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Fundamentals of Management, 8e (Robbins et al.

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Chapter 5 Foundations of Planning
1) All managers plan in some way, either formally or informally.
Answer: TRUE
Explanation: Planning has been identified as the primary management function, indicating that it is the
activity that managers concern themselves with most.
Diff: 1 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
2) Informal plans are not recognized to be an effective form of planning.
Answer: FALSE
Explanation: Informal plans can be highly effective and highly appropriate for some organizations,
especially those that are small in size. As organizations increase in size, the need for formal planning
tends to increase.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
3) At some point, all managers create formal plans.
Answer: FALSE
Explanation: Many managers, especially those who are part of small organizations, do not ever resort to
making systematic formal plans.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
4) Planning provides direction to managers and nonmanagers alike.
Answer: TRUE
Explanation: Part of the function of planning is to let everyone in the organization know what the future
holds, so planning is very important because it informs nonmanagers of what to expect and how to
prepare for the future.
Diff: 1 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
5) A key function of planning is to create goals.
Answer: TRUE
Explanation: Creating goals is one of four major reasons that managers plan. The other three major
functions of planning are to reduce uncertainty, reduce waste, and set goals and standards.
Diff: 2 Page Ref: 107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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6) Informal planning typically works better in large organizations.


Answer: FALSE
Explanation: Informal planning is generally adequate only for small organizations in which a single
individual or small group can keep the plans to themselves. Once the organization grows to a larger size,
it becomes necessary for many people to have access to the organization's plansand that almost
always requires formal planning.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
7) The four reasons that organizations plan is to provide direction, set standards, minimize waste, and
reduce uncertainty and the impact of change.
Answer: TRUE
Explanation: Direction tells organization members where the organization is going with respect to goals
and objectives. Standards identify the goals of the organization. Minimizing waste and redundancy
makes the organization efficient. Reducing the impact of change makes the organization more able to
avoid the damage that change can bring on and to take advantage of the opportunities that changes often
present.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
8) Planning rarely improves teamwork and cooperation among employees.
Answer: FALSE
Explanation: In fact, teamwork and cooperation are two things that planning often helps most. The
better the plans are, the more coordinated the organization's efforts tend to be.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
9) An organization that fails to plan will find it hard to assess progress.
Answer: TRUE
Explanation: Goals and standards developed in the planning process give the organization something to
compare its performance against. Without clearly identified goals and standards, an organization has no
idea of how to judge whether it has succeeded or failed.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
10) A major argument against formal plans is that they can't replace intuition and creativity.
Answer: TRUE
Explanation: Formal plans typically cannot avoid being more rigid than informal plans, leaving less
room for using intuition, spontaneity, and creativity.
Diff: 2 Page Ref: 107
Objective: 5.1
Learning Outcome: Describe the innovation process and identify strategies for stimulating creativity
and innovation
11) Formal planning can increase creativity in an organization.
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Answer: TRUE
Explanation: If done well, formal plans can enhance, rather than stifle, creativity. The key is for the
formal plans to be flexible enough to allow creativity to be employed.
Diff: 2 Page Ref: 107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
12) Managers who make formal plans are more likely to help an organization "break the mold" and carry
out truly groundbreaking work that redefines an entire industry.
Answer: FALSE
Explanation: Formal plans tend to focus on existing opportunities in the current climate rather than the
opportunities of the future that are as yet unimagined. Therefore, formal plans are likely to impede,
rather than promote, truly groundbreaking work.
Diff: 2 Page Ref: 107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
13) A major strength of formal planning is that it reinforces past successes and incorporates them into
the future.
Answer: FALSE
Explanation: Focusing on past successes is a weakness, not a strength, of formal planning. Formal plans
tend to fixate on what worked well in the past, not what might work well in the changed circumstances
of the future.
Diff: 2 Page Ref: 107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
14) A major strength of formal planning is that it gives an organization rigidity.
Answer: FALSE
Explanation: Rigidity is a weakness of formal planning. Formal planning can lock an organization into a
preset sequence of events that might not be able to cope with changing conditions and circumstances.
Diff: 2 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
15) A major strength of formal planning is that it generally correlates with higher profits.
Answer: TRUE
Explanation: Studies show that organizations that use formal planning generally have higher profits
than those that don't use formal planning.
Diff: 2 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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16) Successful planning depends more on whether managers plan than on the quality of their planning.
Answer: FALSE
Explanation: Evidence shows that organizations often fail not because they focused their planning
efforts on the wrong things but because the quality of their planning was deficient.
Diff: 2 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
17) Research indicates that organizations that don't use formal planning always outperform
organizations that do use formal planning.
Answer: FALSE
Explanation: To the contrary, evidence from studies shows that planning organizations generally
outperform nonplanning organizations.
Diff: 2 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
18) Strategic management is the act of figuring out how an organization will compete in the marketplace
and attract loyal customers.
Answer: TRUE
Explanation: Strategic management involves developing an organization's strategies. Those strategies
involve making plans for how an organization will do business and achieve its goals.
Diff: 2 Page Ref: 108
Objective: 5.2
19) The first step in the strategic management process is analyzing the external environment.
Answer: FALSE
Explanation: The first step in the strategic management process is for the organization to identify its
goals, mission, and strategies. Only then can it move on to start analyzing its external situation.
Diff: 2 Page Ref: 109-110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
20) A mission statement for a kayak manufacturer might be as follows: To make the highest-quality
kayaks and sell them at a competitive price.
Answer: TRUE
Explanation: A mission statement defines what the organization is in business to do. This statement
clearly states why the kayak company is in business.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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21) An external analysis will identify the threats to a company's well-being, but not opportunities for
success.
Answer: FALSE
Explanation: An external analysis, the second step in the strategic management process, involves not
just identifying threats to an organization, but also finding opportunities that the organization can take
advantage of.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
22) Core competencies include an organization's major capabilities and its resources.
Answer: FALSE
Explanation: Core competencies include the capabilities of an organizationalits skills and abilities
onlynot its resources.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
23) Capabilities are "what" an organization has; resources are "how" it uses what it has.
Answer: FALSE
Explanation: The statement has it reversed. Capabilities are what an organizational can do; resources are
strengths and assets that it has.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
24) SWOT analysis includes the identification of an organization's strengths, weaknesses, opportunities,
and threats.
Answer: TRUE
Explanation: The term SWOT is an acronym for strengths, weaknesses, opportunities, and threats.
Diff: 1 Page Ref: 110-111
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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25) The final three steps in the strategic management process involve the creation and implementation of
strategies for realizing organizational goals.
Answer: TRUE
Explanation: The last three steps in the strategic management process are formulating strategies,
implementing strategies, and evaluating results. Together, these steps create and carry out strategies that
help an organization attain its goals and objectives.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
26) A corporate strategy may be a growth strategy, a stability strategy, or a renewal strategy.
Answer: TRUE
Explanation: The three major corporate strategies are growth strategies that focus on expansion,
stability strategies that focus on maintaining position, and renewal strategies that focus on fixing
problems.
Diff: 2 Page Ref: 111
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
27) A diversification strategy focuses on a company becoming its own supplier of inputs.
Answer: FALSE
Explanation: A company becoming its own supplier describes backward vertical integration, not
diversification.
Diff: 2 Page Ref: 112
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
28) A company with a stability strategy will plan to dramatically increase market share in a highly
competitive market.
Answer: FALSE
Explanation: A stability strategy would tend to focus on maintaining existing market share, rather than
increasing market share.
Diff: 2 Page Ref: 112-113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
29) The most drastic renewal strategy an organization can carry out is a retrenchment strategy.
Answer: FALSE
Explanation: Retrenchment is less drastic than a turnaround strategy, in which a company takes extreme
steps to remake itself.
Diff: 2 Page Ref: 113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
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30) "Build a better mousetrap" is a way of describing a competitive advantage.


Answer: TRUE
Explanation: Having a competitive advantage means that an organization has some kind of edge on its
competition with respect to price, quality, the product itself, or some other characteristic.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
31) Innovation and super-high quality are typically the keys to a cost-leadership strategy.
Answer: FALSE
Explanation: Efficiency, rather than innovation or quality, is the key to a cost-leadership strategy in
which a company has lower prices than its competitors.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
32) A focus strategy seeks to appeal to a narrow segment of a market.
Answer: TRUE
Explanation: An example of a focus strategy is a super premium ice cream that tries to appeal to a
narrow, but important segment of the market.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
33) Customer service cannot be considered a strategic weapon for an organization.
Answer: FALSE
Explanation: Anything that a company has or does that gives it an edge on its competition qualifies as a
strategic weapon. Since customer service can serve as such an edge, it can be considered a strategic
weapon.
Diff: 2 Page Ref: 115
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
34) Southwest Airlines studied race car pit crews as an example of benchmarking.
Answer: TRUE
Explanation: Benchmarking involves learning practices from other organizations that can be applied to
your own organization, so learning maintenance speed from race car crews definitely qualifies as
benchmarking.
Diff: 2 Page Ref: 116
Objective: 5.2

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35) Goals are documents that outline how plans are to be carried out.
Answer: FALSE
Explanation: Goals are desired targets or outcomes, not outlines of how plans are to be carried out.
Diff: 1 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
36) Traditional goal setting requires top managers to set goals that are carried out by the organizational
levels below.
Answer: TRUE
Explanation: Traditional goals are set by top managers and distributed to the levels below.
Nontraditional goal setting can be accomplished by others in the organization who are not necessarily at
the top of the pyramid.
Diff: 2 Page Ref: 118
Objective: 5.3
37) The key to MBO, or management by objectives, is that managers and subordinates mutually agree
on goals.
Answer: TRUE
Explanation: MBO includes both managers and subordinates in the process of setting goals. With
subordinates participating in the process, the likelihood of misunderstanding and resentment is reduced.
Diff: 2 Page Ref: 118-119
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
38) Goals typically should be reserved for managers only. Goals should not be shared with subordinates.
Answer: FALSE
Explanation: Ideally, goals should be shared with any and all employees who have a need to know what
those goals are.
Diff: 2 Page Ref: 120
Objective: 5.3
39) Long-term plans used to refer to plans that covered a period of over three years, but now it refers to
any time period over one year.
Answer: FALSE
Explanation: Long-term plans, in fact, used to refer to plans that covered periods of over seven years.
Now long-term plans cover a time period of three years or more.
Diff: 2 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
40) A six-month plan qualifies as a short-term plan.
Answer: TRUE
Explanation: Short-term plans are defined as plans of one year or less, so a six-month plan qualifies as a
short-term plan.
Diff: 2 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
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41) Directional plans leave no room for interpretation.


Answer: FALSE
Explanation: Directional plans are designed to be flexible, so they have more, not less, room for
interpretation than specific plans.
Diff: 2 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
42) In general, upper-level managers focus on tactical or operational planning.
Answer: FALSE
Explanation: Upper-level managers usually focus on strategic plans, while lower-level managers take
care of operational planning.
Diff: 2 Page Ref: 120
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
43) Buying a competitor's product for evaluation is a form of environmental scanning.
Answer: TRUE
Explanation: Environmental scanning involves surveying the competitive environment to detect
emerging trends. Buying a competitor's product would help an organization understand its environment,
so it would qualify as environmental scanning.
Diff: 2 Page Ref: 124
Objective: 5.4
44) Which of the following is NOT a function of planning?
A) defining goals
B) identifying a strategy for attaining goals
C) settling disputes between employees
D) coordinating organizational activities
Answer: C
Explanation: C) Defining goals, identifying strategies for attaining goals, and coordinating
organizational activities are all recognized functions of planning, whether it is formal or informal, so
these choices are incorrect. Settling disputes is not something that can be planned for, since most
disputes are spontaneous and can occur at any time over any issue. This means that settling disputes is
not a function of planning, therefore making that the correct response.
Diff: 2 Page Ref: 106
Objective: 4.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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45) Planning is concerned with ________.


A) both ends and means
B) ends only
C) means only
D) neither ends nor means
Answer: A
Explanation: A) Planning is concerned with goals or ends, as well as how those goals are reached, or
means. Therefore, the choice indicating both ends and means is the correct response and all of the other
responses are incorrect.
Diff: 1 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
46) In informal planning, goals are usually ________ shared with others in the organization.
A) written, but little is
B) unwritten and little is
C) written and much is
D) unwritten, but much is
Answer: B
Explanation: B) A key difference between formal and informal planning is that informal planning rarely
involves recording the plans in written form. Informal planners also typically keep their plans to
themselves, or share them with few others. Together, these factors make the choice indicating "unwritten
and much" the correct response. The two choices indicating "written" can be immediately ruled out
because informal plans are not written. "Unwritten, but much is" can be ruled out because little is shared
with informal plans.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
47) Informal planning is ________.
A) always performed at the lowest organizational level
B) general and usually lacks continuity
C) performed exclusively by middle managers
D) more specific than formal planning
Answer: B
Explanation: B) Informal plans typically are not specific and are performed by leaders or owners rather
than by middle managers or individuals on the lowest organizational level, ruling out all of these
choices. This leaves the correct response, as it correctly states that informal plans are usually nonspecific
and lacking in continuity.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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48) In formal planning, ________.


A) specific goals covering a period of years are defined
B) to maximize flexibility, specific goals are never spelled out
C) very broad general goals are developed
D) goals may be written or unwritten
Answer: A
Explanation: A) Formal planning requires written, not unwritten plans and specific, rather than general,
goals. Since only the choice regarding specific goals covering a period of years identifies specific goals,
it is the correct response.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
49) Which of the following is NOT a reason for managers to plan?
A) to give direction to an organization
B) to deal with change
C) to establish goals
D) to establish responsibility for mistakes
Answer: D
Explanation: D) Planning provides an organization with direction, goals, and a way to deal with change.
Since all of these choices are reasons for a manager to plan, they can be ruled out as the correct response
for this question. Blaming people for mistakes is not a function of planning, so establishing
responsibility for mistakes is the correct response for this question.
Diff: 2 Page Ref: 106
AACSB: Ethical understanding and reasoning abilities
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
50) Planning gives organizations direction that primarily helps them ________.
A) improve teamwork and coordinate activities
B) improve their image in the business community
C) improve morale of middle managers
D) improve morale of all employees
Answer: A
Explanation: A) Direction provides a common path for all employees in an organization, thus helping
employees work together in a coordinated, cooperative effort. This makes improving teamwork and
coordinating activities the correct response since it mentions teamwork and coordination. Planning is not
concerned with organizational morale or image, so all of those choices can be ruled out as correct
responses.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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51) Planning gives organizations a way to deal with change that ________.
A) eliminates all uncertainty
B) reduces uncertainty
C) reduces certainty
D) increases ambiguity
Answer: B
Explanation: B) A key function of planning is to help organizations deal with uncertainty, making the
choice regarding reducing uncertainty the correct response. Uncertainty unfortunately cannot be
completely eliminated, so that is not the correct response here. Both reducing certainty or increasing
ambiguity are tantamount to increasing, rather than decreasing, uncertainty, so they are incorrect
responses.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
52) Organizations that don't formally plan may be more likely to have ________.
A) corrupt managers
B) legal problems
C) multiple departments performing the same task
D) a single department carrying out all company functions
Answer: C
Explanation: C) A major advantage to formal planning is that it reduces redundancy. That means that
organizations that don't carry out formal plans would be more likely to have more than one department
carrying out the same task, making that the correct response. Formal planning has little effect on
corruption or legal problems, so those choices can be ruled out. A single department carrying out all
company functions is essentially the opposite of redundancy, so it too can be ruled out.
Diff: 2 Page Ref: 106-107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
53) One effect of planning on managers is that it forces them to ________.
A) fear change
B) anticipate and consider the effect of change
C) work to prevent change
D) ignore any change that doesn't directly affect them
Answer: B
Explanation: B) A major benefit of planning is that it forces managers to think systematically about the
future. Rather than fear change, try to prevent change, or ignore change, planning requires managers to
think constructively about change and its consequences.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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54) Managers who fail to plan may ________.


A) take advantage of change
B) stimulate change
C) be positively affected by change
D) be adversely affected by change
Answer: D
Explanation: D) Change can be disruptive and even destructive in the best of circumstances, so
managers who fail to plan thoughtfully are likely to suffer negative consequences of change, making "be
adversely affected" the correct response. Without planning, managers are likely to be surprised by
change, making it highly unlikely that they would be able to benefit or in any way be positively affected
by the changemaking these choices incorrect. There is no connection between planning and
stimulating change, so "stimulate change" would also be an incorrect response for this question.
Diff: 2 Page Ref: 106
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
55) Which of the following is a frequently cited criticism of formal planning?
A) Plans lock organizations into rigid goals and timetables.
B) Plans take too long to create.
C) Plans create resentment within different levels of the organization.
D) Formal planning works well only for smaller companies.
Answer: A
Explanation: A) Planning works better for larger rather than smaller companies. Few serious complaints
are ever voiced that planning is too time consuming or that it creates discord, making these responses
incorrect. What planning does do is lock organizations into commitments that are sometimes overly
confining or destructive, making that the correct response.
Diff: 3 Page Ref: 107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
56) One criticism of formal planning is that it focuses on how to beat the competition rather than how to
________.
A) have cordial relationships with the competition
B) focus on new opportunities
C) balance the organization's budget
D) cooperate with the competition
Answer: B
Explanation: B) Critics of planning do not complain that planning focuses too much on organizational
budgets or too-close relationships of an organization with its rivals. Critics do complain that
organizations that put too much emphasis on planning end up being small-minded and myopic as they
spend all of their energy trying to beat the competition rather than in being innovative and creating
whole new products or industries. This makes "focus on new opportunities" the correct response.
Diff: 2 Page Ref: 107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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57) Failing to discard successful plans from the past is likely to lead to ________.
A) more success because conditions are unlikely to change in the future
B) failure because conditions are likely to change in the future
C) success because of the high quality of the plans
D) failure because of the low quality of the plans
Answer: B
Explanation: B) The trouble with focusing too much on successes of the past is that it is rare that these
successes can be duplicated in the changed circumstances of the future. So organizations that rigidly
stick to a tried-and-true success formula can get "burned" when conditions change. This makes "failure
because conditions are likely to change" the correct response and eliminates the other choices.
Diff: 3 Page Ref: 107
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
58) Studies of performance in organizations that plan have reached ________ with respect to the
benefits of formal planning.
A) somewhat negative conclusions
B) no conclusion
C) extremely negative conclusions
D) generally positive conclusions
Answer: D
Explanation: D) Studies have shown that formal planning usually results in higher profits and general
financial and organizational success, making "generally positive conclusions" the correct response. Both
choices regarding negative conclusions can be ruled out because they indicate negative, rather than
positive, outcomes for formal planning. The choice indicating no conclusion can be ruled out because it
fails to indicate a positive outcome for formal planning.
Diff: 2 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
59) Studies of planning show that the key to successful planning is to make sure that the plans
________.
A) cover every possible detail
B) are high in quality and insight
C) are exceedingly simple to follow
D) are not shared with employees
Answer: B
Explanation: B) Success in planning seems to hinge more on the quality of the planning itself rather
than the the subject of the planning. A company may focus its plans on all of the right topics, but unless
those plans are systematic, comprehensive, and high in insight, they will not provide successful direction
for the organization. These factors make the choice indicating "high in quality and insight" the correct
response. Whether or not details are covered, plans are easy to follow, or plans are shared extensively
matter less than the quality of the plans themselves.
Diff: 3 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
60) In studies in which high-quality formal planning did not lead to higher performance, ________
usually the culprit.
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A) unforeseen events or conditions were


B) demanding employees were
C) stubborn ownership was
D) lack of communication was
Answer: A
Explanation: A) Even the best plans can be foiled by unforeseen events, such as economic disruptions
or political turmoilmeaning that "unforeseen events or conditions" is the correct response for this
question. Plans can only take into account known events of the past, they can't anticipate unknown
future events, especially highly unlikely future events. When it comes to spoiling plans, such things as
demanding employees, stubborn owners, or poor communication are minor factors compared to
important outside events, so these choices are all incorrect responses.
Diff: 2 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
61) Formal planning typically leads to which of the following?
A) higher profits
B) lower productivity
C) higher sales, but lower profits
D) tension between different management levels
Answer: A
Explanation: A) Studies show a positive correlation between formal planning and profits along with
other economic indicators, making "higher profits" the correct response. Lower productivity and lower
profits both show a negative correlation between planning and economic success, so those choices can
be ruled out. There is no evidence that planning results in tension of any kind, so that choice can also be
ruled out.
Diff: 1 Page Ref: 108
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
62) The first step in the six-step strategic management process is to ________.
A) analyze the organization's strengths and weaknesses
B) identify the organization's mission
C) identify strategies to reach the organization's goals
D) analyze the opportunities the organization has
Answer: B
Explanation: B) Identifying the organization's mission is the first step in the strategic management
process, making that the correct response. Analysis of strengths, weaknesses, and opportunities are all
part of the second and third SWOT analysis steps of the process, while identification of strategies would
be included in the fourth step, formulate strategies.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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63) The first three steps of the strategic management process involve ________ strategies.
A) planning
B) implementing
C) evaluating
D) identifying
Answer: A
Explanation: A) The first three steps of the process include stating the mission of the organization,
followed by an analysis of its position (strengths, weaknesses, etc.) in the marketplace. These first three
steps are planning strategies, rather than implementation (step 5), evaluation (step 6), or identification
(step 4) strategies, making planning the correct answer.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
64) A mission statement includes identification of an organization's ________.
A) strengths and weaknesses
B) products and basic philosophy
C) assets and resources
D) resources and strengths
Answer: B
Explanation: B) Finding the organization's strengths, weaknesses, assets, and resources are all part of an
internal analysis, so the choices indicating strengths and weaknesses, assets and resources, and resources
and strengths can be ruled out because they include one or more of those items. That leaves products and
basic philosophy as the correct response, as it correctly identifies that a mission statement should include
a description of an organization's products as well as a summary of its basic philosophy.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
65) A mission statement does NOT include which of the following?
A) the customers of a company
B) strategy for success
C) why the company is in business and what it hopes to accomplish
D) the company's basic beliefs
Answer: B
Explanation: B) A mission statement should identify an organization's customers, its core philosophy
and beliefs, and its basic purpose, so these choices can be eliminated as possible correct responses. The
one item listed that should not be part of a mission statement is strategy for successthe organization's
mission has nothing to do with its strategy. The strategy is something that will be determined by the
strategic management process.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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66) An external analysis, the second step of the strategic management process, helps identify ________.
A) the products that a company makes
B) the long-term goals of a company
C) a company's opportunities and threats
D) a company's concern for its employees
Answer: C
Explanation: C) The focus of an external analysis is to locate the organization's place in the external
business environment, analyzing the competition that the organization faces, the opportunities it might
take advantage of, and the things that threaten the organization, making "opportunities and threats" the
correct response. Long-term goals, product descriptions, and company policy toward its workers have
nothing to do with analyzing the external environment, so those choices are ruled out.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
67) An internal analysis, the third step of the strategic management process helps identify ________.
A) opportunities and threats
B) resources and capabilities
C) opportunities and possibilities
D) values and philosophy
Answer: B
Explanation: B) An organization's values and philosophy are part of its mission statement, not an
internal analysis, which rules out that choice as a correct response. Finding opportunities is part of an
external, not an internal, analysis, which eliminates the choices regarding opportunities as correct
responses. The internal analysis should identify resources (a company's physical, financial, and human
assets) and capabilities (a company's skills and abilities), making "resources and capabilities" the correct
response.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
68) Which term refers to an organization's capital, workers, and patents?
A) resources
B) capabilities
C) abilities
D) core competencies
Answer: A
Explanation: A) An organization's workers, patents, and financial capital are all types of assets, or
resources that the organization has, making resources the correct response. Items such as financial
capital do not qualify as capabilities, abilities, or core competencies because they are tangible goods, not
abstract abilities.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
69) An organization's resources identify ________.
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A) how the organization gets things done


B) where the organization operates
C) when the organization operates
D) what the organization has
Answer: D
Explanation: D) In informal terms, an organization's resources identify what the organization has, while
its capabilities refer to what it does. This means that how, where, or when the organization operates
qualify as capabilities, so they can be ruled out as correct responses for this question. Resources are
generally tangible assets, while capabilities refer to skills and abilities, making "what the organization
has" the correct response.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
70) An organization's capabilities identify ________.
A) what the organization knows
B) who the organization is
C) assets that the organization can rely on
D) what the organization can do
Answer: D
Explanation: D) In informal terms, an organization's resources identify what the organization has, while
its capabilities refer to what it does. What the organization has, who it is, or what its assets are refer to
what the organization has, so they are all resources, not capabilities. What the organization can do is a
capability, so that is the correct response here.
Diff: 2 Page Ref: 110
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
71) Together, an organization's resources and core competencies make up which of the following?
A) core philosophy
B) competitive weapons
C) core assets
D) fundamental beliefs
Answer: B
Explanation: B) Finding the organization's strengths, weaknesses, assets, and resources are all part of an
internal analysis, so core philosophy, core assets, and fundamental beliefs can be ruled out because they
include one or more of those items. That leaves competitive weapons as the correct response, as it
correctly identifies that a mission statement should include a description of an organization's products as
well as a summary of its basic philosophy.
Diff: 2 Page Ref: 88
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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72) SWOT analysis identifies and analyzes an organization's ________.


A) strengths, weaknesses, opportunities, and threats
B) strategy for competing in the market
C) human resource assets
D) long-term goals
Answer: A
Explanation: A) The term SWOT is an acronym for strengths, weaknesses, opportunities, and threats,
making that the correct response and eliminating the other choices as possible correct answers.
Diff: 2 Page Ref: 110-111
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
73) SWOT analysis combines ________.
A) a company's mission with its goals
B) external and internal analyses
C) a company's philosophy with its ethics
D) profit with productivity
Answer: B
Explanation: B) An external analysis identifies threats to an organization and opportunities that it has.
An internal analysis identifies strengths and weaknesses of the organization. Together, these two
analyses make up the SWOT itemsstrengths, weaknesses, opportunities, and threats, making external
and internal analyses the correct response. SWOT analysis has nothing to do with mission or company
philosophy, making these choices incorrect. SWOT does not address profit or productivity, which rules
out that choice.
Diff: 2 Page Ref: 111
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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74) Once SWOT analysis is complete, managers ________ to address the issues that came up during the
analysis.
A) formulate strategies
B) implement strategies
C) evaluate strategies
D) eliminate strategies
Answer: A
Explanation: A) The ultimate goal of a SWOT analysis is to come up with strategies that will use an
organization's strengths to take advantage of opportunities, defend against threats, and shore up
weaknesses, making formulating strategies the correct response. Implementation and evaluation of the
strategies will come later in the process, making these choices incorrect. Elimination of strategies might
be considered a minor part of strategy formulation, but it certainly is not the objective of a SWOT
analysis.
Diff: 2 Page Ref: 111
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
75) Which of the following do managers NOT typically use to formulate strategies?
A) finding ways to exploit the organization's strengths
B) finding ways to protect the organization from external threats
C) finding ways to rule out existing organizational opportunities
D) finding ways to correct organizational weaknesses
Answer: C
Explanation: C) The incorrect choices all identify strategies that might emerge from a SWOT analysis
to exploit organizational strengths, correct weaknesses, and protect against threats, so they can all be
ruled out as correct responses. The one thing that organizations would not typically do is rule out
possible opportunitiesinstead the organization would be looking to exploit those opportunities,
making "finding ways to rule out existing organizational opportunities" the correct response.
Diff: 2 Page Ref: 111
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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76) The three different types of strategies that managers implement are ________.
A) corporate, private, functional
B) corporate, competitive, functional
C) long-term, short-term, public
D) competitive, noncompetitive, corporate
Answer: B
Explanation: B) Organizations typically choose corporate, competitive, or functional strategies, making
that the correct response. Corporate strategies function on the largest scale, encompassing the entire
corporation. Competitive strategies concentrate on strategic business units of a corporation. Functional
strategies specialize even more, focusing on individual corporate departments.
Diff: 1 Page Ref: 111-112
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
77) A corporate strategy focuses primarily on ________.
A) an organization's mission
B) an organization's strengths
C) an organization's weaknesses
D) an organization's people
Answer: A
Explanation: A) An organization's mission is the primary focus of a corporate strategy, making that the
correct response. Strengths, weaknesses, and the people of the organization will certainly be
incorporated into the overall corporate strategy, but on their own none of these items represent its
primary focus.
Diff: 2 Page Ref: 111-112
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
78) Which of the following makes up the three main types of corporate strategies?
A) growth, vertical integration, horizontal integration
B) growth, retrenchment, renewal
C) renewal, retrenchment, diversification
D) growth, stability, renewal
Answer: D
Explanation: D) The three basic corporate strategies are termed growth, stability, and renewal, making
that the correct response. The choice indicating growth, vertical integration, and horizontal integration
includes only growth strategies, so it can be eliminated. Both of the remaining choices leave out at least
one major corporate strategy and include at least two forms of renewal, making these choices redundant
and incorrect.
Diff: 1 Page Ref: 111-112
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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79) Growth strategies include ________.


A) diversification, concentration, integration, stabilization
B) vertical integration, horizontal integration, concentration, diversification
C) vertical integration, horizontal integration, lateral integration, horizontal concentration
D) integration, allocation, horizontal diversification, vertical diversification
Answer: B
Explanation: B) The choice indicating vertical integration, horizontal integration, concentration, and
The choice indicating vertical integration, horizontal integration, concentration, and diversification is the
only choice that lists all four types of growth strategy, so it is the correct response. The other choices fail
to include all four items and substitute at least one erroneous item.
Diff: 1 Page Ref: 112
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
80) General Mills expanding its line so that it sells several different types of Cheerios is an example of
which of the following?
A) concentration
B) horizontal integration
C) vertical integration
D) diversification
Answer: A
Explanation: A) When a company focuses its attention on a single product or line of products, it is
employing concentration as a strategy, making that the correct response. Integration and diversification
are forms of growth by either expanding the control a company has over its operations or combining
with other companiesneither of which is being done by General Mills here.
Diff: 3 Page Ref: 112
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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81) A salad dressing company that buys a large olive grove to provide olive oil is practicing which of the
following?
A) concentration
B) forward vertical integration
C) backward vertical integration
D) horizontal integration
Answer: C
Explanation: C) Buying an olive grove is an example of a company trying to become its own supplier,
which is termed backward vertical integration. Forward vertical integration involves a company seizing
control of its distribution, not its suppliers, so that is not a correct response. Horizontal integration
involves combining with competitors, something that is not being done here, so that is incorrect. Finally,
concentration is incorrect because concentration requires a company to expand on a product or line of
products.
Diff: 3 Page Ref: 112
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
82) A sneaker company creating its own stores where it sells only its own brand is an example of which
of the following?
A) forward vertical integration
B) backward horizontal integration
C) forward horizontal integration
D) reverse vertical integration
Answer: A
Explanation: A) The company is taking control of its distribution here, which is an example of forward
vertical integration, making that the correct response. Backward horizontal integration is incorrect
because it would entail taking control of supply, not distribution. Forward horizontal integration would
have the company combining with competitors, something that is not being done here, making that
choice incorrect. Finally, reverse vertical integration is not a recognized strategy.
Diff: 3 Page Ref: 112
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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83) In forward vertical integration, a company becomes its own ________, while in backward vertical
integration, the company is its own ________.
A) supplier; distributor
B) supplier; customer
C) distributor; monitor
D) distributor; supplier
Answer: D
Explanation: D) Forward vertical integration involves a company taking control of distribution, while in
backward vertical integration, a company takes control of its suppliers. This makes the choice indicating
"distributor; supplier" the correct response and eliminates all other responses.
Diff: 2 Page Ref: 112
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
84) Two movie studios combining to form one larger studio is an example of which of the following?
A) forward vertical integration
B) horizontal integration
C) backward vertical integration
D) diversification
Answer: B
Explanation: B) Each movie studio is combining with a competitor, a clear example of horizontal
integration, making that the correct response. Since neither company is taking control of supply or
distribution, both forms of vertical integration can be eliminated as correct responses. Horizontal
integration differs from diversification in that in diversification the company doesn't combine with
competitors but rather makes purchases of supporting industries. Clearly, the studios are combining with
competitors here, making horizontal integration correct and diversification incorrect.
Diff: 2 Page Ref: 112
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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85) The U.S. Federal Trade Commission monitors horizontal integration carefully to make sure that
consumers aren't harmed by which of the following?
A) increased competition
B) too much competition
C) deceptive ads
D) decreased competition
Answer: D
Explanation: D) Horizontal integration reduces the number of competitors in an industry. When one
shoe company combines with another, the number of companies in the shoe industry is reduced by one,
thereby decreasing competition. This makes decreased competition the best response. Increased
competition and too much competition can be eliminated because both constitute increased competition,
and horizontal integration decreases, rather than increases, competition. Deceptive ads can be eliminated
because there is no reason to expect that deception would result from organizations joining together.
Diff: 2 Page Ref: 112
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
86) When Google purchased YouTube, a company that featured different, but related products, Google
was engaging in which of the following?
A) concentration
B) forward vertical integration
C) backward vertical integration
D) diversification
Answer: D
Explanation: D) Google was clearly not focusing on existing products, taking control of distribution or
supply, so those choices can be ruled out as correct responses. What Google was doing was buying a
company that it can use to complement or support its existing products. YouTube makes Google a more
diversified product, so the purchase is an example of diversification, making that the correct response.
Diff: 2 Page Ref: 112
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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87) Two companies that both sell fine time pieces combine. What are they doing?
A) diversifying, because they both sell the same products
B) integrating vertically, because they both sell the same products
C) integrating vertically in a backward direction, because they are sharing distribution
D) integrating horizontally, because they both sell similar products
Answer: D
Explanation: D) The merger has nothing to do with controlling supply or distribution, so both vertical
integration and backward vertical integration can be eliminated as correct responses. Diversification
would require one of the companies to purchase an unrelated company that somehow supports or
complements its business, but both companies sell the exact same products, so diversification is not
occurring. Instead, the merging of two companies that have the same product is an example of horizontal
integration, making that the correct response.
Diff: 3 Page Ref: 112
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
88) A company whose goal is to retain its ideal size and market share is employing which kind of
strategy?
A) noncorporate
B) growth
C) renewal
D) stability
Answer: D
Explanation: D) A corporate strategy that does not explicitly seek growth is termed a stability strategy,
making stability the correct response and growth incorrect. A renewal strategy would require the
company to be in some kind of trouble, so that is not the right answer here. The remaining choice is also
not correct because stability clearly is a corporate, not a noncorporate, strategy.
Diff: 2 Page Ref: 112-113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
89) Troubled companies seek ________ to address serious problems.
A) competitive strategies
B) corporate strategies
C) vertical and horizontal strategies
D) renewal strategies
Answer: D
Explanation: D) The strategies that specialize in fixing troubled organizations are termed renewal
strategies, making that the correct response. Competitive, corporate, vertical, and horizontal strategies
do not specialize in troubled organizations, so they are incorrect responses.
Diff: 2 Page Ref: 113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
90) To address limited, short-term problems, a company is most likely to employ a ________ strategy.
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A) retrenchment
B) turnaround
C) doomsday
D) self-critical
Answer: A
Explanation: A) When the problems of a troubled organization are limited, a retrenchment strategy is
typically employed, which helps cut costs and stabilize the company so it can compete successfully,
making retrenchment the correct response. When problems are more drastic, a turnaround strategy is
employed. Doomsday and self-critical approaches are not recognized renewal strategies, so these
choices are incorrect.
Diff: 2 Page Ref: 113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
91) A company that is on the verge of collapse or bankruptcy might employ this strategy.
A) retrenchment
B) incremental improvement
C) turnaround
D) hunker down
Answer: C
Explanation: C) When a company finds itself in truly dire conditions, it goes beyond incremental
improvement, "hunkering" down to try to wait out its troubles, or retrenchment. Instead, it employs a
turnaround strategy, making that the correct response. A turnaround strategy is a full-fledged
reorganization of the entire corporation, making it the most serious remedy for corporate woes.
Diff: 2 Page Ref: 113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
92) Remedies that all renewal strategies employ include which of the following?
A) hiring efficiency experts
B) new ad campaigns
C) emulating competitors
D) cutting costs
Answer: D
Explanation: D) New ad campaigns, efficiency experts, or studying the competition are all possible, but
not essential, elements of a renewal strategy. The only recognized essential element of a renewal strategy
is to cut costs, making that the correct response.
Diff: 2 Page Ref: 113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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93) The ________ strategy occupies the level below the corporate strategy.
A) business unit
B) competitive
C) functional
D) performance
Answer: B
Explanation: B) On an organizational strategies hierarchy chart (Exhibit 5-4, page 112), the top of the
hierarchy is occupied by corporate strategies, the second level by competitive strategies, and the third
level by functional strategies. This makes "competitive" the correct response and eliminates
"functional." "Business units" and "performance" do not identify recognized corporate strategies, so they
are incorrect responses for this question.
Diff: 1 Page Ref: 112-113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
94) A diversified corporation is likely to have ________.
A) multiple competitive strategies
B) a single competitive strategy
C) no more than two competitive strategies
D) thousands of competitive strategies
Answer: A
Explanation: A) A single competitive strategy might exist for a small company that has only one line of
business. A large, diversified organization will consist of multiple businesses, so it will have multiple
competitive strategies, making that the correct response and ruling out the choices indicating a single or
no more than two competitive strategies. It is unlikely that an organization would have thousands of
different lines of business, so it would be equally unlikely to have thousands of competitive strategies,
ruling out that choice.
Diff: 2 Page Ref: 113
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
95) The thing that makes your product special is known as your ________.
A) assets
B) destruction device
C) competitive advantage
D) competitive strength
Answer: C
Explanation: C) A competitive advantage is something that one organization has that other
organizations cannot offer. A competitive advantage can be a product, service, or some other quality that
sets the organization apart. A company may use its assets or strengths to develop a competitive
advantage, but weapons or strengths themselves do not constitute the advantage. Destruction device can
be ruled out because it is not a recognized term.
Diff: 2 Page Ref: 113-114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
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96) Competitive advantages for a high-prestige, premium coffee franchise like Starbucks are likely to
include all of the following EXCEPT ________.
A) high quality
B) lowest prices
C) well-trained employees
D) pleasant venues
Answer: B
Explanation: B) Starbuck's as a premium alternative in the marketplace may offer high-quality coffee,
pleasant store fronts, and well-trained employees. However, as a high-prestige choice, the least likely
thing for Starbucks to offer would be lowest prices, making that the correct response. Low prices might
actually harm the high-prestige image that Starbucks tries to project. Note that for some other,
nonpremium company, low prices may indeed comprise a competitive advantage.
Diff: 3 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
97) A cost leadership competitive strategy focuses on which of the following?
A) efficiency
B) innovation
C) elegant design
D) luxury
Answer: A
Explanation: A) A company with a cost leadership strategy is the pacesetter for prices in its competitive
market. In order to get the lowest prices, a company typically will eschew elegant design, innovative
products, and luxury in favor of efficiency. This makes efficiency the correct response.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
98) Which of the following would you expect to find in a clothing store that follows a cost leadership
strategy?
A) only the finest, most expensive materials
B) pampered, personalized service
C) state-of-the-art design
D) basic, no frills, practical items
Answer: D
Explanation: D) A company that uses a cost leadership strategy would tend to forego expensive
materials, specialized service, and high-tech design and instead focus on practicality. This makes the
choice indicating basic, no frills, practical items the correct response, as products for a cost leadership
company would most likely be of the "no frills" category.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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99) A company with a differentiation strategy focuses on making its products or services ________.
A) unique and special
B) similar to its competitors
C) familiar
D) affordable
Answer: A
Explanation: A) The key to a differentiation strategy is for the company to somehow make itself or its
products distinct from all of its competitors. This distinction may reside in a product, service, or brand
image that sets the company apart from others in the market. These factors make "unique and special"
the correct response. Being familiar, similar to competitors, or affordable would have little value to a
company that uses a differentiation strategy as none of these qualities makes its products different or
distinguished.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
100) A differentiation strategy ________.
A) usually focuses on price
B) must focus on price
C) can focus on a brand image
D) can focus on value, but not service
Answer: C
Explanation: C) A company with a differentiation strategy tries to make its products and services
distinct and different, so price would not typically be part of the approach. Service can function as
something that differentiates the company, so the choice indicating focus on value but not service cannot
be a correct response. Surprisingly, brand image can be the determining factor for a differentiation
strategy. Though hard to establish, once it exists, a unique and special brand name can distinguish a
company from all of its competitors.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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101) A company that looks for a niche in the market is following which strategy?
A) cost leadership
B) differentiation
C) focus
D) turnaround
Answer: C
Explanation: C) The key to a focus strategy is for a company not to try to appeal to a broad market, but
rather to find a narrow niche in the market and serve it with something extraordinary and special. This
makes focus the correct response and eliminates differentiation and cost leadership as possible correct
responses because both try to appeal to broad audiences. A turnaround strategy is a corporate rather than
a competitive strategy, so that choice is not correct.
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
102) Which of the following describes a company that is following a focus strategy?
A) a software company that makes a wide variety of games and financial products
B) a software company that makes games for a wide audience
C) a software company that makes financial products for accountants, consumers, and businesses
D) a software company that makes financial products for accountants only
Answer: D
Explanation: D) The correct answer for this question is the choice that describes a product that serves
the narrowest and most specialized audience. The two choices regarding a wide variety of games and a
wide audience identify broad audiences, so they are incorrect. The choice regarding making financial
products for accountants among others and the choice regarding making financial products for
accountants only refer to making only financial products, whereas the company serving only accountants
serves a more narrow market segment, so it is the correct response.
Diff: 3 Page Ref: 114
AACSB: Use of information technology
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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103) According to Michael Porter, a company with good products that has no clear competitive
advantage is said to be ________.
A) perfectly positioned
B) stuck in the middle
C) in the wheelhouse
D) outside of the box
Answer: B
Explanation: B) Porter's phrase "stuck in the middle" describes a company that has no clear edge over
its competitors, so "stuck in the middle" is the correct response for this question. A company may be
efficient, innovative, and produce high-quality products, but if it cannot establish some kind of
significant advantage over its rivals, it will remain "stuck."
Diff: 2 Page Ref: 114
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
104) Most successful companies find that ________ a competitive advantage is almost as difficult as
developing a competitive advantage.
A) assessing
B) sustaining
C) modifying
D) eliminating
Answer: B
Explanation: B) Once a company establishes its competitive advantage, you might think that it would
be able to rest on its achievement. In fact, today's world is so competitive that few companies can do
this. Once they gain an advantage they need to work hard to keep that advantage as rivals scramble to
reduce the company's edge or develop an edge of their own. These factors all make sustaining a
competitive advantage the correct response.
Diff: 2 Page Ref: 115
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
105) All of the following are threats to a sustainable, long-term competitive advantage EXCEPT
________.
A) market stability
B) market instabilities and disturbances
C) evolution of the industry
D) new technology in the industry
Answer: A
Explanation: A) Instability, new technology, and an evolving industry all can function to erase the edge
a company has and threaten its competitive advantage. Market stability is the only choice that is not a
threat to an established edge, since the edge is likely to persist as long as conditions don't change,
making market stability the correct response.
Diff: 2 Page Ref: 115
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
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106) To gain a sustainable competitive advantage, a pharmaceutical company might ________.


A) market aggressively
B) set high prices for its products
C) secure exclusive rights to produce a drug
D) produce as many generic drugs as possible
Answer: C
Explanation: C) Marketing aggressively might minimally help the company in gaining an advantage,
but it probably would not be effective enough to make any advantage permanent or sustainable. Setting
high prices or making generics might reduce a company's competitive advantage, so those choices can
be eliminated. The one thing that might help the company sustain its advantage would be to gain
exclusive rights to a successful drug. Since no other company could produce that drug, the monopoly
that the company would have would constitute a sustainable competitive advantageat least as long as
the rights remained exclusive.
Diff: 3 Page Ref: 115
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
107) A company's strategic weapon is any product, service, or other attribute it has that ________.
A) gives it an edge over its competitors
B) identifies problems that the company has
C) identifies the potential of employees
D) helps diversify the company
Answer: A
Explanation: A) A strategic weapon is some kind of asset or ability that a company can use to gain an
advantage in the marketplace. For example, a strategic weapon that Apple has is its ability to innovate.
When Apple needs to try to gain in the market, it looks to innovation above all other characteristics for
its edge. These factors make the choice regarding giving it an edge over competitors the correct response
and eliminate the other responses.
Diff: 2 Page Ref: 115
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

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108) To create a competitive advantage that is sustainable, a company can begin by focusing on quality,
then ________
A) make sure quality doesn't decline at too rapid a pace
B) make incremental improvements to keep quality levels high
C) change its entire product line frequently
D) slowly diminish quality and raise the prices of its products
Answer: B
Explanation: B) Diminishing quality would be likely to erode a competitive advantage, not make it
more sustainable. Changing a successful formula would also tend to be counterproductive, making
"change its entire product line frequently" incorrect. The only effective strategy would be to refuse to let
well enough alonekeep the same product, but keep improving the product to stay ahead of rivals
making the choice regarding incremental improvements the correct response.
Diff: 3 Page Ref: 115
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
109) This term describes an electric shaver company that carefully observes its competitor's production
line to look for ways to improve its own manufacturing process.
A) trademarking
B) benchmarking
C) quality engineering
D) reverse marketing
Answer: B
Explanation: B) The practice of learning production techniques and similar practices from other
organizations is called benchmarking. Note that a company can successfully benchmark in a completely
unrelated industry. A car company, for example, might observe a shipping company for clues about
improving efficiency.
Diff: 2 Page Ref: 116
Objective: 5.2
110) Which of the following best defines plans?
A) documents that identify company problems
B) documents that define goals
C) documents that describe how goals will be met
D) documents that identify how goals from the past were met
Answer: C
Explanation: C) Plans do not specifically identify goals per se, problems, or past goals. Instead, plans
focus on how goals will be met, making that the correct response.
Diff: 2 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

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111) Which of the following best defines goals?


A) likely outcomes for the future
B) unlikely outcomes for the future
C) desired outcomes for the future
D) short-term targets
Answer: C
Explanation: C) The key to defining goals is not whether they are likely or unlikely, long term or short
term, but rather that goals are desired outcomes, making that the correct response.
Diff: 1 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
112) In reality, all organizations have ________.
A) a single goal
B) multiple goals
C) the same goals
D) the same single goal
Answer: B
Explanation: B) Different organizations clearly have different goals. For example, one organization may
want to maximize profits while another may wish to make products that truly help people. What all
organizations share is that they have more than one goal. For example, the company above that wants to
help people may also seek to make large profits, work toward environmental sustainability, and provide
good jobs for as many people as possible. Multiple goals are a feature of all organizations in one way or
another, so that is the correct response.
Diff: 2 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
113) In most cases, strategic goals include ________.
A) all financial objectives
B) all objectives that are not financial
C) all objectives, both financial and nonfinancial
D) some financial objectives
Answer: B
Explanation: B) Most company goals can be classified as either strategic or financial. Strategic goals,
therefore, do not include financial objectives. This makes the choice indicating all objectives that are not
financial the correct response and eliminates the other three choices because they all include some kind
of financial objective.
Diff: 2 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

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114) Which of the following is an example of a strategic goal for a professional baseball team?
A) to increase attendance by 5 percent over the next three years
B) to increase television revenues over the next 5 years
C) to decrease payroll by 20 million over the next 2 years
D) to average over 90 wins a year for the next 5 years
Answer: D
Explanation: D) A strategic goal is any kind of objective that is not financial in nature. Increasing TV
income, attendance, and decreasing payroll all have a financial component, so they can be eliminated as
correct responses for this question. The choice indicating an average of over 90 wins a year identifies a
baseball, rather than a financial, goal, so it is the correct response.
Diff: 2 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
115) An organization's real goals and priorities are best revealed by ________.
A) its official stated goals
B) its actions in the marketplace
C) its statements to the press
D) its mission statement
Answer: B
Explanation: B) Mission statements, press releases, and official stated goals all include a political
dimension in which an organization is telling you what it would like to want to do rather than stating its
actual intentions. Therefore, the only true measure of a company's priorities are its actions, making that
the correct response. For example, an organization may officially state that jobs are its main goal, but its
actual hiring record would be a much better indication of its true objective than any official statement.
Diff: 2 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
116) ________ are important because they provide the standards against which all organizational
accomplishments are measured.
A) Goals
B) Guidelines
C) Models
D) Rules
Answer: A
Explanation: A) Goals are more than just something for an organization to shoot for. Goals are also a
metric by which an organization can measure success. Without stating goals, an organization has no way
of judging how successful it is. This makes goals the correct response and rules out guidelines, models,
and rules because none of these choices provide standards by which organizational progress can be
measured.
Diff: 2 Page Ref: 117
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

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117) In traditional goal setting, these individuals set goals.


A) top managers
B) middle and low-level managers
C) middle managers
D) managers and employees
Answer: A
Explanation: A) The traditional hierarchical organizational model has top managers setting goals, with
the goals flowing down to lower organizational levels. This makes top managers the correct response
and eliminates the other choices because they do not exclusively identify top managers as the decision
makers.
Diff: 2 Page Ref: 118
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
118) In traditional goal setting, as they work their way from top management to employees, goals are
likely to ________.
A) become more clear
B) be more rigorously followed
C) be unchanged
D) become less clear
Answer: D
Explanation: D) As they filter down from level to level, goals repeatedly get reinterpreted and distorted,
making the choice regarding becoming less clear the correct response and eliminating becoming more
clear and being unchanged. Being more rigorously followed is also incorrect because there is no
evidence to show that goals are more likely to be followed at lower levels of an organization than at
higher levels.
Diff: 2 Page Ref: 118
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
119) In a means-ends chain, a goal at a lower level ________.
A) is the bridge to a goal at the next higher level
B) is attained only after higher level goals are fulfilled
C) is separate from the goal at the next higher level
D) is ignored if goals at higher levels are attained
Answer: A
Explanation: A) A means-ends chain links goals at high levels to lower goals. For example, in a meansends chain, a goal at a high level cannot be considered accomplished until goals below it have been
fulfilled first. This links goals at different levels and makes them less subject to degradation and
distortion as they pass through organizational hierarchy. This means that the bridge to a goal at the next
higher level is the correct response, ruling out the choices regarding a goal being separate and being
ignored because they describe situations in which goals are not linked. The choice regarding being
attained only after higher-level goals are fulfilled shows linked goals, but their order is reversedin a
means-ends chain, the lower-level goals are fulfilled first.
Diff: 3 Page Ref: 118
AACSB: Analytic skills
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
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120) In management by objectives (MBO), goals ________.


A) must be easily accomplished
B) are jointly determined by employees and managers
C) are determined by top management
D) are developed by employees
Answer: B
Explanation: B) The key to goals set by an MBO arrangement is that goals are not handed down from
management to employees. Instead, employees participate in goal setting, thus insuring a more equitable
result and more accountability for all sides of the process, especially the employees. MBO goals are not
exclusively developed by managers or employees, making both of those choices incorrect. MBO goals
are not required to be easily accomplished, making that choice incorrect.
Diff: 2 Page Ref: 118-119
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
121) In addition to being made by by both managers and employees, MBO goals must be ________.
A) nonspecific and open-ended with regard to time
B) specific and open-ended with regard to time
C) specific and include an explicit time limit
D) nonspecific and include no time limit
Answer: C
Explanation: C) To eliminate ambiguity and misunderstanding, MBO goals are required to be specific
and include a time limit. That way parties can't come back later and say that they weren't warned with
regard to what exactly was expected. This makes the choice regarding being specific and including an
explicit time limit the correct response and eliminates the other three choices because they are either
nonspecific or open-ended with regard to time.
Diff: 2 Page Ref: 118-119
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
122) MBO programs usually are successful largely because they ________.
A) give employees a sense of ownership of goals
B) free managers from the responsibility of setting goals
C) give managers a sense of ownership of goals
D) free employees from responsibility if goals are not met
Answer: A
Explanation: A) MBO goals do not free managers from the task of goal setting or give them any special
sense of goal ownership, since in traditional situations managers alone set goals. MBO goals make
employees more, not less, responsible. What MBO goals clearly do accomplish is to make employees
more accountable and responsible for goals, giving them a sense of ownership of goals. This makes
giving employees a sense of ownership the correct response.
Diff: 2 Page Ref: 118-119
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

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123) Which goal-setting sequence is correct for the following steps?


1. Evaluate resources.
2. Identify goals.
3. Review the mission and job tasks.
4. Communicate goals.
5. Link rewards to goals.
6. Build feedback mechanisms.
A) 1, 2, 4, 6, 3, 5
B) 4, 2, 5, 3, 1, 6
C) 3, 4, 2, 6, 5, 1
D) 3, 1, 2, 4, 6, 5
Answer: D
Explanation: D) Only the correct choice (3, 1, 2, 4, 6, 5) gives the correct sequence: review the mission,
evaluate resources, identify goals, communicate goals, build feedback, link rewards to goals.
Diff: 3 Page Ref: 120
AACSB: Analytic skills
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
124) The breadth of a plan refers to ________ concerns.
A) long-term versus short-term
B) strategic versus tactical
C) specific versus directional
D) single use versus standing
Answer: B
Explanation: B) Breadth does not refer to how specific, long term, or repeatable a plan is, but rather
whether it is tactical or strategic, making that the correct response. Strategic plans address overall
organizational goals. Tactical plans provide details of how those strategic goals can be achieved.
Diff: 2 Page Ref: 120
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
125) The specificity of a plan refers to ________ concerns.
A) long-term versus short-term
B) strategic versus tactical
C) specific versus directional
D) single use versus standing
Answer: C
Explanation: C) Specificity does not refer to the duration, goals, or repeatability of a plan. Rather,
specificity addresses how flexible plans are, making specific versus directional the correct response.
Specific plans are inflexible and leave little or no room for interpretation or modification. Directional
plans are flexible and can be modified if the situation warrants.
Diff: 2 Page Ref: 120
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

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Copyright (c) 2013 Pearson Education, Inc.

126) Strategic plans address ________.


A) overall organizational goals
B) goals for a single branch of the organization
C) how overall goals are to be achieved
D) how a single goal is to be achieved
Answer: A
Explanation: A) Strategic plans have the broadest overall scope, addressing the larger, more general
issues and goals that an organization has. This makes overall organizational goals the correct response
and eliminates the other three choices because they all refer to more narrow objectives.
Diff: 2 Page Ref: 120
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
127) Tactical plans are operational plans that identify ________.
A) overall organizational goals
B) how overall goals are to be achieved
C) the mission of an organization
D) specific goals for accomplishing a specific objective
Answer: B
Explanation: B) Tactical plans do not address an organization's mission or its larger, overall goals. The
focus of tactical plans is always how goals are to be achieved rather than specific goals themselves. This
rules out specific goals and makes the choice regarding how overall goals are to be achieved the correct
response.
Diff: 2 Page Ref: 120
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
128) A politician whose ultimate goal is to get elected is planning campaign ads for TV. In planning the
ads, the politician is functioning at a ________ level.
A) strategic
B) long-term
C) tactical
D) directional
Answer: C
Explanation: C) In this situation, the politician's overall strategic goal is to get elected. His immediate
goal is to plan effective TV ads. Since he is working on his immediate goal, the politician is functioning
on a tactical, rather than a strategic, level, making tactical the correct response.
Diff: 3 Page Ref: 120
AACSB: Analytic skills
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

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129) Which of the following defines the time frame of a long-term plan?
A) over seven years
B) over three years
C) under three years
D) over one year
Answer: B
Explanation: B) In the past, long-term plans were defined as plans that were seven years or longer in
duration. This definition has been replaced by a new time duration that requires a long-term plan to be
any plan that covers a time frame of over three years. This makes over three years the correct response
and eliminates all other choices.
Diff: 1 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
130) Directional plans ________.
A) leave no room for interpretation
B) are flexible general guidelines
C) are difficult to modify
D) must be short-term plans
Answer: B
Explanation: B) The key to directional plans is flexibility, making "flexible general guidelines" the
correct response. Flexible plans cannot be hard to modify, leave no room for interpretation, or be
focused only on short-term goals. This rules out all of the other choices and confirms that flexible
general guidelines is the correct response.
Diff: 2 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
131) Standing plans typically can be used ________.
A) only once
B) only in conjunction with specific, long-term plans
C) twice at most
D) repeatedly
Answer: D
Explanation: D) Standing plans are not confined to being used only once, twice, or exclusively in
conjunction with specific long-term plans. The key to a standing plan is that it is repeatable. This
indicates that "repeatedly" is clearly the correct response for this question.
Diff: 2 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

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Copyright (c) 2013 Pearson Education, Inc.

132) Top managers, for the most part, focus on this type of planning.
A) operational
B) strategic
C) tactical
D) short term
Answer: B
Explanation: B) Tactical, short-term, and operational planning are typically reserved for lower-level or
mid-level managers. Strategic planning is typically done by top managers, making "strategic" the correct
response.
Diff: 2 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
133) The more uncertain a situation is, the more ________ plans must be.
A) unspecific
B) long term
C) flexible
D) short term
Answer: C
Explanation: C) In a situation of high uncertainty, both flexibility and specificity are important. A plan
must be specific, but also flexible so it can be changed if the situation requires it. These requirements
make flexible the correct response and eliminate unspecific. Uncertainty has no bearing on whether a
plan is long or short term, so these choices can be eliminated.
Diff: 2 Page Ref: 121
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
134) The commitment concept states that plans should ________.
A) always stake out a longer time period than is estimated
B) always stake out a shorter time period than is estimated
C) stake out a time period that is neither too long nor too short
D) not include time periods because they are too confining
Answer: C
Explanation: C) The commitment concept states that plans should extend to meet any commitments that
they directly or indirectly specify. For example, a plan to finance only the construction of a bridge, but
not its upkeep and maintenance, fails to meet its basic time commitment. The preceding ideas identify
staking out a time period that is neither too long nor too short as the correct response. Staking out too
long, too short, or no time periods all fail to meet time commitments and are therefore incorrect
responses.
Diff: 3 Page Ref: 122
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

42
Copyright (c) 2013 Pearson Education, Inc.

135) Most managers feel that formal, top-down plans created by corporate planning departments are
________.
A) very useful
B) usually unsatisfactory
C) indispensible
D) excellent
Answer: B
Explanation: B) Rather than find plans created by specialized corporate planning departments useful,
indispensible, or excellent, a survey shows that over 75 percent of managers were dissatisfied with
formal planning department plans, making "usually unsatisfactory" the correct response.
Diff: 2 Page Ref: 122
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
136) In the twenty-first century, managers increasingly need to consider their plans as ________.
A) highly explicit recipes that must be scrupulously followed
B) a vague philosophy that should not interfere with actions
C) flexible road maps with destinations that may change
D) rigid road maps with a single destination
Answer: C
Explanation: C) In the unstable, fast-changing business environment of today, managers value
flexibility over other qualities. They do not see plans as explicit recipes or rigid road maps. Though
flexibility is key, managers do not want to go too far and get plans that are vague, so a vague philosophy
can also be eliminated. In the end, managers see plans as road maps that are flexible because they allow
paths and even final destinations to change if the situation requires it.
Diff: 3 Page Ref: 123
Objective: 5.4
Learning Outcome: Discuss the processes and tools of developing different types of plans
137) A cell phone company might ask managers to do some environmental scanning of blogs that deal
with electronics as a way to ________.
A) obtain new customers
B) identify emerging trends
C) obtain new advertisers
D) identify potential rivals
Answer: B
Explanation: B) The purpose of environmental scanning is not to obtain customers, advertisers, or
competitors, but rather to get a feel for the business environment that an organization functions in and
detect emerging trends in its industry. This makes "identify emerging trends" the correct response.
Diff: 2 Page Ref: 124
Objective: 5.4

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138) Which of the following is NOT something that a company would be likely to do as a part of a
competitive intelligence program?
A) buy competitors' products
B) attend trade shows
C) have employees evaluate competing products
D) buy stock in a competitor's company
Answer: D
Explanation: D) A company would be likely to buy competing products, attend trade shows, or assess
rival products as a part of a competitive intelligence program. It would not, however, buy stock in a rival
company because the purchase would not provide any insight into the company's competitor. Since the
company would not be likely to do this, "buy stock in a competitor's company" is the correct response.
Diff: 2 Page Ref: 124
Objective: 5.4
Taco Rocket (Scenario)
Imagine that you are the president of Taco Rocket, a new and successful chain of 8 Mexican fast-food
restaurants. The success you have experienced in the last 5 years has you thinking of what to do with the
business next. Should you expand the business at the current rate? Open new and different restaurants?
What?
139) Up to now your success has been based on selling high-quality tacos and burritos at a price that
others can't match. Your business is pursuing which of Porter's strategies?
A) differentiation strategy
B) cost leadership strategy
C) competitive advantage strategy
D) focus strategy
Answer: B
Explanation: B) A focus strategy would have Taco Rocket trying to appeal to a narrow segment of the
market, something that it clearly is not doing. A differentiation strategy would have Taco Rocket trying
to make tacos that were superior in some way to all competitors, again something that it is not
attempting to do. What Taco Rocket is doing is selling good quality food at low prices, so it is using a
cost leadership strategy. A competitive advantage strategy is not one of Porter's recognized categories, so
it is an incorrect response for this question.
Diff: 2 Page Ref: 114
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

44
Copyright (c) 2013 Pearson Education, Inc.

140) You are thinking of buying a tortilla factory in a nearby state. This action would be an example of
________.
A) forward vertical integration
B) horizontal integration
C) backward vertical integration
D) forward diversification
Answer: C
Explanation: C) Buying a tortilla factory is an attempt by the company to be its own supplier. This is an
example of backward vertical integration. Forward vertical integration would involve some aspect of
distribution rather than supply, so that choice is incorrect. The remaining choices (horizontal integration
and forward diversification) describe situations in which the company is not trying to become its own
supplier, so both choices are incorrect.
Diff: 2 Page Ref: 114
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
141) Recently, Taco Rocket has considered buying a local competitor and the two would combine under
the Taco Rocket name. This is an example of which of the following?
A) stability
B) vertical integration
C) horizontal integration
D) diversification
Answer: C
Explanation: C) When a company combines with a competitor, it is integrating horizontally. When a
company purchases a company from another industry, it is diversifying. In this case, Taco Rocket is
integrating horizontally because it is combining with a rival, not a company in another industry. This
makes horizontal integration the correct response and rules out diversification. Stability can be ruled out
because it is not a key factor in this situation.
Diff: 3 Page Ref: 114
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

45
Copyright (c) 2013 Pearson Education, Inc.

142) For a limited time, Taco Rocket is thinking of coming out with a new Fifth Degree Burrito that is
so hot it "burns a hole in the plate." Catering to the small segment of the market that likes super-hot food
is an example of a ________.
A) focus strategy
B) cost leader strategy
C) long-term strategy
D) differentiation strategy
Answer: A
Explanation: A) Taco Rocket is not trying to have the lowest cost in this example or create an ultrapremium product to differentiate itself from competitors. The product is clearly not a long-term strategy
because it is being offered for a "limited time." What Taco Rocket is doing is trying to serve a very
narrow segment of the marketpeople who like super-hot food. In doing this, Taco Rocket is using a
focus strategy.
Diff: 3 Page Ref: 114
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
143) In a short essay, define planning and compare formal and informal planning as they are used in
various organizations.
Answer: Planning involves defining the organization's goals, establishing an overall strategy for
achieving those goals, and developing a system to implement that strategy. Planning is concerned with
both ends and means.
All managers engage in some form of planning whether it is formal or informal. In informal planning,
little or nothing is written down and there is little or no sharing of goals with others within the
organization. This type of planning is often done in small businesses where the owner-manager has a
vision of where he or she wants the business to go and how to get there.
In formal planning, goals and plans covering a specific period of time are developed. These goals and
plans are written and shared with organizational members. Specific programs exist in formal planning to
achieve planning goals; that is, managers clearly define the path they want to take and the actions they
will carry out to reach their goals.
Diff: 3 Page Ref: 106-107
AACSB: Analytic skills
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans

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Copyright (c) 2013 Pearson Education, Inc.

144) In a short essay, list and discuss two reasons for planning.
Answer: (any two of the following)
Planning establishes coordinated effort. It gives direction to managers and nonmanagers alike. When
employees know where the organization is going and what they must contribute to reach goals, they can
focus their individual and collective efforts to accomplish those goals. Without planning, departments
and individuals might end up working at cross-purposes, preventing the organization from moving
efficiently toward its goals.
Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the impact
of change, and develop appropriate responses to change. Even though planning can't eliminate change,
managers plan in order to anticipate changes and develop the most effective response to them.
Planning reduces overlapping and wasteful activities. When work activities are coordinated around
established plans, waste and redundancy can be minimized. Furthermore, when means and ends are
made clear through planning, inefficiencies often become obvious and can be easily corrected or
eliminated.
Planning establishes goals or standards that are used in controlling. If managers are unsure of what they
are trying to accomplish, they will be unable to determine whether or not they have been successful. In
planning, goals and standards are clearly developed and stated. Then actual performance can be
compared against the goals and corrective action is taken, if necessary. Without the goals identified in a
planning process, there is no way for an organization to assess its own progress.
Diff: 2 Page Ref: 106-107
AACSB: Analytic skills
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
145) In a short essay, identify criticisms of formal planning.
Answer: One of the main arguments directed at formal planning is that it is rigid and can lock an
organization into specific goals and timetables that must be achieved, no matter how circumstances may
change.
Another criticism of plans is that they cannot replace intuition and creativity, and in many cases are said
to stifle these qualities. Many people advise planners to try to take intuition and creativity into account
when they formulate their plans so their plans will enhance rather than undermine these qualities.
A third criticism of planning is that it often fixates on the current business climate, not on how the
climate might change in the future. This can result in plans that are short-sighted and limited. Rather
than look for new opportunities, managers keep trying to perfect what they did in the past.
Finally, plans often focus too much on successes of the past, forcing a company to stick to tried-and-true
methods of operating rather than forging into new areas and blazing new trails.
Diff: 3 Page Ref: 107
AACSB: Analytic skills
Objective: 5.1
Learning Outcome: Discuss the processes and tools of developing different types of plans
146) In a short essay, compare strategic plans and tactical plans.
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Answer: Strategic plans are plans that apply to the entire organization, establish the organization's
overall goals, and seek to position the organization in terms of the overall business environment.
Plans that specify the details of how the overall goals are to be achieved are called tactical or operational
plans. Tactical plans tend to cover a shorter time frame and a more narrow view of an organization than
strategic plans. Where strategic plans focus on identifying goals, tactical plans focus on how to reach
those goals.
Diff: 3 Page Ref: 120
AACSB: Analytic skills
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
147) In a short essay, compare specific plans and directional plans.
Answer: Specific plans are plans that are clearly defined and that leave no room for interpretation.
There is little room for ambiguity or misunderstanding with a specific plan. The drawbacks of specific
plans are that they can be rigid and often require a measure of predictability that in many cases does not
exist.
When uncertainty is high and managers must be able to respond to unexpected changes, directional
plans are preferable. Directional plans are flexible plans that set out general guidelines but don't lock
managers into overly specific goals or courses of action. However, the flexibility inherent in directional
plans must be weighed against the loss of clarity provided by specific plans.
Diff: 3 Page Ref: 120
AACSB: Analytic skills
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans
148) In a short essay, define and discuss management by objectives (MBO).
Answer: Management by objectives (MBO) is a system in which specific performance goals are jointly
determined by employees and their managers. MBO requires that progress toward accomplishing these
goals be periodically reviewed and rewards allocated on the basis of this progress. Rather than using
goals exclusively as controls, MBO uses them to motivate employees as well.
Management by objectives consists of four elements: goal specificity, participative decision making,
requiring an explicit time period, and performance feedback. MBO's appeal lies in its focus on
employees working to accomplish goals they have had a hand in determining.
Diff: 3 Page Ref: 118-119
AACSB: Analytic skills
Objective: 5.3
Learning Outcome: Discuss the processes and tools of developing different types of plans

48
Copyright (c) 2013 Pearson Education, Inc.

149) In a short essay, describe the first two steps in the strategic management process.
Answer: The first step in the strategic management process is to identify the organization's current
mission, goals, and strategies. Defining the organization's mission forces managers to identify what it is
in business to do. Knowing the company's current goals gives managers a basis for assessing whether
those goals need to be changed.
The second step involves an external analysis. Managers need to know, for instance, what the
competition is doing and how the current business environment is likely to affect the company. After
analyzing the environment, managers need to assess what they have learned in terms of opportunities
that the organization can exploit and threats that it must counteract or buffer against.
Diff: 3 Page Ref: 110-111
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
150) In a short essay, describe the final four steps in the strategic management process.
Answer: The third step in the strategic management process involves an internal analysis, which
provides important information about an organization's specific resources and capabilities. After
completing an internal analysis, managers can then complete a SWOT analysis. The SWOT analysis
combines information from this step and the previous step in the process to formally identify an
organization's strengths, weaknesses, opportunities, and threats.
The fourth step in the strategic management process is to put all of the information gathered together
and use it to formulate strategies for putting the organization on the right track for the future. As
managers formulate strategies, they have to consider the realities of the external environment and their
available resources and capabilities and design strategies that will help the organization reach its goals.
After strategies are formulated, they must be implemented. A strategy is only as good as its
implementation. The final step in the strategic management process is evaluating results. How effective
have the strategies been? Have they helped the organization reach its goals? What adjustments, if any,
are necessary?
Diff: 3 Page Ref: 110-111
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

49
Copyright (c) 2013 Pearson Education, Inc.

151) In a short essay, discuss environmental scanning and competitive intelligence.


Answer: Managers in both small and large organizations use environmental scanning, which is the
screening of large amounts of information, to anticipate and interpret trends and changes in the business
environment. Extensive environmental scanning is likely to reveal issues, trends, and concerns that
could affect an organization's current and planned activities.
One of the fastest growing areas of environmental scanning is competitive intelligence. Competitive
intelligence is a process by which organizations gather information about their competitors and get
answers to questions such as Who are they? What are they doing? How will what they're doing affect
us? Competitive intelligence doesn't have to involve spying. Advertisements, promotional materials,
press releases, reports filed with government agencies, annual reports, want ads, newspaper reports, and
industry studies are all examples of readily accessible sources of information for competitive
intelligence. Many firms also regularly purchase and analyze competitors' products to learn about new
technical innovations.
Diff: 3 Page Ref: 124
AACSB: Analytic skills
Objective: 5.4
152) In a short essay, discuss the cost leadership strategy according to Michael Porter.
Answer: When an organization sets out to be the lowest-cost player in its industry, it is following a cost
leadership strategy. A low-cost leader aggressively searches out efficiencies in production, marketing,
and other areas of operation. Overhead is kept to a minimum, and the firm does everything it can to cut
costs. Although low-cost leaders don't place a lot of emphasis on "frills," the product or service being
sold must be perceived as comparable in quality to that offered by rivals or at least be acceptable to
buyers. Examples of companies that have used the low-cost leader strategy include Wal-Mart and
Southwest Airlines.
Diff: 3 Page Ref: 114
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
153) In a short essay, discuss Porter's differentiation strategy.
Answer: When a company seeks to offer unique products that are seen as truly special by customers, it
is following a differentiation strategy. Ways in which companies differentiate themselves might include
exceptionally high quality, extraordinary service, innovative design, technological capability, or an
unusually positive brand image.
The key to this competitive strategy is that whatever product or service attribute is chosen for
differentiation must set the firm apart from its competitors and be significant enough to justify a price
premium that exceeds the cost of differentiation. Many highly successful businesses can be identified as
examples of the differentiation strategy: L.L. Bean (customer service), Intel (higher-quality chip
technology), Maytag (reliability), and Mary Kay Cosmetics (distribution).
Diff: 3 Page Ref: 114
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies
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154) In a short essay, discuss Porter's focus strategy.


Answer: A company pursues a focus strategy when it concentrates on a narrow product or segment of
the market. The goal of a focus strategy is to fill a niche in the market. A niche can be based on product,
type of buyer, distribution channel, or geographical location of buyers. Research suggests that the focus
strategy may be the most effective choice for small businesses because they typically do not have the
economies of scale or internal resources to successfully pursue one of the other two strategies. Stouffer
used a focus strategy with its Lean Cuisine line to reach affluent, sophisticated, calorie-conscious
customers who wanted convenient but high quality products.
Diff: 3 Page Ref: 114
AACSB: Analytic skills
Objective: 5.2
Learning Outcome: Identify the steps of the strategic management process and describe common
organizational and business strategies

51
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