACE Matrix should use its internal strengths to

            a.         take advantage of external opportunities.

            b.         overcome internal weaknesses.

c.                   avoid external threats.

d.                  do all of the above.

 

            Ans: d                         Page: 205

 

120.     Financial strengths are measured on the SPACE Matrix by variables such as investment, leverage, liquidity, working capital and

            a.         ease of entry into the market.

            b.         product quality.

c.                   operations and facilities.

d.                  working capital.

 

            Ans: d                         Page: 206

121. What is the BCG Matrix ideal for analyzing?a. Companies with more than one divisionb. All companiesc. Companies with annual sales greater than $1 milliond. Companies with annual sales of less than $1 millionc. Large companiesAns: a Page: 206

122. The BCG measures relative market share position asa. a division’s sales compared to the sales of similar companies.b. a division’s market share divided by the market share of the largest rival in that industry.c. the number of products a division has on the market compared to the competitors.d. the number of employees in a division compared to the number of employees in the largest rival in the industry.Ans: b Page: 206

123. __________ should not be included as a factor in the Environmental Stability (ES) computation.a. Technological changesb. Competitive pressurec. Rate of inflation

d. Liquiditye. Seasonal effectsAns: d Page: 206

124. What are two external dimensions of SPACE Matrix?a. Environmental stability and industry strength.b. Environmental stability and competitive advantage.c. Industry strength and competitive advantaged. Competitive advantage and financial strength.e. Financial strength and industry strength.Ans: a Page: 206

125. If the SPACE Matrix directional vector falls in the aggressive quadrant, which of these strategies are not appropriate?a. Intensiveb. Integrativec. Diversificationd. Defensivee. CombinationAns: d Page: 206

126. Which of these quadrants in SPACE Matrix implies staying close to the firm’s basic competencies and not taking excessive risks?a. Conservativeb. Competitivec. Defensived. Aggressivee. None of theseAns: a Page: 206

127. ______________ is common to the defensive and conservative quadrants of a SPACE Matrix.a. Product developmentb. Concentric diversificationc. Divestitured. Market penetratione. RetrenchmentAns: b Page: 206

128. What type of strategies would you recommend when a firm’s SPACE Matrix directional vector has the coordinates (-2, +3)?a. Aggressiveb. Conservativec. Competitived. Defensivee. IntegrativeAns: b Page: 207

129. In the SPACE analysis what does a (+6, +3) strategy profile portray?

a. A strong industryb. An unstable environmentc. A stable environmentd. A weak industrye. A weak financial positionAns: a Page: 207

130. How would a division with a low relative market share position in a high growth industry be described?a. Question markb. Cash cowc. Stard. Stuck-in-the-middlee. DogAns: a Page: 208

131. When a division of an organization has a high relative market share and is in a fast-growing industry, it is called aa. star.b. cash cow.c. question mark.d. dog.Ans: a Page: 209

132. A division with a high relative market share position in a low-growth industry can be described as aa. star.b. cash cow.c. question mark.d. dog.e. failure.Ans: b Page: 210

133. Which of these is an attractive strategy for a cash cow division?a. Concentric diversificationb. Horizontal integrationc. Conglomerate diversificationd. Backward integratione. Forward integrationAns: a Page: 210

134. Most likely, a cash cow was what in the past?a. dogb. question markc. calfd. stare. failureAns: d Page: 210

135. The BCG Matrix limitations include

a. being a time-consuming and costly analysis.b. requiring at least three years’ worth of data.c. not reflecting divisional or industry growth over time.d. not allowing a company to be classified as somewhere in between two categories.e. both c & d.Ans: e Page: 211

136. The BCG Matrix and the IE Matrix are different in all of the following aspects excepta. their axes.b. the IE requires more information about the divisions than the BCG Matrix.c. the way they plot organizational divisions.d. their strategic implications.Ans: b Page: 212

137. What has four quadrants based on two dimensions: competitive position and market growth?a. Competitive Profile Matrixb. TOWS Matrixc. SPACE Matrixd. Grand Strategy Matrixe. QSPMAns: d Page: 213

138. Firms located in which quadrant of the Grand Strategy Matrix are in an excellent strategic position?a. Ib. IIc. IIId. IVAns: a Page: 213

139. __________ in the Grand Strategy Matrix is recommended for a firm with rapid market growth and a strong competitive position.a. Market penetrationb. Conglomerate diversificationc. Joint ventured. Retrenchmente. LiquidationAns: a Page: 213

140. The Grand Strategy Matrix can be used to evaluate competitive position and market growth fora. individual products.b. company divisions and individual products.c. whole companies and company divisions.d. just whole companies.Ans: c Page: 213

141. For companies located in Quadrant III of the Grand Strategy Matrix, the first strategy recommended isa. extensive cost and asset reduction.b. asset expansion.

c. employee expansion.d. immediate liquidation of assets.Ans: a Page: 214

142. Although Quadrant _____ companies are growing, according to the Grand Strategy Matrix, they are unable to compete effectively, and they need to determine why the firm’s current approach is ineffective and how the company can best change to improve its competitiveness.a. Ib. IIc. IIId. IVAns: b Page: 214

143. Quadrant _____ organizations have a strong competitive position but are in a slow-growth industry, according to the Grand Strategy Matrix.a. Ib. IIc. IIId. IVAns: d Page: 214

144. A(n) __________ strategy could be most effective when a firm has excess production capacity and its basic industry is experiencing declining sales and profits.a. backward integrationb. forward integrationc. concentric diversificationd. joint venturee. integrationAns: c Page: 215The Decision Stage

145. __________ is included in the decision stage of the strategy formulation framework.a. Internal Factor Evaluation Matrixb. Quantitative Strategic Planning Matrixc. BCG Business Portfolio Matrixd. Grand Strategy Matrixe. SPACE MatrixAns: b Page: 215

146. The top row of a QSPM consists of alternative strategies derived from all of these excepta. TOWS Matrix.b. BCG Matrix.c. Space Matrix.d. CPM Matrix.e. IE Matrix.Ans: d Page: 216

147. The __________ determines the relative attractiveness of various strategies based on the extent to

which key external and internal critical success factors are capitalized.a. BCG Matrixb. SPACE Matrixc. TOWS Matrixd. IE Matrixe. QSPMAns: e Page: 216

148. In the QSPM, a minimum of _______ internal and ______ external critical success factors should be included.a. 2; 2b. 4; 4c. 10; 10d. 40; 40e. 20; 20Ans: c Page: 217

149. Which of the following is the first step in developing QSPM?a. Compute the Total Attractiveness Scoresb. Examine the Stage 2 matrices and identify alternative strategies the organization should consider implementingc. Assign weights to each key external and internal factord. Determine the Attractiveness Scorese. Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPMAns: e Page: 217-218

150. What term is defined as the product of multiplying ratings by attractiveness scores in each row of the QSPM?a. Total attractiveness scoresb. Sum total attractiveness scoresc. Weighted scoresd. Total weighted scorese. FactorsAns: a Page: 218

151. What should be included in strategies in the QSPM?a. all strategies suggested by Stage 2 matrices.b. only the best or most promising strategies suggested by Stage 2 matrices.b. strategies that will assure organizational success.c. strategies that encourage corporate expansion.Ans: b Page: 218152. What is the highest number of strategies that can be examined at one time with the QSPM?a. 5b. 2c. 1d. 10e. There is no limit.Ans: e Page: 219

153. Which of these do QSPM limitations include?a. Only a few strategies can be evaluated simultaneouslyb. The cost of doing the analysisc. Subjective judgments and educated guesses are requiredd. It is only as good as the prerequisite input information and matching analyses upon which it is basede. Both c & dAns: e Page: 219

Cultural Aspects of Strategy Choice

154. What includes the set of shared values, beliefs, attitudes, customs, norms, personalities, heroes and heroines that describe a firm?a. Strategyb. Culturec. Missiond. Objectivese. QSPMAns: b Page: 219

155. The culture of a firm is important when considering strategies becausea. cultural products can support strategies so managers can often implement changes swiftly and easily.b. everyone in the firm should have a vote as to which strategies to implement.c. culture can dictate the choice of strategies.d. Employees always welcome cultural change.Ans: a Page: 219-220

The Politics of Strategy Choice

156. __________ is known as the tactic of shifting focus from specific issues to more general ones.a. Equifinalityb. Focus on higher-order issuesc. Generalizationd. Satisficinge. None of the aboveAns: c Page: 221

157. __________ means it is possible to achieve similar results using different means or pathsa. Generalizationb. Satisficingc. Focus on higher-order issuesd. Equifinalitye. SpecializationAns: d Page: 221The Role of a Board of Directors158. Today, boards of directors are composed mostly of __________.a. outsiders

b. managementc. uniond. employeese. stockholdersAns: a Page: 222

159. Except for ________________, the roles and duties of a board of directors include all of these broad categories.a. control and oversight over managementb. adhering to legal prescriptionsc. consideration of stakeholders’ interestsd. advancement of stockholders’ rightse. expansion of management stock optionsAns: e Page: 223

160. According to Business Week, a good board of directors performs all of these responsibilities excepta. link the CEO’s pay to specific goals.b. place the entire board up for election every five years.c. require directors to retire at age 70.d. require each director to own a large amount of company stock.e. compensate board members only in company stock.Ans: b Page: 223-224

161. What did Business Week conclude a board of directors should do?a. Ensure no more than two board members are insidersb. Limit the number of other boards a member can serve onc. Ban interlocking directorshipsd. All of the aboveAns: d Page: 223-224

Essay Questions162. Explain the concept of matching in the strategy formulation framework. Give at least three examples of matching.Matching external and internal critical success factors is the key to effectively generating feasible alternative strategies. See Table 6-1 on page 200 for examples of matching.Page: 199-200

163. If you construct a SPACE Matrix and the directional vector points to the lower left quadrant, what type of strategies would you recommend? Give several examples.If the directional vector points to the lower-left quadrant of the SPACE Matrix, students should suggest defensive strategies. Defensive strategies include retrenchment, divestiture, liquidation and concentric diversification.Page: 205

164. Give five coordinates of a SPACE Matrix directional vector that would suggest conservative strategies to be most appropriate.Student answers will vary. However, five examples they may suggest are (-1,1),(-2,2), (-3,3), (-4,4), and (-5,5).

Page: 205

165. In a BCG Matrix, all divisions are called question marks, stars, cash cows, or dogs. Define each of these terms.Question Marks have a low relative market share position, yet they compete in a high-growth industry.Stars represent the organization’s best long-run opportunities for growth and profitability.Cash Cows have a high relative market share position but compete in a low-growth industry.Dogs have a low relative market share position and compete in a slow- or no-market-growth industry.Page: 208-210

166. Explain the benefits and limitations of developing a Boston Consulting Group Matrix.The BCG Matrix has one major benefit: draws attention to the cash flow, investment characteristics and needs of an organization’s various divisions.The BCG Matrix has some limitations: 1) Viewing every business as either a star, cash cow, dog, or question mark is an oversimplification; many businesses fall right in the middle of the BCG Matrix and thus are not easily classified, 2) the BCG Matrix does not reflect whether or not various divisions or their industries are growing over time; that is, the matrix has no temporal qualities, but rather it is a snapshot of an organization as any given point in time and 3) other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.Page: 210-211

167. Compare and contrast the IE Matrix with the BCG Matrix.The IE Matrix is similar to the BCG Matrix in that both tools involve plotting organizational divisions in a schematic diagram. Also, the size of each circle represents the percentage sales contribution of each division, and pie slices reveal the percentage profit contribution of each division in both the BCG and IE Matrix.Some important differences between the IE Matrix and the BCG Matrix include 1) different axes, 2) the IE Matrix requires more information about the divisions than the BCG Matrix and 3) the strategic implications of each matrix are different.Page: 211-212

168. Using a Grand Strategy Matrix approach, what strategies are recommended for a firm that is a weak competitor in a slow-growing market? Elaborate on what these strategies could mean for a college or university.A firm that is a weak competitor in a slow-growing market would be located in Quadrant III. Quadrant III strategies include retrenchment, concentric diversification, horizontal diversification, conglomerate diversification, divestiture and liquidation.Student answers will vary when elaborating on what these strategies could mean for a college or university. However, students should mention that the college or university could possibly have to be closed or facility and staff may have to be drastically reduced which leads to unhappy students in very large classes.Page: 214

169. Describe the positive features and limitations of QSPM.There are three positive features of QSPM: 1) Sets of strategies can be examined sequentially or simultaneously, 2) there is no limit to the number of strategies that can be evaluated or the number of sets of strategies that can be examined at once using the QSPM and 3) the last positive feature is that it requires strategists to integrate pertinent external and internal factors into the decision process.The QSPM is not without some limitations: 1) It always requires intuitive judgments and educated assumptions, 2) The ratings and attractiveness scores require judgmental decisions, even though they should be based on objective

information and 3) it can be only as good as the prerequisite information and matching analyses upon which it is based.Page: 219

170. Discuss the appropriate role of a board of directors in an organization.Please refer to Table 6-7 on page 223 for Board of Directors Duties and Responsibilities.Page: 221-224

CHAPTER 7

Implementing Strategies: Management Issues

 True/False 

The Nature of Strategy Implementation

 

1.                  A difference between strategy formulation and strategy implementation is that formulation focuses on effectiveness and implementation focuses on efficiency.

 

Ans: T                         Page: 236

 

2.                  The only participants needed in strategy-implementation decisions are top managers.

 

Ans: F                         Page: 236

 

3.                  Strategy formulation is the managing of forces during the action, whereas strategy implementation is the positioning of forces before the action.

 

Ans: F                         Page: 236

 

4.                  Strategy formulation occurs at all hierarchical levels, whereas strategy implementation occurs primarily at the corporate level of an organization.

 

Ans: F                         Page: 236

 

5.                  Strategy formulation requires coordination among a few individuals, but strategy implementation requires coordination among many.

 

Ans: T                         Page: 236

 

6.                  It is always easier to say you are going to do something (strategy formulation) than to actually do it (strategy implementation).

 

Ans: T                         Page: 236

 

7.                  Small, large, profit, or nonprofit organizations differ in their use of the basic activities required for effective strategy formulation (conduct research, integrate intuition with analysis and make decisions).

 

Ans: F                         Page: 236

 

8.                  Whereas strategy formulation is more operational, strategy implementation is largely an intellectual process.

 

Ans: F                         Page: 236

 

9.                  Unlike strategy formulation, strategy implementation varies considerably among different types and sizes of organizations.

 

Ans: T                         Page: 236

 

10.              The primary role of strategists is strategy formulation, and therefore they do not need to be involved in implementation.

 

Ans: F                         Page: 237

 

11.              Top managers often do not actively support implementation efforts, which can be detrimental to strategic management.

 

Ans: T                         Page: 238

 

12.              All functional areas of business are impacted by strategy implementation.

 

Ans: T                         Page: 238

 

13.              A top-down flow of communication is essential for developing bottom-up support.

 

Ans: T                         Page: 238

 

14.              Successful strategy implementation requires commitment and support from lower-level managers.

 

Ans: T                         Page: 238

               

15.              There should be an appropriate number of annual objectives associated with each stated long-term objective.

 

Ans: T                         Page: 238

 

16.              A centralized activity of top management is establishing objectives.

 

Ans: F                         Page: 238

 

17.              Objectives are the major instrument for monitoring progress in an organization.

 

Ans: T                         Page: 238

 

18.              Establishing annual objectives is a decentralized activity that directly involves all managers in an organization.

 

Ans: T                         Page: 238

 

19.              Annual objectives are key components in the strategic-management process because they dictate how resources will be allocated.

 

Ans: T                         Page: 238

 

Annual Objectives

 

20.              Objectives should be consistent across hierarchical levels and form a network of supportive aims.

 

Ans: T                         Page: 240

 

21.              When stating objectives, terms such as maximize, minimize and adequate should be emphasized.

 

Ans: F                         Page: 240

 

22.              Because conflicts with top management objectives are possible, managers should not involve employees in establishing annual objectives.

 

Ans: F                         Page: 240

 

23.              Horizontal consistency and vertical consistency should both be included in annual objectives.

 

Ans: T                         Page: 240

 

24.              Clear annual objectives guarantee successful strategy implementation.

 

Ans: F                         Page: 240

 

25.              Undesirable conduct such as distorting the record is a result of overemphasis on achieving objectives.

 

Ans: T                         Page: 240

 

Policies

 

26.              Policies are described as specific guidelines, methods, procedures, rules, forms and administrative practices that are established to support and encourage work toward stated annual objectives.

 

Ans: T                         Page: 240

 

27.              Strategies clarify what can and cannot be done in pursuit of an organization’s objectives.

 

Ans: F                         Page: 240

 

28.              Policies facilitate solving recurring problems and guide the implementation of strategy.

 

Ans: T                         Page: 240

 

29.              Policies can be verbal if objectives are written.

 

Ans: F                         Page: 241

 

30.              To make a strategy work, policies are necessary.

 

Ans: T                         Page: 241

 

Resource Allocation

 

31.              A decentralized supervisory activity is resource allocation.

 

Ans: F                         Page: 241

 

32.              Not allocating resources according to the priorities indicated by approved objectives is detrimental to the strategic-management process.

 

Ans: T                         Page: 241-242

 

33.              Four types of resources that can be used to achieve desired objectives are financial, physical, human, and technological.

 

Ans: F                         Page: 242

 

34.              Top managers only rarely possess enough knowledge about diversified operations to make specific resource allocation decisions.

 

Ans: T                         Page: 242

 

35.              Lower- and middle-level managers rarely possess enough knowledge about the ramifications of new strategies to make appropriate resource requests.

 

Ans: T                         Page: 242

 

36.              The strategic-management process is sometimes referred to as a resource-allocation process.

 

Ans: T                         Page: 243

 

37.              Effective resource allocation guarantees successful strategy implementation.

 

Ans: F                         Page: 243

 

Managing Conflict

 

38.              Avoidance, infusion and confrontation are the classifications for the various approaches for minimizing and resolving conflict.

 

Ans: F                         Page: 243

 

39.              Avoidance methods of managing conflict include such actions as ignoring the problem or physically separating the conflicting individuals.

 

            Ans: T                         Page: 243

 

40.              Holding a meeting at which conflicting parties present their views and work through their differences is part of the diffusion strategy of managing conflict.

 

            Ans: F                         Page: 243

 

41.              The strategy of infusion includes such actions as ignoring the problem situation in the hopes the conflict will resolve itself.

 

            Ans: F                         Page: 243

 

42.              Exchanging members of conflicting parties so each can gain an appreciation of the other’s point of view exemplifies a confrontation approach.

 

            Ans: T                         Page: 243

 

43.              Conflict of any kind is avoidable in organizations.

 

            Ans: F                         Page: 243

 

44.              A positive sign in an organization could be conflict. 

            Ans: T                         Page: 243

 

45.              Conflict can be defined as a disagreement between two or more parties on one or more issues.

 

            Ans: T                         Page: 243

 

46.              An indication of indifference and apathy is the presence of conflict in an organization

 

            Ans: F                         Page: 243

 

47.              Structure dictates how an organization’s annual objectives and policies will be established and how resources will be allocated.

 

Ans: T                         Page: 243-244

 

Matching Structure with Strategy

 

48.              Structure is followed by strategy.

 

            Ans:     F                      Page: 244

 

49.              An optimal organizational design does not exist for a given type or size of organization.

 

Ans:     T                      Page: 244

 

50.              Whereas small firms tend to be functionally structured (centralized), consumer-goods companies tend to emulate the divisional structure by process form of organization.

 

Ans: F                         Page: 244

 

51.              Medium-sized firms tend to be divisionally structured, whereas large firms tend to use an SBU (strategic business unit) or matrix structure.

 

            Ans: T                         Page: 244

 

52.              Tasks and activities are grouped together by business function in a functional organizational structure.

 

            Ans: T                         Page: 245

 

53.              The most widely used type of structure is the functional design because it is simple and inexpensive and it emphasizes delegation of authority.

 

            Ans: F                         Page: 245

 

54.              One advantage of a functional structure is that it forces accountability to the top.

 

            Ans: F                         Page: 245

 

55.              The four basic ways a divisional structure can be organized are by geographic area, by product or service, by customer, or by process.

 

            Ans: T                         Page: 245

 

56.              Functional activities are performed both centrally and in each separate division with divisional structure.

 

            Ans: T                         Page: 245

 

57.              Two disadvantages of a functional structure are that it requires an additional layer of management and the role of group vice president is often ambiguous.

 

Ans: F                                     Page: 245

 

58.              In small firms, a divisional type of structure is most commonly used.

 

            Ans: F                         Page: 245

 

59.              One advantage of a functional structure is specialization of labor.

 

            Ans: T                         Page: 245

 

60.              One advantage of a functional structure is that it eliminates pressure on middle management by forcing accountability to the top.

 

            Ans: F                         Page: 245

 

61.              The most widely used type of structure is decentralized because accountability is clear.

 

            Ans: T                         Page: 245

 

62.              Accountability is one of the clearest advantages of a divisional structure.

 

            Ans: T                         Page: 246

 

63.              A divisional type structure can be inexpensive, except that it requires a headquarters-driven control system.

 

            Ans: F                         Page: 246

 

64.              A divisional structure can be most appropriate for organizations with diverse branch facilities located in geographically dispersed areas if it is divided by geographic area.

 

            Ans: F                         Page: 246

 

65.              The divisional structure by product allows strict control and attention to product lines, but its advantages can be offset by the requirement of a greater-skilled management force and increased top-management control.

 

            Ans: F                         Page: 246

 

66.              A decentralized structure has the advantage of placing profit responsibility on top managers.

 

            Ans: F                         Page: 246

 

67.              A decentralized structure has the advantage of placing profit responsibility on top managers.

 

Ans: F                         Page: 246

 

68.              With a divisional structure by customer, an organization can effectively cater to the requirements of clearly defined customer groups.

 

            Ans: T                         Page: 247

 

69.              The divisional structure by process can be particularly effective in achieving company objectives when distinct production processes represent the thrust of competitiveness in an industry.

 

            Ans: T                         Page: 247

 

70.              Because activities are organized according to the way work is actually performed, a divisional structure by process is similar to the matrix structure.

 

            Ans: F                         Page: 247

 

71.              Divisions that comprise a single SBU could be homogeneous in a number of different ways. For example, they could all compete in the same industry, they could all be located in the same area, or they could all have the same customers.

 

            Ans: T                         Page: 247

 

72.              Two disadvantages of the SBU structure are a need for an additional layer of management and a violation of the unity of command principal.

 

            Ans: F                         Page: 247

 

73.              Process departments are not held accountable for profits and revenues, whereas functional departments are.

 

            Ans: F                                     Page: 247

 

74.              The chief executive officer’s span of control is decreased and salary expenses are increased with the strategic business unit structure.

 

            Ans: T                                     Page: 247

 

75.              The unity-of-command principle may be violated as a chief executive officer’s span of control increases.

 

            Ans: F                         Page: 247

 

76.              The most complex of all designs is a matrix structure.

 

            Ans: T                         Page: 248

 

77.              Due to its overall complexity, the matrix structure is being used less by American businesses because more often firms are turning to strategies that add new sources of diversity (products, customer groups, technology) to their range of activities.

 

            Ans: F                         Page: 248

 

78.              Hospitals, construction companies, research and development organizations, accounting firms, colleges and universities and large organizations are those that typically use a matrix structure.

 

            Ans: T                         Page: 248

 

Restructuring, Reengineering and E-Engineering 

79.              Restructuring is also called rightsizing.

 

Ans: T                         Page: 248

 

80.              In terms of number of employees, restructuring involves increasing the size of the firm.

 

Ans: F                         Page: 248

 

81.              Restructuring is concerned primarily with employee well-being rather than shareholder well-being.

 

Ans: F                         Page: 248

 

82.              Labor union executives sit on most boards of directors of large European firms, unlike in the United States.

 

Ans: T                         Page: 248

 

83.              Reengineering does not usually affect the organizational structure or chart, nor does it imply job loss or employee layoffs.

 

Ans: T                         Page: 249

 

84.              Another name for reengineering is downsizing.

 

Ans: F                         Page: 249

 

85.              The focus of restructuring is changing the way work is actually carried out.

 

Ans: F                         Page: 250

 

86.              The Internet eliminates the geographic protection/monopoly of local businesses.

 

Ans: T                         Page: 250

 

87.              Benchmarking involves comparing a firm against the best firms in the industry on a wide variety of performance-related criteria.

 

Ans: T                         Page: 250

 

88.              Today, sentiment toward joining management ranks is higher than ever. 

Ans: F                                     Page: 250

 

89.              Cornerstones of reengineering are decentralization, reciprocal interdependence and information sharing.

 

Ans: T                         Page: 251

 

Linking Performance and Pay to Strategies

 

90.              Staff managers using financial compensation as a strategic tool are prevented by line control of pay systems.

 

            Ans: F                         Page: 252

 

91.              An effective bonus system should be based on two key factors: annual objectives and long-term objectives.

 

            Ans: T                         Page: 252

 

92.              Gain sharing requires employees or departments to establish performance targets; if actual results exceed objectives, all members get bonuses.

 

            Ans: T                         Page: 252

 

93.              Approximately 66 percent of American companies use some form of a gain-sharing plan.

 

            Ans: F                         Page: 252

 

94.              More Japanese companies are switching from performance-based pay to seniority-based pay in an effort to cut costs and increase productivity.

 

            Ans: F                         Page: 252

 

Managing Resistance to Change

 

95.              People’s anxieties are raised with the thought of change because they fear economic loss, inconvenience, uncertainty and a break in normal social patterns.

 

            Ans: T                         Page: 253

 

96.              Resistance to change can be considered the single greatest threat to successful strategy implementation.

 

            Ans: T                         Page: 254

 

97.              A rational change strategy means giving orders and enforcing those orders.

 

            Ans: F                         Page: 254

 

98.              Ideally, the rational type change strategy is the most desirable.

 

            Ans:     T                      Page: 254

 

99.              The fastest of all approaches to implement change is the rational change strategy.

 

            Ans:     F                      Page: 254

 

100.          Managers’ ability to develop an organizational climate conducive to change is an important part of successful strategy implementation.

 

            Ans: T                         Page: 254

 

101.          The rational change strategy is one that presents information to convince people of the need for change.

 

            Ans: F                         Page: 254

 

102.          The strategic-management process is a process of managing change.

 

            Ans: T                         Page: 255

 

Managing the Natural Environment

 

103.          A Monsanto policy says “Zero spills, zero releases, zero incidents and zero excuses.”

 

Ans: F                         Page: 256

 

104.          Ozone depletion is the most important natural environment issue facing organizations.

 

Ans: F                         Page: 256

 

105.          Managing as if the earth matters requires an understanding of how international trade, competitiveness and global resources are connected.

 

Ans: T                         Page: 256

 

106.          Managing environmental affairs is primarily a technical function performed by specialists in a firm.

 

Ans: F                         Page: 256

 

Creating a Strategy-Supportive Culture

 

107.          Changing a strategy to fit an existing culture is not as effective as changing a firm’s culture to fit a new strategy.

 

            Ans: T                         Page: 257

 

108.          An effective, multi-method technique for studying and altering a firm’s structure is known as triangulation.

 

Ans: F                         Page: 258

 

109.          The family model creates the ideal working conditions for a Mexican worker.

 

            Ans: T                         Page: 259

 

110.          Individualism, achievement, competition, informality and doing more than expected of the job are all stressed by Mexican businesses.

 

            Ans: F                         Page: 259

 

111.          Whereas Americans follow rules, Mexicans often do not.

 

            Ans: T                         Page: 259

 

112.          There is substantial social pressure against becoming a successful entrepreneur in Russia.

 

            Ans: T                         Page: 259

 

113.          The Russians are known for their stupidity and laziness.

 

            Ans: F                         Page: 259

 

114.          The Russian republic of Ingushetia recently passed a decree legalizing the practice of polygamy.

 

            Ans: T                         Page: 260

 

115.          The Japanese place great importance upon group loyalty and consensus, a concept called Ja.

 

            Ans: F                         Page: 260

 

116.          An important business activity in Japan is entertaining because it strengthens Wa.

 

            Ans: T                         Page: 260

 

117.          Most Japanese managers are talkative, impulsive, direct and individual-oriented.

 

            Ans: F                         Page: 260

 

Production/Operations Concerns When Implementing Strategies

 

118.          Production processes typically constitute more than 70 percent of a firm’s total assets.

Ans: T                         Page: 261

 

119.          JIT significantly increases the costs of implementing strategies.

 

Ans: F                         Page: 262

 

Human Resource Concerns When Implementing Strategies

 

120.          Ways managers can build support for strategy-implementation efforts are giving few orders, announcing many decisions, depending heavily on informal questioning and seeking to probe and clarify until a consensus emerges.

 

            Ans: F                         Page: 263

 

121.          Most ESOPs are established as a means to prevent a hostile takeover.

 

            Ans: T                         Page: 264

 

122.          Besides reducing worker alienation and stimulating productivity, ESOPs allow firms other benefits, such as substantial depreciation savings.

 

            Ans: F                         Page: 264

 

123.          An ESOP is established when a firm sets up a trust fund and purchases shares of its stock, which are allocated to individual employee accounts.

 

Ans: T                         Page: 264

 

124.          Customers prefer to do business with firms that are employee owned, according to market surveys.

 

Ans: T                         Page: 264

 

125.          ESOPs work well even in firms with fluctuating payrolls and profits.

 

Ans: F                         Page: 264

 

126.          ESOPs are established in ailing firms, not healthy firms.

 

Ans: F                         Page: 265

 

127.          Employees are most likely to be absent or unproductive, according to research, if they are dissatisfied with childcare arrangements.

 

Ans: T                         Page: 266

 

128.          A recent survey of managers revealed less than 10 percent would leave their present employer for another employer offering childcare assistance.

 

Ans: F                         Page: 266

 

129.          Most of the 64 million women in the U.S. labor force are employed in what the Department of Labor calls “nontraditional occupations.”

 

Ans: T                         Page: 266

 

130.          More women in the United States are employed as firefighters, tool and die makers, and construction.

 

Ans: F                         Page: 266

 

131.          There are only seven female CEOs among the Fortune 1000 companies, so the glass ceiling in America obviously still exists.

 

Ans: T                         Page: 266

ultiple ChoiceThe Nature of Strategy Implementation

1. Which of the following skills is most important for successful strategy implementation?a. Conceptualb. Motivatingc. Integratived. Analyticale. PlanningAns: b133. Strategy formulationa. is managing forces during the action.b. focuses on effectiveness.c. is primarily an operational process.d. requires coordination among many people.e. all of the above.Ans: b134. Which of these is true about strategy implementation?a. It is positioning forces before the action.b. It focuses on effectiveness.c. It is primarily an operational process.d. It is primarily an intellectual process.e. All of these.Ans: d135. On what does strategy implementation focus?a. Effectivenessb. Intellectual skillsc. Efficiencyd. Coordination among a few peoplee. All of theseAns: c

136. Strategy implementation is primarily a(n) __________ process.a. intellectualb. operationalc. analyticald. intuitivee. top-managementAns: bAnnual Objectives137. How are objectives in the areas of profitability, growth and market share commonly established?a. Business segmentb. Geographic locationc. Customer groupsd. Producte. All of the aboveAns: e

138. All of the following are tasks of strategy implementation excepta. establishing long-term objectives.b. establishing annual objectives.c. establishing policies.d. allocating resources.Ans: a

139. Establishing objectives is aa. top-level activity.b. centralized activity.c. decentralized activity.d. centralized-decentralized activity.Ans: c

140. Considerable time and effort should be devoted to assuring objectives are well conceived because they represent the basis fora. monitoring processes.b. establishing divisional priorities.c. allocating resources.d. all of the above.Ans: d

141. Because annual objectives __________________, they are important for strategy implementation.a. represent the basis for allocating resourcesb. are a primary mechanism for evaluating managersc. help establish organizational, divisional and departmental strategiesd. All of thesee. None of theseAns: d142. Which of the following is not true about objectives?a. They should be communicated throughout the organization.b. They should have an appropriate time dimension.

c. They should incorporate policies.d. They should be measurable.Ans: c143. Which of the following terms should be avoided when writing objective statements?a. Maximizeb. Minimizec. As soon as possibled. Adequatee. All of the aboveAns: e144. Which of these would not be a good objective statement?a. Increase production of product A by 15 percent yearlyb. Reduce overhead costs 2 percent yearlyc. Increase the number of customers yearly by 50d. Increase inventory sufficient to meet yearly increases in demande. All of the above are good objective statementsAns: d145. What should annual objectives be?a. As specific as possibleb. As general as possiblec. Tied into short-term profitsd. Similar to long-term objectivesAns: a

Policies146. A(n) __________ would not be considered a policy.a. ruleb. formc. milestoned. administrative practicee. methodAns: c

147. Policies are not necessary toa. encourage.b. limit.c. evaluate.d. guide.e. support.Ans: c

148. The term policy does not incorporate the terma. objective.b. procedure.c. dorm.d. constraint.e. method.Ans: a

149. What are guidelines, methods, procedures, rules, forms and administrative practices known as?a. Long-term objectivesb. Policiesc. Annual objectivesd. Strategiese. GoalsAns: b150. __________ policies apply throughout an organization.a. Corporateb. Divisionalc. Departmentald. FinancialAns: a151. Which of the following could be a marketing policy?a. Offer management development seminarsb. Raise the dividend payout yearlyc. Monitor process improvements weeklyd. Offer a limited warrantye. Issue bondsAns: d152. Which of the following issues may not require a management policy?a. To establish a high- or low-safety stock of inventoryb. To encourage moonlightingc. To offer numerous or few employee benefitsd. To discourage insider tradinge. To promote from within to or to hire from the outsideAns: b

 Resource Allocation153. ____________ is a central management activity that allows for strategy execution.a. Policy-makingb. Goal-settingc. Establishing annual objectivesd. Resource allocatione. ConflictAns: d154. All organizations have what four types of resources?a. Buildings, money, human and goodwillb. Human, computers, boards of directors and physicalc. Financial, physical, human and technologicald. Accounting, marketing, management and financialAns: c155. Which of the following are not resources that can be used by an organization to achieve desired objectives?a. Financial resourcesb. Natural resourcesc. Technological resources

d. Physical resourcesAns: b156. ________________ is not a major factor that commonly prohibits effective resource allocation.a. Underprotection of resourcesb. Company politicsc. Vague strategy targetsd. Reluctance to take risksAns: a

Managing Conflict

157. A disagreement between two or more parties on one or more issues is called a(n)a. integrated solution.b. conflict.c. compromise.d. diffusion.e. avoidance.Ans: b158. Conflict in an organization isa. always bad.b. always good.c. sometimes good and sometimes bad.d. a sign of bankruptcy.e. avoidable.Ans: c159. What are three categories of approaches for managing and resolving conflict?a. Avoidance, diffusion and confrontationb. Avoidance, payoff and diffusionc. Confrontation, ignorance and objectivityd. Buy, sell and holde. There are no good ways to manage conflictAns: a160. Which of the following is not a category of approaches for minimizing and resolving conflict?a. Consistencyb. Avoidancec. Confrontationd. DiffusionAns: a161. Physically separating the conflicting individuals (groups) represents the __________ conflict management/resolution approach.a. consistencyb. diffusionc. infusiond. avoidancee. confrontationAns: d162. Holding a meeting at which conflicting parties present their views and work through their differences represents a(n) __________ approach to conflict management.

a. infusionb. compromisec. diffusiond. avoidancee. confrontationAns: e163. What strategy includes playing down the differences between conflicting parties while accenting their similarities and common interests, or compromising so that there is neither a clear winner nor loser?a. Avoidanceb. Diffusionc. Confrontationd. Infusione. None of the aboveAns: b164. Which of the following statements is false?a. Conflict is unavoidable in large organizations.b. Avoiding conflict is an approach for minimizing and resolving conflict.c. Conflict can have positive consequences in all organizations.d. Conflict is avoidable in small organizations.e. One can defuse conflict by playing it down.Ans: d165. Why do changes in company strategy often require changes in the way an organization is structured?a. Structure dictates how goals and objectives will be establishedb. Structure dictates authority over projectsc. Structure dictates how resources will be obtainedd. Structure dictates strategyAns: a

 

Matching Structure with Strategy

166. What type of organizational structure do most small businesses follow?a. Divisional structure by productb. Functional structurec. Divisional structure by customerd. Matrix structuree. Process type structureAns: b167. Medium-sized firms tend to use a __________ structure.a. divisionalb. matrixc. SBUd. functionale. processAns: a

168. Which of the following statements is false?a. Small firms tend to be functionally structured.b. Small firms tend to be centralized.c. Medium-sized firms tend to be divisionally structured.d. Medium-sized firms tend to be decentralized.e. Large firms that use an SBU structure often violate the unity-of-command principle.Ans: e169. For a given strategy or type of organization, ____________ optimal organizational design or structure.a. matrix structure is theb. functional structure is thec. division structure is thed. SBU structure is thee. there is no oneAns: e170. What is the major disadvantage of a functional structure?a. It forces accountability to the topb. It enhances career development opportunitiesc. It is often characterized by high employee moraled. All of the aboveAns: a171. __________ is not one of the basic ways a divisional structure can be organized.a. By geographic areab. By product or servicec. By customerd. By processe. By costAns: e172. Which organizational structure is the most commonly used in the United States?a. Decentralizedb. Divisionalc. Functionald. Strategic business unite. MatrixAns: c173. A _______________ structure is the most simple and inexpensive.a. departmentalb. Strategic business unitc. functionald. decentralizede. processAns: c174. Accountability is clearest in the ____________ structure.a. matrixb. divisionalc. functionald. centralizede. unorganizedAns: b

175. Which of these is an advantage of a divisional organizational structure?a. Clear efficiencyb. Inexpensive to implementc. Career development opportunities for managersd. Simplicitye. FunctionalityAns: c176. A divisional structure by product form of organization is most effective whena. special emphasis needs to be placed on specific customers.b. an organization offers many products.c. different marketing approaches are required for various products.d. All of the aboveAns: d177. A divisional structure by geographic area is most appropriate whena. organizations have similar branch facilities located in widely dispersed areas.b. an organization offers only a limited number of products or services.c. strict control and attention to product lines are needed.d. an organization has many skilled managers.e. the firm serves one geographic area.Ans: a178. A major disadvantage of a __________ structure is the role of the group vice president being ambiguous.a. functionalb. divisionalc. strategic business unit (SBU)d. matrixe. processAns: c179. When a few major customers are of paramount importance and many different services are provided to these customers, the best divisional structure isa. by geographic area.b. by customer.c. by product.d. by process.e. by cost.Ans: b180. Which is the most costly type of structure?a. Departmentalb. Divisionalc. Functionald. Centralizede. SBUAns: e181. A bussing company that organizes activities around customer groups such as colleges, secondary schools and private schools is an example of which type of structure?a. Divisionalb. Centralizedc. Strategic business unit

d. Matrixe. Customer designAns: a182. Which of the following characteristics does not contribute to the overall complexity of a matrix structure?a. Dual lines of budget authorityb. Violation of the unity-of-command principlec. Extensive delegation of authorityd. Shared authoritye. SynergyAns: c183. __________ is the most complex structure.a. Divisionalb. SBUc. Matrixd. Functionale. GeographicAns: c

 

Restructuring, Reengineering, and E-Engineering

184. Restructuring is also referred to asa. starting over.b. delayering.c. diversifying.d. job security.e. integrating.Ans: b185. ________________ is concerned primarily with shareholder well-being rather than employee well-being.a. Benchmarkingb. Reengineeringc. Product redesignd. Process managemente. RestructuringAns: e186. All of these except ________________ are known as restructuring.a. process managementb. downsizingc. right-sizingd. delayeringe. benchmarkingAns: a187. ____________ involves reconfiguring or redesigning work, jobs and processes for the purpose of improving costs, quality, service and speed.a. Restructuring

b. Downsizingc. Reengineeringd. Delayeringe. BenchmarkingAns: c188. Which of these involves comparing a firm against the best firms in the industry on a wide variety of performance-related criteria?a. Restructuringb. Process redesignc. Reengineeringd. Delayeringe. BenchmarkingAns: e189. The primary benefit sought from restructuring isa. employee involvement.b. cost reduction.c. increased morale.d. increased number of hierarchical levels in the organization.Ans: b190. What percent of employees say they want nothing to do with management, i.e., sentiment against joining management ranks?a. 20b. 39c. 48d. 80e. 65Ans: d191. Which of these is not a cornerstone of reengineering?a. Decentralizationb. Reciprocal interdependencec. Information sharingd. DelayeringAns: d

192. A firm uses information technology to break down functional barriers and create a work system based on business processes, products, or outputs rather than on functions or inputs ina. restructuring.b. benchmarking.c. reengineering.d. decentralization.e. benchmarking.Ans: c Page: 251

 

Linking Performance and Pay to Strategies193. There is a problem with some executive compensation programs in thata. there is too much reliance placed on short-term performance.b. there is too much reliance placed on long-term performance.c. executives are overpaid.d. executives are underpaid.Ans: a Page: 252194. __________ using financial compensation as a strategic tool is often prevented by __________ control of pay systems.a. Line managers; staffb. Supervisors; employees’c. Staff; line managers’d. Employees; top-management’sAns: a Page: 252195. More than __________ percent of American companies have profit-sharing plans.a. 80b. 30c. 95d. 60e. 50Ans: b Page: 252196. Which of the following is not a form of incentive compensation?a. Bonus systemb. Hourly wagec. Gain sharingd. Profit sharinge. All of these are forms of incentive compensationAns: b Page: 252197. _____________ requires employees or departments to establish performance targets, such as if actual results exceed objectives, all members get bonuses.a. Profit sharingb. Bonus systemc. Salaryd. Gain sharinge. Hourly wage systemAns: d Page: 252198. What can a combination of a dual bonus system, stock options, salary raises, fringe benefits, promotions, praise, recognition, criticism, fear, increased job autonomy, awards and profit-sharing be used to do?a. Discourage employees from quittingb. Encourage managers and employees to push hard for successful strategy implementationc. Create unity and cohesiveness between divisionsd. Bribe employees to work harderAns: b Page: 253199. Which of these is not one of the tests used to determine whether a performance-pay plan will benefit an organization?a. Does the plan capture attention?b. Do employees understand the plan?

c. Is the plan improving communications?d. Does the plan pay out when it should?e. Does the plan reduce management layers?Ans: e Page: 253

Managing Resistance to Change200. What is one of the fastest ways to enforce change?a. Force change strategyb. Promotional and layoff strategyc. Self-interest change strategyd. Educative change strategye. LawAns: a Page: 254201. A(n) __________ change strategy involves giving orders and enforcing those orders.a. self-interestb. educativec. forced. rationale. diffusionAns: c Page: 254202. A change strategy that attempts to convince people the change is to their personal advantage isa. diffusion.b. force.c. educative.d. rational.e. compromise.Ans: d Page: 254203. Resistance to change can manifest itself througha. absenteeism.b. sabotaging production machines.c. filing unfounded grievances.d. unwillingness to cooperate.e. all of the above.Ans: e Page: 254204. Three common methods for implementing change includea. layoffs, promotions and moving people within the company.b. bonuses, educative change and moving people within the company.c. force change, bonuses and promotions.d. force change, educative change and rational change.Ans: d Page: 254205. The type of change strategy that is ideally the most desirable isa. a rational change strategy.b. a forced change strategy.c. an educative change strategy.d. a logical change strategy.Ans: a Page: 254206. When employees are involved in decisions regarding how to implement change, it causesa. conflict among managers.

b. a decrease in managers’ and employees’ resistance to change.c. conflict between divisions.d. overworked employees.Ans: b Page: 255

Managing the Natural Environment207. The ___________ challenge facing all organizations requires managers to formulate strategies that preserve and conserve natural resources and control pollution.a. stockholderb. ecologicalc. compensationald. benchmarkinge. globalAns: b Page: 256208. Increasingly, firms are developing __________ product lines that are biodegradable and/or made from recycled products.a. failingb. expensivec. substandardd. greene. blackAns: d Page: 256

Creating a Strategy-Supportive Culture209. Formal statements of organizational philosophy, charters, creeds, materials used for recruitment and selection and socialization help an organizationa. abide by SEC laws.b. link culture to strategy.c. set guidelines for firing.d. increase profits.Ans: b Page: 258210. __________ is an effective, multi-method technique of studying and altering a firm’s culture.a. Benchmarkingb. Deliveringc. Triangulationd. Process managemente. Educative change strategyAns: c Page: 258211. Desire for __________ is a part of the social fabric in worker-manager relations in Mexico.a. harmonyb. frictionc. conflictd. independenceAns: a Page: 258212. How is life in Mexico in comparison to life in the United States?a. Fasterb. More affluentc. Time-dictated

d. SlowerAns: d Page: 259213. The Russian people are better known for theira. drive.b. stupidityc. laziness.d. lack of motivation.Ans: a Page: 259214. Which of the following describes most Japanese managers?a. Reservedb. Quietc. Distantd. Impulsivee. IntrospectiveAns: d Page: 260

Production/Operations Concerns When Implementing Strategies215. Production processes typically constitute more than _____ percent of a firm’s total assets.a. 5b. 20c. 42d. 70e. 89Ans: d Page: 261216. Just in time describesa. implementing strategies just before bankruptcy.b. delivering materials just as they are needed.c. a personnel planning method.d. none of the above.e. all of the above.Ans: b Page: 262217. All of the following factors should be studied before locating production facilities excepta. the prevailing wage rates in the area.b. political risks in the area or country.c. the availability of major resources.d. transportation costs related to shipping and receiving.e. the cost to transfer host country managers.Ans: e Page: 262

Human Resource Concerns When Implementing Strategies218. A concern in matching managers with strategy is that jobs have relatively __________ responsibilities, while people are __________ in their development.a. static; dynamicb. dynamic; staticc. quick; slowd. exciting; dullAns: a Page: 263

219. When implementing strategies, causes of human resources problems cannot be traced toa. disruption of social and political structures.b. failure to match individuals’ aptitudes with implementation tasks.c. inadequate top management support for implementation activities.d. inadequate working capital.Ans: d Page: 263220. _________________ usually participate in an ESOP plan.a. All full-time employees over age 21b. All managers over age 21c. All full-time and part-time employees over age 21d. All full-time employees with more than three years seniorityAns: a Page: 264221. HR managers need to foster more effective balancing of professional and private lives because nearly _____ million people in the United States are now part of two-career families.a. 60b. 8c. 21d. 33e. 2Ans: a Page: 265222. More women in the United States are employed as __________ than work in any other jobs.a. firefightersb. teachersc. tool and die makersd. construction workerse. airplane pilotsAns: b Page: 266223. Among the Fortune 1000 companies, there are only _______ female CEOs.a. 2b. 7c. 45d. 69e. 21Ans: b Page: 266224. _______ is not a major benefit of having a diverse workforce.a. Improvement of the bottom lineb. An increase in training costsc. An increase in productivityd. A decrease in complaints and litigatione. Higher retention of employeesAns: b Page: 267

Essay Questions225. List five major reasons annual objectives are essential for strategy implementation.

Annual objectives are essential for strategy implementation because they(1) represent the basis for allocating resources, (2) are a primary mechanism for evaluating managers, 

(3) are the major instrument for monitoring progress toward achieving long-term objectives and (4) establish organizational, divisional and departmental priorities.

226. Identify the three types of policies in an organization and give an example of each.The three types of policies in an organization are company strategy, divisional objective and production department objective. Please refer to Table 7-2 on page 242 for examples of each approach.

227. There are three major approaches for minimizing and resolving conflict in an organization. Define these three approaches and give an example of each.Various approaches for managing and resolving conflict can be classified into three categories: avoidance, diffusion and confrontation. Avoidance includes such actions as ignoring the problem in hopes the conflict will resolve itself, or physically separating the conflicting individuals. Diffusion can include playing down differences between conflicting parties while accentuating similarities and common interests, compromising so there is neither a clear winner nor loser, resorting to majority rule, appealing to a higher authority, or redesigning present positions. Confrontation is exemplified by exchanging members of conflicting parties so each can gain an appreciation of the other’s point of view, or holding a meeting at which conflicting parties present their views and work through their differences.Student answers will vary on the examples given for each approach.

228. What are the advantages and disadvantages of a divisional organizational structure?A divisional structure has some clear advantages. The first is that accountability is clear. Also, it creates career development opportunities for managers, allows local control of local situations, leads to a competitive climate within an organization and allows new businesses and products to be added easily.A divisional structure does have its limitations. A divisional structure is costly because each division requires functional specialists who must be paid, there exists some duplication of staff services, facilities and personnel, and better-qualified individuals require higher salaries. It is also costly because it requires an elaborate headquarters-driven control system. Finally, certain religions, products, or customers may sometimes receive special treatment, and it may be difficult to maintain consistent, company-wide practices.

229. There are four basic ways a divisionally structured firm could be organized. What are these four ways? Give an example of each.The four basic ways a divisionally structured firm could be organized are 1) by geographic area. An example of this would be any organization with similar branch facilities located in widely dispersed areas, 2) by product or service. Huffy is an example of divisional structure by product,3) by customer. Book publishing companies often organize their activities around customer groups as college, secondary schools and private commercial schools and 4) by process. An example of this is a manufacturing business organized into six divisions: electrical work, glass cutting, welding, grinding, painting and foundry work. Each division would be responsible for generating revenues and profits.

230. Compare and contrast restructuring and reengineering.Restructuring involves reducing the size of the firm in terms of number of employees, number of divisions or units and number of hierarchical levels in the firm’s organizational structure. Restructuring is concerned primarily with

shareholder well-being rather than employee well-being.In contrast, reengineering is concerned more with employee and customer well-being than shareholder well-being. Reengineering involves reconfiguring or redesigning work, jobs and processes for the purpose of improving cost, quality, service and speed. Whereas restructuring is concerned with eliminating or establishing, shrinking or enlarging, and moving organizational departments and divisions, the focus of reengineering is changing the way work is actually carried out. Reengineering is characterized by many tactical decisions, whereas restructuring is characterized by strategic decisions.

231. What are the three commonly used strategies or approaches for implementing changes in an organization? Give an advantage and/or disadvantage for each type of approach.Although there are various approaches for implementing changes, three commonly used strategies are a force change strategy, an educative change strategy and a rational or self-interest change strategy. A force change strategy involves giving orders and enforcing those orders; this strategy has the advantage of being fast, but low commitment and high resistance plague it. An educative change strategy is one that presents information to convince people of the need for change; the disadvantage of an educative change strategy is that implementation becomes slow and difficult. However, this type of strategy evokes greater commitment and less resistance than does the force change strategy. Finally, a rational or self-interest change strategy is one that attempts to convince individuals the change is to their personal advantage. When this appeal is successful, strategy implementation can be relatively easy.

232. List 10 special natural environment issues.Students can choose any 10 from the following 12 special natural environment issues:(1) ozone depletion, (2) global warming, (3) depletion of rain forests, (4) destruction of animal habitats, (5) protecting endangered species, (6) developing biodegradable products and packages, (7) waste management, (8) clean air, (9) clean water, (10) erosion, (11) destruction of natural resources and (12) pollution control.

233. Explain the nature and role of ESOPs in strategic management.An ESOP is a tax-qualified, defined-contribution employee-benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions. ESOPs empower employees to work as owners. Besides reducing worker alienation and stimulating productivity, ESOPs allow firms other benefits, such as substantial tax savings. Principal, interest and dividend payments on ESOP-funded debt are tax-deductible. Banks lend money to ESOPs at interest rates below prime. This money can be repaid in pretax dollars, lowering the debt service as much as 30 percent in some cases. Research confirms ESOPs can have a dramatically positive effect on employee motivation and corporate performance, especially if ownership is coupled with expanded employee participation and involvement in decision-making. Market surveys indicate customers prefer to do business with firms that are employee-owned.

234. List eight benefits of a diverse workforce.Students may choose any eight of the following 13 major benefits of having a diverse workforce: (1) improves corporate culture, (2) improves employee morale, (3) leads to a higher retention of employees, (4) leads to an easier recruitment of new employees, (5) decreases complaints and litigation, (6) increases creativity, (7) decreases interpersonal conflict between employees, (8) enables the organization to move into emerging markets, (9) improves client relations, (10) increases productivity, (11) improves the bottom line, (12) maximizes brand identity and (13) reduces training costs.

MGT603 Solved MCQs from Book by Fred (chap 8)______ can be defined as the subdividing of a market into distinct subsets of customers according to needs and buying habits

Product positioningMarketing mixMarket segmentation

Divisional structure ______________ and ____________ rank as marketing's most important contributions to strategic management.Market penetration; market segmentationProduct diversification; market penetrationMarket segmentation; product positioningProduct positioning; product diversification An effective product positioning strategy leads customers to expect __________service than a company can deliver.much higherslightly lowerthe samemuch lower _______ entails developing schematic representations that reflect how your products or services compare to competitors' on dimensions most important to success in the industryPromotionPositioningPlacingPricing What is the most widely used technique for determining the best combination of debt and stock?Earnings per share/earnings before interest and tax analysisDebt-to-stock ratioPresent value analysisGross profit analysis Nearly all financial institutions require at least __________ years of projected financial statements whenever a business seeks capitalFiveThreeFourSix The first approach in evaluating the worth of a business is determining its __________ or __________.net income; operating revenuecash flow; net incomewealth; revenuenet worth; stockholders' equity Which of the following can be forecasted using the percentage-of-sales method?

Cost of goods soldTaxesInterestDividends In many firms, _________ is doing away with the workplace and allowing employees to work at home or anywhere, anytime.ManagementThe economyGovernment Information technology

The level of management support for R&D is often constrained by:the limited performance of R&D.difficult market penetration.high levels of competition in R&D.resource availability. The most common bases for segmenting markets are geographic and demographic.TrueFalse An EPS/EBIT analysis is the most widely used technique for determining whether debt, stock, or a combination is the best alternative for raising capital to implement strategies. TrueFalse The balance sheet should be prepared before the income statement in performing projected financial analyses. TrueFalse Financial budgets can be viewed as the planned allocation of a firm's resources based on past performance.TrueFalse Strategies such as forward, backward, and horizontal integration require that new products be successfully developed and that old products be significantly improved.TrueFalse Using all debt or all stock to raise capital may impose fixed obligations, restrictive covenants, or other constraints that could severely reduce a firm's ability to raise additional capital in the future.

TrueFalse. Financial budgeting should not be thought of as a tool for limiting expenditures but rather as a method for obtaining the most productive and profitable use of an organization's resources.TrueFalse. To use the price-earnings ratio method, divide annual earnings per share by the market price of the firm's common stock and multiply by average netincome for the past five years.TrueFalse A good information system can cause a firm to increase costs due to the expense of new technology.TrueFalse.A good information system can allow a firm to reduce costs by establishing direct communications between elements of the value chain.TrueFalse

 CHAPTER 9

Strategy Review, Evaluation and Control

 True/False

 

The Nature of Strategy Evaluation

 

1.         If strategy implementation is successful, an enterprise can be lulled into complacency with success.

 

            Ans: F                         Page: 300

 

2.         Adequate, timely feedback is important to effective strategy evaluation.

 

            Ans: T                         Page: 300

 

3.         Too much emphasis on evaluating strategies may be expensive and counterproductive.

 

            Ans: T                         Page: 300

 

4.         Strategy evaluation should have a long-run focus and avoid a short-run focus, given that strategies are long term in nature.

 

            Ans: F                         Page: 300

 

5.         According to Richard Rumelt, consonance and consistency are based on a firm’s external assessment.

 

            Ans: F                         Page: 300

 

6.         According to Rumelt, consistency and feasibility are largely based on a firm’s internal assessment.

 

            Ans: T                         Page: 300

 

7.         Regardless of the size of the organization, a certain amount of management by wandering around at all levels is essential to effective strategy evaluation.

 

            Ans: T                         Page: 300

 

8.         Falsification of reports can result from too great an insistence on attainment of objectives. 

            Ans: T                         Page: 300

 

9.         Consistency, distinctiveness, advantage and feasibility are Richard Rumelt’s four criteria for evaluating a strategy.

 

            Ans: F                         Page: 300

 

10.       Most top managers feel an organization’s well-being depends on evaluation of the strategic-management process.

 

            Ans: T                         Page: 300

 

11.       Strategy evaluation is becoming increasingly easier with the passage of time, given the technological advances.

 

            Ans: F                         Page: 301

 

12.       The decreasing time span for which planning can be done with any degree of certainty is a reason strategy evaluation is more difficult today.

 

            Ans: T                         Page: 301

 

13.       Consistency refers to the need for strategists to examine sets of trends as well as individual trends in evaluating strategies.

 

            Ans: F                         Page: 302

 

14.       The need for strategists to examine sets of trends as well as individual trends in evaluating strategies is referred to as consonance.

 

            Ans: T                         Page: 302

 

15.       The final broad test of strategy is consistency, that is, can the strategy be implemented consistently every year.

 

            Ans: F                         Page: 302

 

16.       Strategies may be inconsistent if policy problems and issues continue to be brought to the top for resolution.

 

            Ans: T                         Page: 302

 

17.       Competitive advantages normally are the result of superiority in one of three areas: feasibility, consistency, or consonance.

 

            Ans: F                         Page: 302

 

18.       Because large companies have more at stake, it is more important for large organizations to conduct strategy evaluation than small companies.

 

            Ans: F                         Page: 303

 

19.       When empowered employees are held accountable for and pressured to achieve specific goals and are given wide latitude in their actions to achieve them, there can be dysfunctional behavior.

 

            Ans: T                         Page: 303

 

20.       Given that large amounts of money are at stake, strategy evaluation is primarily necessary for large, corporate companies, not small or not-for-profit ones.

 

            Ans: F                         Page: 303

 

21.       The end of the fiscal year is the best time of the year to do strategy evaluation.

 

            Ans: F                         Page: 304

 

22.       Strategy-evaluation activities should be performed on a periodic basis.

 

            Ans: F                         Page: 304

A Strategy-Evaluation Framework

 23.       Changes in the organization’s management, marketing, finance, R&D and CIS strengths and weaknesses should all be the focus of a revised EFE matrix in strategy evaluation.

 

            Ans: F                         Page: 305

 

24.       In strategy evaluation, a revised IFE matrix should indicate how effective a firm’s strategies have been in response to key opportunities and threats.

 

            Ans: F                         Page: 305

 

25.       Strengths, weaknesses, opportunities and threats should continually be monitored for change because it is not really a question of whether these factors will change but rather when they will change and in what ways.

 

            Ans: T                         Page: 305

26.       Perhaps the most important part of preparing a revised External Factor Evaluation Matrix is determining how a firm’s position has changed relative to major competitors.

 

            Ans: T                         Page: 305

 

27.       Comparing expected results to actual results is an activity included in taking corrective action.

 

            Ans: F                         Page: 307

 

28.       Criteria for evaluating strategies should be measurable and easily verifiable.

 

            Ans: T                         Page: 307

 

29.       Financial ratios are the most commonly used criteria to evaluate strategies.

 

            Ans: T                         Page: 307

 

30.       Measuring organizational worth includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance and examining progress being made toward meeting stated objectives.

 

            Ans: F                         Page: 307

 

31.       Intuitive judgments are almost always involved in deriving quantitative criteria.

 

            Ans: T                         Page: 308

 

32.       Measuring organizational performance requires making changes to reposition a firm competitively for the future.

 

            Ans: F                         Page: 308

 

33.       Organizations need to be as objective as possible in considering qualitative factors in strategic management.

 

            Ans: F                         Page: 308

 

34.       Taking corrective actions does not necessarily mean that existing strategies will be abandoned, or even that new strategies must be formulated.

 

            Ans: T                         Page: 308

 35.       Most quantitative evaluation criteria are geared to long-term objectives rather than annual objectives.

 

            Ans: F                         Page: 308

 

36.       Corrective action in strategy evaluation is not needed when the firm is progressing satisfactorily toward achieving stated objectives.

 

            Ans: T                         Page: 308-309

 

37.       According to research, participation in strategy-evaluation activities is one of the best ways to overcome individuals’ resistance to change.

           

            Ans: T                         Page: 309

 

38.       Alvin Toffler argues that environments are becoming so dynamic and complex that they threaten people and organizations with future shock in his thought-provoking books entitled Future Shock and The Third Wave.

 

            Ans: T                         Page: 309

 

39.       When the type and speed of changes overpower an individual or organization’s ability and capacity to adapt, future shock occurs.

 

            Ans: T                         Page: 309

 

40.       Often emotionally based, resistance to change is easily overcome by rational argument.

 

            Ans: F                         Page: 309

 

Published Sources of Strategy-Evaluation Information

 

41.       Each year, Fortune publishes strategy evaluation research on both the United States and other countries.

 

            Ans: T                         Page: 310

 

42.       An excellent evaluation of corporations in America, published annually in the January issue of Forbes, is the Annual Report on American Industry.

                       

            Ans: T                         Page: 310

 

43.       France’s best company in 1999, according to Fortune, was BP Amoco in the petroleum refining industry. 

            Ans: F                         Page: 312

 

Characteristics of an Effective Evaluation System

 

44.       Advance warning, or predictions of results, may be more important than control reports.

 

            Ans: T                         Page: 311

 

45.       Strategy-evaluation activities must be economical, i.e., they should specifically relate to a firm’s objectives.

 

            Ans: F                         Page: 311

 

46.       Approximate information that is timely is generally more desirable as a basis for strategy evaluation than accurate information that does not depict the present.

 

            Ans: T                         Page: 311

 

47.       The basic idea behind strategy evaluation is to alert management to problems or potential problems before a situation becomes critical.

 

            Ans: T                         Page: 311-313

 

48.       The strategy-evaluation process should dominate decisions to be effective.

 

            Ans: F                         Page: 312

 

49.       The test of an effective evaluation system is its usefulness and complexity.

 

            Ans: F                         Page: 312

 

50.       Small organizations require a more elaborate and detailed strategy-evaluation system because they are still evolving.

 

            Ans: F                         Page: 312

 

51.       There is no one ideal strategy-evaluation system for all organizations.

 

            Ans: T                         Page: 312

 

Contingency Planning 

52.       Alternative plans that can be put into effect if certain key events do not occur as expected are called contingency plans.

 

            Ans: T                         Page: 313

 

53.       Organizations should prepare contingency plans just for unfavorable events.

 

            Ans: F                         Page: 313

 

54.       High-priority areas are the only areas requiring the insurance of contingency plans.

 

            Ans: T                         Page: 313

 

55.       Strategies should try to cover all bases by planning for all possible contingencies.

 

            Ans: F                         Page: 313

 

56.       Contingency plans should be as simple as possible.

 

            Ans: T                         Page: 313

 

57.       Alternative strategies not selected for implementation should be discarded, as they have a tendency to contaminate the contingency plans.

 

            Ans: F                         Page: 314

 

58.       Identifying both beneficial and unfavorable events that could possibly derail the strategy or strategies is the first step of effective contingency planning.

 

            Ans: T                         Page: 314

 

Auditing

 

59.       Independent auditors, government auditors and IRS auditors are the three groups of people who perform audits.

 

                Ans: F                         Page: 314

 

60.       Independent auditors basically are CPAs who provide their services to organizations for a fee.

 

            Ans: T                         Page: 314

61.       Public accounting firms usually avoid strategy evaluation services.

 

            Ans: F                         Page: 315

 

62.       Two government agencies—IRS and GAO—employ government auditors responsible for making sure organizations comply with federal laws, statutes and policies.

 

            Ans: T                         Page: 315

 

63.       Moving environmental affairs from the line side of the organization to the staff side is required when instituting an environmental audit.

 

            Ans: F                         Page: 316

 

Using Computers to Evaluate Strategies

 

64.       Business today has become so competitive that strategists are forced to extend planning horizons and to make decisions under greater degrees of uncertainty.

 

            Ans: T                         Page: 316

 

65.       Personal values, attitudes, morals, preferences, politics, personalities and emotions are not programmable—an advantage of computer-based systems to evaluate and monitor strategy execution.

 

            Ans: F                         Page: 316

 

66.       In evaluating strategies, computers should be viewed as tools rather than as actual decision-making devices.

 

            Ans: T                         Page: 316

MGT603 Strategic Management Solved MCQs from Book by David (chap 9c)

The Nature of Strategy Evaluation67. Which of these is/are a basic activity of strategy evaluation?a. Reviewing the underlying internal and external factors that represent the bases of current strategiesb. Measuring organizational performancec. Taking corrective actionsd. All of the abovee. Both b and cAns: d Page: 30068. Which of these is the cornerstone of effective strategy evaluation?a. Adequate and timely feedbackb. Quality and quantity of managersc. Smaller ratio of top- to lower-level managementd. Evaluation preceding implementation stageAns: a Page: 30069. All of these are Richard Rumelt’s criteria to evaluate a strategy excepta. advantage.b. consistency.c. feasibility.d. distinctiveness.c. consonance.Ans: d Page: 300

70. The purpose of strategy evaluation is toa. increase the budget annually.b. alert management to problems or potential problems.c. make budget changes.d. evaluate employees’ performance.Ans: b Page: 30071. Strategy evaluation is becoming __________ with the passage of time.a. increasingly difficultb. much simplerc. very convenientd. an unnecessary activityAns: a Page: 30172. All of the following are reasons strategy evaluation is more difficult today excepta. a dramatic increase in the environment’s complexity.b. the increasing number of variables.c. the increase in the number of both domestic and world events affecting organizations.d. the decreasing difficulty of predicting the future with accuracy.e. the rapid rate of obsolescence of even the best plans.Ans: d Page: 301

73. A final broad test of strategy is itsa. advantage.b. feasibility.c. consonance.d. consistency.e. distinctiveness.Ans: b Page: 30274. Competitive advantage normally is the result of superiority in all of these areas excepta. resources.b. position.c. consistency.d. skills.Ans: c Page: 30275. In evaluating strategies, __________, one of Rumelt’s criteria for evaluating strategies, refers to the need for strategists to examine sets of trends.a. consistencyb. consonancec. feasibilityd. advantageAns: b Page: 30276. When empowered employees are held accountable for and pressured to achieve specific goals and are given wide latitude in their actions to achieve them, there can bea. increased productivity.b. dysfunctional behavior.c. decreased number of complaints.d. decreased turnover.e. increased number of litigations.Ans: b Page: 303

77. Strategy-evaluation activities should be performeda. on a periodic basis.b. at the onset of a problem.c. on a continuous basis.d. upon completion of major projects.Ans: c Page: 30478. All of the following statements are true excepta. strategy evaluation reviews conclusions reached during strategy formulation.b. strategy evaluation examines actions taken during strategy implementation.c. strategy evaluation should be performed at the end of specified periods.d. the three basic activities of strategy evaluation are appropriate for all sizes and kinds of organizations.Ans: c Page: 30479. What is the best type of strategy evaluation?a. Intenseb. Informalc. Continuousd. PeriodicAns: c Page: 304

 

A Strategy-Evaluation Framework80. When you discover major changes have occurred in the firm’s internal strategic position while conducting strategy evaluation, you shoulda. continue on the present strategic course.b. immediately discontinue all aspects of the present strategic course.c. take corrective actions.d. add additional funds to the present strategic plan.Ans: c Page: 30481. Changes in the organization’s management, marketing, finance/accounting, R&D and CIS strengths and weaknesses should be the focus of a reviseda. mission.b. IFE matrix.c. vision.d. EFE matrix.e. EPM matrix.Ans: b Page: 305

82. A revised __________ should indicate how effective a firm’s strategies have been in response to key opportunities and threats.a. IFE matrixb. missionc. EFE matrixd. visione. CPM matrixAns: c Page: 305

83. Which of the following activities are included in reviewing underlying bases of the strategy phase of strategy-evaluation framework?a. Prepare a revised IFE matrixb. Compare a revised to an existing IFE matrixc. Prepare a revised EFE matrixd. Compare planned to actual progresse. Compare a revised to an existing EFE matrixAns: d Page: 30584. How does a revised External Factor Evaluation Matrix compare to an existing External Factor Evaluation Matrix?a. The weightings may be different.b. The key factors may be different.c. The total weighted score may be different.d. All of the above

Ans: d Page: 305

85. Which of these is not an activity included in measuring the organizational performance phase of strategy evaluation?a. Examining progress being made toward stated objectivesb. Taking corrective actionc. Comparing expected results to actual resultsd. Evaluating individual performanceAns: b Page: 30786. Which of the following is not included in measuring organizational performance?a. Comparing results to competitors’ expectationsb. Examining financial statementsc. Investigating deviations from plansd. Evaluating individual performancee. Comparing expected results to actual resultsAns: a Page: 30787. Ineffectiveness and/or inefficiencies indicate the need fora. layoffs.b. consultants.c. some form of correction action.d. reductions in pay.c. more synergy.Ans: c Page: 30788. What is the basis for quantitative financial evaluation?a. Reduction in costsb. The EPS/EBIT Analysisc. Capital Asset Pricing Modeld. Financial ratiose. Present value analysisAns: d Page: 30789. ___________ are perhaps the most commonly used criteria to evaluate strategies.a. Financial ratiosb. Revised factor evaluation matrices

c. Organizational performance variablesd. Industry averagesAns: a Page: 30790. Which of these is not a key financial ratio?a. Market shareb. Production qualityc. Earnings per shared. Asset growthAns: b Page: 30791. Corrective actions shoulda. strengthen an organization’s competitive position in its industry.b. streamline asset holdings.c. reduce the staff size.d. all of the above.Ans: a Page: 30892. __________ is/are corrective actions a firm could take during strategy evaluation.a. Revising the business missionb. Issuing stockc. Revising objectivesd. All of the aboveAns: d Page: 30893. ______________ occur(s) when the nature, types and speed of changes overpower an individual’s or organization’s ability and capacity to adapt.a. Corporate downfallb. Corrective actionsc. Future shockd. Corporate agilityAns: c Page: 30994. ______________is/are the best way to overcome individuals’ resistance to change in strategy evaluation.a. Participationb. Command-and-controlc. Laissez-faire systemd. Rational argumente. Emotional reactionsAns: a Page: 30995. Corrective actions are __________ as a result of strategy evaluation.a. almost always neededb. definitely neededd. rarely needede. none of the aboveAns: a Page: 309

96. In the important publication used to evaluate a firm’s strategy, the Fortune 50 includes what?a. The 50 highest-paid CEOs in several industriesb. The 50 top manufacturing firmsc. The 50 top political figuresd. The 50 worst-performing companies of the year

c. None of the aboveAns: e Page: 30997. All of the following are key attributes that serve as evaluative criteria excepta. ability to react.b. quality of products or services.c. innovativeness.d. financial soundness.e. use of corporate assets.Ans: a Page: 31098. Which of these is not a key attribute in Fortune’s strategy evaluation research on “America’s Most Admired Companies”?a. Quality of managementb. Innovationc. Long-term investment valued. Amount of physical resourcese. Use of corporate assetsAns: d Page: 31299. Which of these is Britain’s best company in petroleum refining?a. Total Finab. Royal Dutch/ Shell Groupc. Unileverd. Reuters GroupAns: b Page: 312100. Which of these is France’s best soaps and cosmetics company?a. Cliniqueb. Christian Diorc. L’Oreald. Estee Laudere. LancomeAns: c Page: 312101. __________ is German’s best electronics company, according to Fortune.a. Siemensb. L.M. Cricssonc. ABB Asea Brown Boverid. Vincie. BASFAns: a Page: 312

 

Characteristics of an Effective Evaluation System

102. __________is not a characteristic of an effective evaluation system.a. Economicalb. Timelyc. Information-oriented

d. MeaningfulAns: c Page: 311103. Controls need to be ____________ rather than ____________.a. action oriented; information orientedb. cultural; politicalc. qualitative; quantitatived. measurable; timelyAns: a Page: 311104. The strategy-evaluation process should fostera. mutual understanding.b. implementation.c. corporate culture.d. profit centers.e. contingency plans.Ans: a Page: 312105. ______________ determine the final design of a firm’s strategy-evaluation and control system.a. Opportunitiesb. Threatsc. External characteristicsd. The organization’s characteristicse. The competition’s characteristicsAns: d Page: 312

Contingency Planning106. __________ is having alternative plans that can be put into effect if certain key events do not occur as expected.a. Corporate agilityb. Scenario planningc. Strategy evaluationd. Contingency planninge. ForecastingAns: d Page: 313107. Which of the following statements about contingency plans is not true?a. Contingency plans should be as simple as possible.b. Only high-priority areas require the insurance of contingency plans.c. Contingency planning makes managers more adaptable.d. Develop contingency plans for all contingent events.Ans: d Page: 314

Auditing108. All of the following perform audits excepta. external auditors.b. government auditors.c internal auditors.d. independent auditors.Ans: a Page: 314109. Who performs audits?a. Independent auditors

b. Government auditorsc. Internal auditorsd. Marketing department auditore. a, b & cAns: e Page: 314110. __________ are auditors specifically responsible for safeguarding the assets of a company.a. Independent auditorsb. Government auditorsc. Internal auditorsd. External auditorsAns: c Page: 315

Using Computers to Evaluate Strategies111. ___________ can allow diverse strategy-evaluation reports to be generated for different levels and types of managers.a. Strategistsb. Networksc. Front-line employeesd. Competitive analysisAns: b Page: 316112. In strategy evaluation, computers need to be viewed as _________ rather than as _________.a. unreliable; essentialb. essential; unreliablec. tools; actual decision-making devicesd. decision-making devices; toolsAns: c Page: 316

Essay Questions 113.     Explain why strategy evaluation can be a complex and sensitive undertaking.             Strategy can be a complex and sensitive undertaking because too much emphasis on evaluating strategies may be expensive and counterproductive. No one likes to be evaluated too closely! The more managers attempt to evaluate the behavior of others, the less control they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure stated objectives are being achieved.             Page: 300 

114.     Compare and contrast two of Rumelt’s four criteria for evaluating strategies. Rumelt’s four criteria for evaluating strategies are consistency, consonance, feasibility and advantage. Students should take their answers from Table 9-1 on page 302, which provides descriptions of each.             Page: 302 115.     Describe each of the activities that comprise strategy evaluation.                       The activities that comprise strategy evaluation are: (1) reviewing the underlying bases of an organization’s strategy, (2) measuring organizational performance and (3) taking corrective actions. Please refer to pages 305-309 for descriptions of each activity.             Page: 304-309 116.     What are the most commonly used quantitative criteria to evaluate strategies? Give several examples of these criteria. Quantitative criteria commonly used to evaluate strategies are financial ratios, which strategists use to make three critical comparisons: (1) comparing the firm’s performance over different time periods, (2) comparing the firm’s performance to that of competitors’ and (3) comparing the firm’s performance to industry averages. Some particularly useful key financial ratios used as criteria for strategy evaluation are: (1) ROI, (2) ROE, (3) profit margin, (4) market share, (5) debt to equity, (6) earnings per share, (7) sales growth and (8) asset growth.             Page: 307 117.     When faced with resistance to taking corrective actions, what can/should a manager do?                 Hussey and Langham offered the following insight on taking corrective actions:         Resistance to change is often emotionally based and not easily overcome by rational argument. Resistance may be based on such feelings as loss of status, implied criticism of present competence, fear of failure in the new situation, annoyance at not being consulted, lack of understanding of the need for change, or insecurity in changing from well-known and fixed methods. It is necessary to overcome such resistance by creating situations of participation and full explanation when changes are envisaged.          Page: 307-308 

118.     Identify some important guidelines for effective strategic management, as presented in the chapter.

                               Please refer to the entire discussion on pages 311-313 under Characteristics of an Effective Evaluation System.             Page: 311-313 119.     Describe the seven-step process of effective contingency planning in strategy evaluation.             The suggested seven-step process of effective contingency planning is as follows: (1) Identify both beneficial and unfavorable events that could possibly derail the strategy or strategies, (2) specify trigger points and calculate about when contingent events are likely to occur, (3) assess the impact of each contingent event, (4) develop contingency plans, (5) assess the counter impact of each contingency plan, (6) determine early warning signals for key contingent events and monitor them and (7) for contingent events with reliable early warning signals, develop advance action plans to take advantage of the available lead time.             Page: 314 120.     Individuals who perform audits can be divided into three groups. Identify these three groups and give an example of each.             People who perform audits can be divided into three groups: independent auditors, government auditors and internal auditors. An example of an independent auditor is the CPAs at Arthur Andersen public accounting firm. The GAO and IRS are examples of government auditors. Employees within an organization who are responsible for safeguarding company assets, for assessing the efficiency of company operations and for ensuring the generally accepted business procedures are examples of internal auditors.             Page: 314-315 121.     What are the advantages and disadvantages of using computers to evaluate strategies?             Please refer to the discussion on pages 316-317 under Using Computers to Evaluate Strategies.             Page: 316-317