CHAPTER 8 

Implementing Strategies: Marketing, Finance/Accounting, R&D and MIS

Issues

The Nature of Strategy Implementation

1. Less than 2 percent of formulated strategies are successfully implemented.

Ans: F Page: 306

2. Being long term in nature, strategy implementation affects top and middle managers
but not the lower-level employees.
Ans: F Page: 306

Marketing Issues
3. An example of a marketing decision is whether or not to limit the share of business
done with a single customer.
Ans: T Page: 306

4. Given that most information on individuals is available online, the extent to which
companies can track individuals’ movements on the Internet is not a marketing issue of
great concern to consumers today.
Ans: F Page: 307

5. Market penetration can be defined as the subdividing of a market into distinct

subsets of customers according to needs and buying habits.
Ans: F Page: 307

6. The marketing mix component factors are product, place, promotion, price and
people.
Ans: F Page: 308

7. With market segmentation, a firm can better operate with limited resources.
Ans: T Page: 308

8. The most common bases for segmenting markets are geographic and demographic.
Ans: T Page: 308

9. Segmentation often reveals that large, random fluctuations in demand actually

consist of several small, predictable, and manageable patterns.
Ans: T Page: 308

10. Segmenting industrial markets is generally simpler and easier than segmenting
consumer markets.
Ans: F Page: 308

11. Generally, market segmentation is followed by market diversification strategy.

Ans: F Page: 308

12. The next step after segmenting markets so the firm can target particular customer
groups is to find out what customer groups want and expect.
Ans: T Page: 308

13. In general, the Internet makes market segmentation easier.

Ans: T Page 310

14. Multidimensional scaling involves examining three or more criteria simultaneously

in a product-positioning analysis.
Ans: T Page: 311

15. A firm can usually serve two or more market segments with the same strategy.
Ans: F Page: 311

16. It is okay for firms to create expectations that exceed the service the firm can or will
offer if it will attract customers.
Ans: F Page: 311

Finance/Accounting Issues

17. Return on assets is the most widely used technique for determining whether debt,
stock, or a combination of debt and stock is the best alternative for raising capital to
implement strategies.
Ans: F Page: 313

18. Besides net profit from operations and the sale of assets, the two basic sources of
funds for an ongoing enterprise are debt and equity.
Ans: T Page: 313

19. In low earning periods, too much debt in the capital structure of an organization can
endanger stockholders’ returns and jeopardize company survival.
Ans: T Page 313

20. Additional capital is often required for successful strategy implementation.

Ans: T Page: 313

21. An EPS/EBIT chart can be constructed to determine the breakeven point, where one
financing alternative becomes more attractive than another.
Ans: T Page: 313

22. A reason for concern over the dilution of company stock is a possible hostile
takeover.
Ans: T Page: 315

23. When additional debt is issued to finance implementation of strategy, ownership and
control of the enterprise are diluted.
Ans: F Page: 315
24. In times of depressed stock prices, stock issuances often prove to be the most
suitable alternative for obtaining capital.
Ans: F Page: 315

25. A projected financial analysis can be used to forecast the impact of various
implementation decisions.
Ans: T Page: 318

26. When performing pro forma financial analyses, the balance sheet should be
prepared before the income statement.
Ans: F Page: 318

27. The percent-of-sales method should be used for computing the cost of goods sold and
the expense items in projected income statements.
Ans: T Page: 319

28. The cash account is used as a plug figure in pro forma balance sheets.
Ans: T Page: 320

29. The Sarbanes-Oxley Act of 2002 has eliminated the problem of firms inflating their
financial projections, so stakeholders need not worry about the financial projections of
different companies.
Ans: F Page: 320

30. A financial budget is a document that details how funds will be obtained and spent
for a specified period of time.
Ans: T Page: 320

31. Limiting an organization’s expenditures is the primary purpose of financial budgets.

Ans: F Page: 320

32. The most common type of financial budget is the capital budget.
Ans: F Page: 321

33. Although cash budgets can be a useful financial tool, publicly held companies are
not required to complete them.
Ans: F Page 321

34. A limitation of financial budgets is that they can hide inefficiencies if based solely on
precedent rather than on periodic evaluation of circumstances and standards.
Ans: T Page: 321

35. All the methods for determining a business’ worth can be grouped into three basic
approaches: what a firm owns, what a firm earns, and what a firm spends.
Ans: F Page: 322

36. A conservative rule of thumb for measuring the value of a firm is to establish a
business’ worth to be 10 times the firm’s most current annual profit.
Ans: F Page: 322
37. A recommended approach for determining a firm’s worth is to base the analysis on
the selling price of a similar company.
Ans: T Page: 322

38. To determine the price-earnings ratio, divide the market price of the firm’s annual
earnings per share by the common stock and multiply this number by the firm’s
average net income for the past 10 years.
Ans: F Page: 322

39. It is generally not recommended for companies with less than $10 million in sales to
go public.
Ans: T Page: 325

40. In general, there are very little costs associated with going public.
Ans F Page 325

41. Buying off the outstanding shares of your company from the open market to make
the company private is what going public means.
Ans: F Page: 299

Research and Development (R&D) Issues

42. If the rate of market growth and technical progress is fast and there are few barriers
to possible new entrants, then in-house R&D is the preferred solution.
Ans: F Page: 325

43. According to research, the most successful new product companies use a research
and development strategy that ties internal strengths to external opportunities and is
linked with corporate objectives.
Ans: T Page: 325

44. R&D policies can enhance strategy implementation efforts to emphasize product or
process improvements.
Ans: T Page: 325

45. A major effort in R&D may be very risky if technology is changing rapidly and the
market is growing slowly.
Ans: T Page: 326

46. One R&D strategy is to be an innovative imitator of successful products.

Ans: T Page: 326

47. A current trend in R&D management involves the lifting of the veil of secrecy
whereby firms, even major competitors, are joining forces to develop new products.
Ans: T Page 327
Management Information Systems (MIS) Issues

48. The process of strategic management is facilitated immensely in firms that have an
effective information system.
Ans: T Page: 327

49. Increased costs are a disadvantage of a good information system.

Ans: F Page: 327

50. With information technology, in some cases it is possible to do away with the
workplace by allowing employees to work at home or anywhere, anytime.
Ans: T Page: 328

The Nature of Strategy Implementation

51. What percent of strategies formulated are successfully implemented?
a. Less than 10 percent
b. About 30 percent
c. Between 40 to 60 percent
d. Approximately 66 percent
e. More than 80 percent
Ans: a Page: 306

52. What level of management is directly affected by strategy implementation?

a. plant managers
b. sales managers
c. project managers
d. division managers
e. all of these
Ans: e Page: 306

Marketing Issues
53. All of the following are examples of marketing decisions that require policies except:
a. to be a market leader or follower.
b. to advertise online or not.
c. to offer a complete or limited warranty.
d. to use heavy, light, or no TV advertising.
e. to use exclusive dealerships or multiple channels of distribution.
Ans: a Page: 306

54. Which two variables are of central importance to strategy implementation?

a. diversification and budgeting.
b. marketing penetration and competition.
c. competition and collaboration.
d. product development and market development.
e. market segmentation and product positioning.
Ans: e Page: 307

55. Subdividing a market into distinct subsets of customers according to their needs and
the way they buy and use a product or service is:
a. market penetration.
b. product diversification.
c. market segregation.
d. market segmentation.
e. positioning.
Ans: d Page: 307

56. Why is market segmentation an important variable in strategy implementation?

a. all company strategies require increased sales through new markets and products.
b. it allows a firm to operate with limited resources.
c. mass production, mass distribution and mass advertising are not always required.
d. market segmentation decisions directly affect marketing mix variables.
e. all of the above.
Ans: e Page: 307-308

57. Which of the following variables are not directly affected by market segmentation?
a. Product
b. Place
c. Process
d. Promotion
e. Price
Ans: c Page: 308

58. Why is market segmentation an important variable in the strategy-implementation

process?
a. company strategies do not require increased sales through new markets and products.
b. it allows a firm to operate with no resources.
c. it directly affects marketing mix variables.
d. it allows a firm to minimize per-unit profits and per-segment sales.
e. all of the above.
Ans: c Page: 308

59. Perhaps the most dramatic new market segmentation strategy is the
a. targeting of regional tastes.
b. focusing on universal product.
c. preference of international over domestic sales.
d. treatment of industrial markets.
e. none of these.
Ans: a Page: 308

60. Matching of which factors would allow factories to produce desirable levels without
extra shifts, overtime or subcontracting?
a. markets and competitors
b. competition and positioning
c. customer behavior and positioning
d. supply and demand
e. segments and demand
Ans: d Page: 308

61. Which variable would be considered part of the product element of the marketing
mix?
a. Advertising
b. Packaging
c. Payment terms
d. Inventory levels and location
e. Publicity
Ans: b Page 308

62. Which variable would be considered part of the place element of the marketing mix?
a. Product line
b. Service level
c. Personal selling
d. Sales territory
e. Discounts and allowances
Ans: b Page 308

63. What entails developing schematic representations that reflect how your products or
services compare to competitors’ on dimensions most important to success in the
industry?
a. Positioning
b. Segmentation
c. Penetration
d. Diversification
e. Budgeting
Ans: a Page: 311

64. Which of these is not a correct step in product positioning?

a. Select key criteria that effectively differentiate products or services in the industry.
b. Look for a hole or vacant niche
c. Plot major competitors’ products or services in the resultant matrix.
d. Identify areas in the positioning map where the company’s products or services could be
most competitive in the given target market.
e. Develop a marketing plan to position the company’s products and services appropriately.
Ans: b Page: 311

65. Looking for a vacant niche helps a company determine

a. its advertising budget.
b. the size of the marketing department.
c. the best place to position a product.
d. the best place to locate a new facility.
e. its projected R & D expenditures.
Ans: c Page: 311

66. Multidimensional scaling is used to determine

a. the size of a new building.
b. the size of a new department.
c. the amount of high-tech equipment a firm needs.
d. product positioning.
e. market segmentation.
Ans: d Page: 311

67. Which of the following is (are) true about two different market segments?
a. They can usually be served with the same marketing strategy.
b. They usually require different marketing strategies.
c. They are always in different geographic locations.
d. They are usually incompatible.
e. They are most effective when a firm squats between two segments.
Ans: b Page: 311

68. Which of these is not a rule of thumb when using product positioning as a strategy-
implementation tool?
a. “Don’t squat between segments.”
b. “Look for the hole or vacant niche.”
c. “Try to serve more than one segment with the same strategy.”
d. “Don’t position yourself in the middle of the map.”
e. All of these are valid rules of thumb.
Ans: c Page: 311

Finance/Accounting Issues
69. Which of the following is not an example of a decision that may require
finance/accounting policies?
a. To extend the time of accounts receivable
b. To establish a certain percentage discount on accounts within a specified period of time
c. To lease or buy fixed assets
d. To use LIFO, FIFO, or a market-value accounting approach
e. To determine the amount of product diversification
Ans: e Page: 313

70. In the low earnings period, too much ______ in the capital structure of an
organization can endanger stockholders’ return and jeopardize company survival.
a. debt
b. liquid assets
c. equity
d. cash
e. tax
Ans: a Page: 313

71. Which of these obligations generally must be met, regardless of circumstances?

a. Dividends
b. Employee
c. Fixed debt
d. Equity
e. All of these
Ans: c Page: 313

72. What is the most widely used technique for determining the best combination of
debt and stock?
a. Debt-to-stock ratio
b. Earnings per share/earnings before interest and tax analysis
c. Gross profit analysis
d. Capital asset pricing model
e. Present value analysis
Ans: b Page: 313

73. After completing an EPS/EBIT analysis, what conclusions would you make if the
debt line is above the stock line throughout the range of EBIT on the graph?
a. Debt appears to be the best financing alternative.
b. Stock would be the best financing alternative.
c. A combination of debt and stock is probably the best financial alternative.
d. Dividends must be considered before conclusions can be made.
e. The company should be privately owned.
Ans: a Page: 313

74. What becomes a more attractive financing technique when cost of capital is high?
a. stock issuance
b. debt
c. cost cutting
d. borrowing
e. staying privately owned
Ans: a Page: 315

75. What is a drawback of using only equity to raise capital?

a. The cost
b. Fluctuations in the stock market
c. Dilution of the control of the company
d. That it will cause EPS to roller coaster
e. That it doesn’t raise as much capital as debt financing
Ans: c Page: 315

76. A benefit of using projected balance sheets and income statements is that
a. an organization can compute projected financial ratios under various scenarios.
b. money can be put aside to pay future income taxes.
c. insurance needs can be computed.
d. it is useful in analyzing past performance.
e. all of the above.
Ans: a Page: 318

77. Projected financial analysis is an important strategy-implementation technique

because
a. it is an exact measurement of financial costs in the future.
b. it is an exact measurement of future company profits.
c. it allows an organization to examine the expected results of various actions and
approaches.
d. insurance needs can be computed.
e. none of the above
Ans: c Page: 318

78. What is a central strategy-implementation technique that allows an organization to

examine the expected results of various actions and approaches?
a. EPS/EBIT
b. Financial budgeting
c. TOWS analysis
d. Projected financial statement analysis
e. External analysis
Ans: d Page: 318

79. The first step in preparing a projected statements is to

a. prepare the projected balance sheet.
b. take an inventory of goods.
c. estimate increases in debt.
d. prepare the projected income statement.
e. calculate the projected net income.
Ans: d Page: 318

80. In preparing projected statements, to project cost of goods sold and the expense
items in the income statement, which of these methods is recommended?
a. Determining the net worth method
b. What a firm earns method
c. Percentage-of-sales method
d. Price-earnings ratio met
e. Outstanding shares method
Ans: c Page: 318-319

81. Which element in the projected income statement cannot be forecasted using the
percentage-of-sales method?
a. Cost of goods sold
b. Selling expense
c. Administrative expense
d. Interest expense
e. All of these items are forecasted using the percentage-of-sales method.
Ans: d Page: 319

82. Retained earnings is obtained by subtracting

a. any dividends from net income.
b. net income from EBIT.
c. taxes from EBIT.
d. interest expense from EBT.
e. EBIT from CGS.
Ans: a Page: 319-320
83. In projected financial statements, what account is used as a plug figure?
a. retained earnings
b. fixed assets
c. cash
d. long-term liabilities
e. stockholders’ equity
Ans: c Page: 320

84. Which of these is the most common type of budgeting time frame?
a. Daily
b. Quarterly
c. Annual
d. Every decade
e. Monthly
Ans: c Page: 320

85. If a firm incurs a loss during a particular year, or if the firm had positive net income
but paid out dividends more than the net income, its retained earnings for that year will
most likely be
a. a large positive number.
b. a low positive number.
c. zero.
d. a negative number.
e. Can not be determined from this information.
Ans: d Page: 319-320

86. What is the most common type of financial budget?

a. cash
b. sales
c. profits
d. factory
e. flexible
Ans: a Page: 321

87. Who has mandated that every publicly held company in the United States must issue
an annual cash-flow statement in addition to the usual financial reports?
a. SEC
b. Congress
c. FCC
d. FASB
e. OPEC
Ans: d Page: 321

88. How should financial budgets be thought of?

a. A tool for limiting expenditures.
b. A method for obtaining the most productive and profitable use of an organization’s
resources.
c. A method for rationing the profits from the past year.
d. A method for determining who should receive the largest pay raise.
e. A tool for forecasting future profits.
Ans: b Page: 320
89. What is a limitation of using financial budgets?
a. They can be so detailed that they are cumbersome and expensive.
b. They can become a substitute for objectives.
c. They can hide inefficiencies if done only on precedent.
d. They are sometimes used as instruments of tyranny.
e. All of the above.
Ans: e Page: 321

90. Which of the following methods is not accepted for determining a business’ worth?
a. What the firm owns.
b. What the firm earns.
c. What the firm’s return on investment has been.
d. What the firm will bring in the market.
e. All of the above are accepted.
Ans: c Page: 322

91. Which item is/are not included in net worth?

a. Fixed assets
b. Common stock
c. Additional paid-in-capital
d. Retained earnings
e. All of these are included in net worth
Ans: a Page: 322

92. Which method of determining a firm’s net worth divides the market price of the
firm’s stock by the annual earnings per share and multiplies this number by the firm’s
average net income for the past five years?
a. Debt/equity method
b. Current ratio method
c. Price-earnings ratio method
d. Long-term asset method
e. Outstanding shares method

93. What best describes how much a company is worth?

a. An exact science
b. An educated guess
c. Explicit accounting standards
d. Known only to the firm’s accountants
e. Static

94. The Financial Accounting Standard Board (FASB) Rule 142 deals with
a. illegal inflation of financial projections.
b. hacking issues in MIS.
c. goodwill.
d. how firms conduct R & D.
e. improving marketing policies.

95. What is the best definition of goodwill?

a. Premiums paid for acquisition
b. Value attached to the firms reputation
c. Excess of assets over liabilities
d. Value associated with benefits from environmental programs
e. Excess of current assets over liabilities

96. If an initial stock issuance is at or under $1 million, what is the average total cost
paid to lawyers, accountants and underwriters?
a. 1 dollar in 20
b. 1 dollar in 10
c. 25 percent
d. 5 percent
e. 40 percent

Research and Development (R&D) Issues

97. R&D employees and managers perform all of the following tasks except:
a. transferring complex technology.
b. alternating products to particular tastes and specifications.
c. researching resource availability.
d. adapting processes to local markets.
e. adjusting process to local raw materials.

98. Which of the following is not a major approach to R&D?

a. To be a pioneer
b. To be an innovative imitator
c. To be a low-cost producer by mass-producing products similar to but less expensive than
products recently introduced
d. To be a liquidator
e. All of the above are major approaches to R&D.

99. The attitude of U.S. firms toward research and development is best described by
which of the following?
a. The veil of secrecy is being lifted, resulting in more collaboration.
b. Firms are more cutthroat than ever and less cooperative with each other.
c. Firms are less interested in working with universities.
d. Firms are spending less in total research and development expenditures.
e. Firms are less involved with research consortia than ever.

Management Information Systems (MIS) Issues

100. A good information system can allow a firm to
a. gain competitive advantage.
b. reduce costs.
c. increase productivity.
d. increase customers.
e. reduce turnover.

Essay Questions

101. Name five examples of marketing decisions that may require policies.

1) To use exclusive dealerships or multiple channels of distribution

2) To use heavy, light, or no TV advertising;
3) To limit (or not) the share of business done with a single customer;
4) To be a price leader or a price follower;
5) To offer a complete or limited warranty;
6) To reward salespeople based on straight salary, straight commission, or a combination
salary/commission ;
7) To advertise online or not.

102. Although there are many marketing variables that impact the success or failure of
strategy-implementation efforts, two variables are central to the process. What are
these variables? Discuss why they are so important.

Two variables of central importance to strategy implementation are market segmentation and
product positioning. Segmentation is important because it is a key to matching supply and
demand, which is one of the thorniest problems in customer service. Segmentation often
reveals that large, random fluctuations in demand actually consist of several small,
predictable and manageable patterns. Product positioning is important because it is a severe
mistake to assume the firm knows what customers want and expect. Many firms have become
successful by filling the gap between what customers and producers see as good service.
What the customer believes is good service is paramount, not what the producer believes
service should be. Positioning entails developing schematic representations that reflect how a
firm’s products or services compare to competitors’ on dimensions most important to success
in the industry.

103. What are the marketing-mix component factors? Give some examples of each.
The marketing-mix component factors consist of product, place, promotion and price. Please
refer to Table 8-1 on page 308 for examples of each factor.

104. What are the five steps required for effective product positioning? Give an example
of a product-positioning matrix for an organization of your choice.
There are five steps required for effective product positioning. These five steps are as
follows:
(1) select key criteria that effectively differentiate products or services in the industry,
(2) diagram a two-dimensional product-positioning map with specified criteria on each axis,
(3) plot major competitors’ products or services in the resultant four-quadrant matrix,
(4) identify areas in the positioning map where the company’s products or services could be
most competitive in the given target market and look for niches and
(5) develop a marketing plan to position the company’s products or services appropriately.

105. Name five examples of finance/accounting decisions that may require policies.
 1) To raise capital with short-term debt, long-term debt, preferred stock, or common stock;
2) To lease or buy fixed assets;
3) To determine an appropriate dividend payout ratio;
4) To use LIFO, FIFO, or a market-value accounting approach;
5) To extend the time of accounts receivable.
6) To establish a certain percentage discount on accounts within a specified period of time;
7) To determine the amount of cash that should be kept on hand.

106. Describe the considerations of EPS/EBIT analysis.

There are four considerations of EPS/EBIT analysis:
1) profit levels may be higher for stock or debt alternatives when EPS levels are lower;
2) flexibility;
3) dilution of ownership can be an overriding concern in closely held corporations in which
stock issuances affect the decision-making power of majority stockholders; and
4) timing in relation to movements of stock prices, interest rates and bond prices becomes
important.

107. Explain how to perform a projected financial analysis.

The steps to performing a projected financial analysis are as follows:
(1) prepare the projected income statement before the balance sheet and start by forecasting
sales as accurately as possible;
(2) use the percentage-of-sales method to project CGS and the expense items in the income
statement;
(3) calculate the projected net income;
(4) subtract from the net income any dividends to be paid and add the remaining net income
to Retained Earnings;
(5) project the balance sheet items, beginning with retained earnings and then forecasting
stockholders’ equity, long-term liabilities, total liabilities, total assets, fixed assets and current
assets—in that order; and
(6) list comments on the projected statements.

108. Identify and describe three approaches for determining a business’ worth.
The three approaches for determining a business’ worth are what a firm owns, what a firm
earns and what a firm will bring in the market. Please see the discussion on page 322 under
“Evaluating the Worth of a Business” for descriptions of each approach.

109. Explain the important issues involved in deciding whether to go public, i.e., a
private firm considering becoming a public firm. Include cost estimates, advantages and
disadvantages.

110. Discuss guidelines used to determine whether a firm should conduct R&D
internally or externally.
First, if the rate of technical progress is slow, the rate of market growth is moderate, and there
are significant barriers to possible new entrants, then in-house R&D is the preferred solution.
Second, if technology is changing rapidly, and the market is growing slowly, then a major in-
house effort in R&D may be risky. Third, if technology is changing slowly but the market is
growing quickly, there generally is not enough time for in-house development. Finally, if
both technical progress and market growth are fast, R&D expertise should be obtained
through acquisition of a well-established firm in the industry.

111. List and describe the three major R&D approaches for implementing strategies.
The three major R&D approaches for implementing strategies are:
(1) to be the first firm to market new technological products;
(2) to be an innovative imitator of successful products, thus minimizing the risks and costs of
start-up; and
(3) to be a low-cost producer by mass-producing products similar to but less expensive than
products recently introduced.

CHAPTER 9
Strategy Review, Evaluation and Control
True/False
The Nature of Strategy Evaluation

1. Most strategists believe that an organization’s well being depends on evaluation of the
strategic-management process.
Ans: T        Page: 337

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

Ans: T        Page: 337

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

productive.
Ans: T        Page: 337

4. Strategy evaluation should have a long-run focus and avoid a short-run focus.
Ans: F        Page: 327

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

external assessment.
Ans: F        Page: 337

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

internal assessment.
Ans: T        Page: 337

7. Consistency, distinctiveness, advantage and feasibility are Richard Rumelt’s four

criteria for evaluating a strategy.
Ans: F        Page: 337

8. Strategy evaluation is becoming increasingly easier with the passage of time, given the
technological advances.
Ans: F        Page: 337
9. The decreasing time span for which planning can be done with any degree of
certainty is a reason strategy evaluation is more difficult today.
Ans: T        Page: 337

10. Strategies may be inconsistent if policy problems and issues continue to be brought
to the top for resolution.
Ans: T        Page: 338

11. Competitive advantages normally are the result of superiority in one of three areas:
feasibility, consistency, or consonance.
Ans: F        Page: 338

12. Regardless of the size of the organization, a certain amount of management by

wandering around at all levels is essential to effective strategy evaluation.
Ans: T        Page: 339

13. Because large companies have more at stake, it is more important for large
organizations to conduct strategy evaluation than small companies.
Ans: F        Page: 339

14. The end of the fiscal year is the best time to do strategy evaluation.
Ans: F        Page: 339

A Strategy-Evaluation Framework

15. Changes in the organization’s management, marketing, finance, R&D and CIS
strengths and weaknesses should all be the focus of a revised EFE matrix in strategy
evaluation.
Ans: F        Page: 340

16. In strategy evaluation, a revised IFE matrix should indicate how effective a firm’s
strategies have been in response to key opportunities and threats.
Ans: F        Page: 340

17. Strengths, weaknesses, opportunities and threats should continually be monitored

for change because it is not really a question of whether these factors will change but
rather when they will change and in what ways.
Ans: T        Page: 341

18. When taking corrective action, you need to compare expected results to actual
results.
Ans: F        Page: 342

19. Criteria for evaluating strategies should be measurable and easily verifiable.
Ans: T        Page: 343

20. Specific financial ratios are rarely used criteria to evaluate strategies.
Ans: F        Page: 343
21. Measuring organizational performance includes comparing expected results to
actual results, investigating deviations from plans, evaluating individual performance
and examining progress being made toward meeting stated objectives.
Ans: T        Page: 343

22. Intuitive judgments are almost always involved in deriving quantitative criteria.
Ans: T        Page: 343

23. Most quantitative evaluation criteria are geared to long-term objectives rather than
annual objectives.
Ans: F        Page: 343

24. Measuring organizational performance requires making changes to reposition a

firm competitively for the future.
Ans: F        Page: 344

25. Taking corrective actions does not necessarily mean that existing strategies will be
abandoned, or even that new strategies must be formulated.
Ans: T        Page: 344

26. Corrective action in strategy evaluation is necessary to keep an organization on

track toward achieving stated objectives.
Ans: T        Page: 344

27. Alvin Toffler argues that environments are becoming so dynamic and complex that
they threaten people and organizations with future shock in his thought-provoking
books entitled Future Shock and The Third Wave.
Ans: T        Page: 344

28. Future shock occurs when the type and speed of changes overpower an individual or
organization’s ability and capacity to adapt.
Ans: T        Page: 344

29. According to research, participation in strategy-evaluation activities is one of the

best ways to overcome individuals’ resistance to change.
Ans: T        Page: 344-345

The Balanced Scorecard

30. The basic form of a Balanced Scorecard is the same for all organizations and
industries.
Ans: F        Page: 346

31. The Balanced Scorecard Approach deals with the question, “How satisfied are the
firm’s customers.”
Ans: T        Page: 346
Published Sources of Strategy-Evaluation Information
32. Each year, Fortune publishes strategy evaluation research on both the United States
and other countries.
Ans: T        Page: 346

Characteristics of an Effective Evaluation System

33. Strategy-evaluation activities must be meaningful, i.e., they should specifically relate
to a firm’s objectives.
Ans: T        Page: 349

34. Timely approximate information generally more desirable as a basis for strategy
evaluation than accurate information that does not depict the present.
Ans: T        Page: 349

35. The test of an effective evaluation system is its usefulness and complexity.
Ans: F        Page: 349

36. Small organizations require a more elaborate and detailed strategy-evaluation

system because they are still evolving.
Ans: F        Page: 349

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

Ans: T        Page: 349

Contingency Planning

38. Contingency plans are alternative plans that can be put into effect if certain key
events do not occur as expected.
Ans: T        Page: 350

39. Organizations should prepare contingency plans just for unfavorable events.
Ans: F        Page: 350

40. Strategies should try to cover all bases by planning for all possible contingencies.
Ans: F        Page: 350

41. Contingency plans should be as simple as possible.

Ans: T        Page: 350

42. Alternative strategies not selected for implementation should be discarded, as they
have a tendency to contaminate the contingency plans.
Ans: F        Page: 350

43. Identifying both beneficial and unfavorable events that could possibly derail the
strategy or strategies is the first step of effective contingency planning.
Ans: T        Page: 351

Auditing

44. Independent auditors, government auditors and IRS auditors are the three groups
of people who perform audits.
Ans: F        Page: 352

45. Independent auditors are basically CPAs who provide their services to organizations
for a fee.
Ans: T        Page: 352

46. Public accounting firms usually avoid strategy evaluation services.

Ans: F        Page: 352

47. Two government agencies—IRS and GAO—employ government auditors

responsible for making sure organizations comply with federal laws, statutes and
policies.
Ans: T        Page: 352

48. Moving environmental affairs from the line side of the organization to the staff side
is required when instituting an environmental audit.
Ans: F        Page: 353

49. The strategic management process should be completely open because participation
and openness enhance understanding, commitment, and communication within the
firm.
 Ans T:        Page 354

50. Increased education and diversity of the workforce at all levels are reasons why the
top-down approach should be favored in organizations.
Ans: F        Page: 354

Multiple Choice

The Nature of Strategy Evaluation

51. Which of these is/are a basic activity of strategy evaluation?

a. Reviewing the underlying internal and external factors that represent the bases of current
strategies
b. Measuring organizational performance
c. Taking corrective actions
d. All of the above.
e. Both b and c
Ans: d        Page: 336

52. The purpose of strategy evaluation is to

a. increase the budget annually.
b. alert management to problems or potential problems.
c. make budget changes.
d. evaluate employees’ performance.
e. improve R&D programs.
Ans: b        Page: 336

53. What is the cornerstone of effective strategy evaluation?

a. Adequate and timely feedback
b. Quality and quantity of managers
c. Smaller ratio of top- to lower-level management
d. Evaluation preceding implementation stage
e. Taking corrective actions
Ans: a         Page: 337

54. All of these are Richard Rumelt’s criteria to evaluate a strategy except:
a. advantage.
b. consistency.
c. feasibility.
d. distinctiveness.
e. consonance.
Ans: d        Page: 337

55. What is happening to strategy evaluation with the passage of time?

a. increasingly difficult
b. much simpler
c. very convenient
d. an unnecessary activity
e. less important
Ans: a         Page: 337

56. All of the following are reasons strategy evaluation is more difficult today except:
a. a dramatic increase in the environment’s complexity.
b. the increasing number of variables.
c. the increase in the number of both domestic and world events affecting organizations.
d. the decreasing difficulty of predicting the future with accuracy.
e. the rapid rate of obsolescence of even the best plans.
Ans: d        Page: 337

57. Which of the following is not a reason for the increasing difficulty of evaluating
strategies?
a. Product life cycles are longer today than ever.
b. Domestic and world economies are less stable than ever.
c. Product development cycles are longer than ever.
d. Technological advancement is more rapid.
e. Change is occurring more frequently than ever.
Ans: a         Page: 337

58. What is important because organizations face dynamic environments in which key
external and internal factors often change quickly and dramatically?
a. Strategy formulation
b. Strategy evaluation
c. Strategy simplification
d. Strategy modification
e. Strategy implementation
Ans: b        Page:  337   
    
59. A final broad test of strategy is its
a. advantage.
b. feasibility.
c. consonance.
d. consistency.
e. distinctiveness.
Ans: b        Page: 338

60. Competitive advantage normally is the result of superiority in resources, skills and
a. employees.
b. position.
c. consistency.
d. feasibility.
e. governance.
Ans: b        Page: 338

61. What term refers to the need for strategists to examine sets of trends, as well as
individual trends in evaluating strategies?
a.       Consistency
b.      Consonance
c.       Synergy
d.      Feasibility
e.       Advantage
Ans: b        Page 338

62. In evaluating strategies, which one of Rumelt’s criteria for evaluating strategies,
refers to the need for strategists to examine sets of trends?
a. consistency
b. consonance
c. feasibility
d. advantage
e. empowerment
Ans: b        Page: 338

63. If success for one organizational department means failure for another department,
then strategies may be
a. synergistic.
b. advantageous.
c. inconsonant
d. failures.
e. inconsistent.
Ans: e         Page: 338
64. When empowered employees are held accountable for and pressured to achieve
specific goals and are given wide latitude in their actions to achieve them, there can be
a. increased productivity.
b. dysfunctional behavior.
c. decreased number of complaints.
d. decreased turnover.
e. increased number of litigations.
Ans: b        Page: 339

65. Strategy-evaluation activities should be performed

a. on a periodic basis.
b. at the onset of a problem.
c. on a continuous basis.
d. upon completion of major projects.
e. every two years.
Ans: c         Page: 339

A Strategy-Evaluation Framework

66. Corrective actions are not needed when

a. changes have occurred in the firm’s internal strategic position.
b. external and internal factors have not significantly changed.
c. the firm is not progressing satisfactorily toward achieving stated objectives.
d. competitive factors are on the rise.
e. the industry is slowing down.
Ans: b        Page: 340

67. When you discover major changes have occurred in the firm’s internal strategic
position while conducting strategy evaluation, you should
a. continue on the present strategic course.
b. immediately discontinue all aspects of the present strategic course.
c. take corrective actions.
d. add additional funds to the present strategic plan.
e. copy the actions of major competitors.
Ans: c         Page: 340

68. Changes in the organization’s management, marketing, finance/accounting, R&D

and CIS strengths and weaknesses should be the focus of a revised
a. mission.
b. IFE matrix.
c. vision.
d. EFE matrix.
e. EPM matrix.
Ans: b        Page: 340

69. A revised __________ should indicate how effective a firm’s strategies have been in
response to key opportunities and threats.
a. IFE matrix
b. mission
c. EFE matrix
d. vision
e. CPM matrix
Ans: c         Page: 340

70. Which of the following is not included in measuring organizational performance?

a. Comparing results to competitors’ expectations.
b. Examining progress being made toward meeting stated objectives.
c. Investigating deviations from plans.
d. Evaluating individual performance.
e. Comparing expected results to actual results.
Ans: a         Page: 342-343

71. Ineffectiveness and/or inefficiencies indicate the need for

a. layoffs.
b. consultants.
c. some form of correction action.
d. reductions in pay.
e. more synergy.
Ans: c         Page: 343

72. What is the basis for quantitative financial evaluation?

a. Reduction in costs
b. The EPS/EBIT Analysis
c. Capital Asset Pricing Model
d. Financial ratios
e. Present value analysis
Ans: d        Page: 343

73. Which of these is not a key financial ratio?

a. Market share
b. Production quality
c. Earnings per share
d. Asset growth
e. Return on equity
Ans: b        Page: 343

74. Strategy evaluation is based on

a. empirical data.
b. qualitative criteria.
c. objective data.
d. qualitative and quantitative criteria.
e. intuition.
Ans: d        Page: 343

75. Financial ratios are used to compare a firm’s performance over different time
periods, compare the firm’s performance to industry averages, and compare a firm’s
performance with
a. overall business standards.
b. the performance of international firms.
c. the performance of suppliers.
d. non-financial ratios.
e. the performance of competitors.
Ans: e         Page: 343

76. Most quantitative criteria are geared to  objectives rather than    objectives.
a. top-management; employee
b. short-term; annual
c. annual; long-term
d. environmental; community
e. profit; social
Ans: c         Page: 343

77. What corrective actions should a firm take during strategy evaluation?
a. Revising the business mission
b. Issuing stock
c. Revising objectives
d. Selling a division
e. All of the above
Ans: e         Page: 344

78. What occurs when the nature, types and speed of changes overpower an individual’s
or organization’s ability and capacity to adapt?
a. Corporate downfall
b. Corrective actions
c. Future shock
d. Corporate agility
e. Measuring performance
Ans: c         Page: 344

79. Corrective actions should

a. strengthen an organization’s competitive position in its industry.
b. streamline asset holdings.
c. reduce the staff size.
d. involve abandoning existing strategies.
e. all of the above.
Ans: a         Page: 344

80. What is the best way to overcome individuals’ resistance to change in strategy
evaluation?
a. Participation
b. Command-and-control
c. Laissez-faire system
d. Rational argument
e. Emotional reactions
Ans: a         Page: 344

81. An organization’s ability to adapt successfully to changing circumstances refers to

its
a. corporate agility.
b. future shock.
c. dynamism.
d. revision power.
e. liquidity.
Ans: a         Page: 344

82. Corrective action should do all of the following except:

a. capitalize upon internal strengths.
b. avoid external opportunities.
c. avoid external threats.
d. improve internal weaknesses.
e. strengthen an organization’s competitive position.
Ans: b        Page: 345

The Balanced Scorecard

83. Which of the following is not a component of the Balanced Scorecard?

a. Social responsibility
b. Financial performance
c. Customer knowledge
d. Internal business processes
e. Learning and growth
Ans: a         Page: 346

84. What aims to balance long term with short term concerns, financial with non-
financial concerns, and internal with external concerns.
a. Contingency planning
b. The Balanced Scorecard approach
c. Taking corrective action
d. Measuring performance
e. reviewing Bases of Strategy
Ans: b        Page: 346

Published Sources of Strategy-Evaluation Information

85. In the important publication used to evaluate a firm’s strategy, the Fortune 50
includes all of the following except:
a. the top retailers.
b. the top transportation companies.
c. the top utilities.
d. the top banks.
e. the top hospitals.
Ans: e         Page: 346

86. Which of these is not a key attribute in Fortune’s strategy evaluation research on “
America’s Most Admired Companies”?
a. Quality of management
b. Innovation
c. Long-term investment value
d. Amount of physical resources
e. Use of corporate assets
Ans: d        Page: 346-347
Characteristics of an Effective Evaluation System

87. What is not a characteristic of an effective evaluation system?

a. Economical
b. Timely
c. Information-oriented
d. Meaningful
e. Provide a true picture of what is happening
Ans: c         Page: 349

88. Controls need to be _________ rather than__________.

a. action oriented; information oriented
b. cultural; political
c. qualitative; quantitative
d. measurable; timely
e. universal; diverse
Ans: a         Page: 349  

89. The strategy-evaluation process should foster

a. mutual understanding.
b. implementation.
c. corporate culture.
d. profit centers.
e. contingency plans.
Ans: a         Page: 349

90. What factor determines the final design of a firm’s strategy-evaluation and control
system?
a. Opportunities
b. Threats
c. External characteristics
d. The organization’s characteristics
e. The competition’s characteristics
Ans: d        Page: 349

91. Familiarity with local environments usually makes gathering and evaluating
information much easier for    organizations than for     ones.
a. non-profit; for-profit
b. for-profit; non-profit
c. large; small
d. small; large
e. foreign; domestic
Ans: d        Page: 349

Contingency Planning
92. What activity is defined as having alternative plans that can be put into effect if
certain key events do not occur as expected?
a. Corporate agility
b. Scenario planning
c. Strategy evaluation
d. Contingency planning
e. Forecasting
Ans: d        Page: 350

93. Which of the following statements about contingency plans is not true?
a. Contingency plans should be as simple as possible.
b. Only high-priority areas require the insurance of contingency plans.
c. Contingency plans should be developed for favorable and unfavorable events.
d. Develop contingency plans for all contingent events.
e. Contingency plans minimize the impact of potential threats.
Ans: d        Page: 350

94. What permits quick response to change, prevents panic in crisis situations, and
makes managers more adaptable.
a. Auditing
b. Implementing a balanced scorecard
c. Contingency planning
d. Taking corrective actions
e. Measuring performance
Ans: c         Page: 351

Auditing
95. What term refers to a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and events to ascertain the degree
of correspondence between these assertions and established criteria, and
communicating the results to interested users?
a. Auditing
b. Innovation
c. R&D
d. Strategic Management
e. Accounting
Ans: a         Page: 352

96. Which type of auditors are specifically responsible for safeguarding the assets of a
company?
a. Independent auditors
b. Government auditors
c. Internal auditors
d. External auditors
e. Research auditors
Ans: c         Page: 352

The Environmental Audit

97. Product design, manufacturing, transportation, customer use, packaging, product
disposal and corporate rewards should reflect    considerations to develop constructive
relations with employees, consumers, suppliers and distributors.
a. profit
b. union
c. top-management
d. environmental
e. customer
Ans: d        Page: 352

Twenty-First-Century Challenges in Strategic Management

98. Most strategy literature advocates that strategic management is

a. more of a science than an art.
b. more of an art than a science.
c. based on analysis rather than research.
d. based on intuition rather than analysis.
e. based on creativity rather than intuition.
Ans: a         Page: 353

99. All of the following are reasons to be completely open with the strategy process
except:
a. managers, employees and other stakeholders can readily contribute to the process.
b. investors, creditors and other stakeholders have greater basis for supporting a firm that is
open.
c. visibility promotes democracy whereas secrecy promotes autocracy.
d. participation and openness enhances understanding, commitment and communication
within the firm.
e. openness limits rival firms from imitating or duplicating the firm’s strategies.
Ans:  e        Page: 354

100.  Which of the following is not a reason why some firms prefer to conduct strategic-
planning in secret?
a. Dissemination of a firm’s strategies may translate into competitive intelligence for rival
firms.
b. It enhances understanding, commitment and communication within the firm.
c. It limits criticism, second-guessing and hindsight.
d. Participants in a visible strategy process become more attractive to rival firms, who may
lure them away.
e. Secrecy limits rival firms from imitating or duplicating the firm’s strategies.
Ans: b        Page: 354

Essay Questions
101 Explain why strategy evaluation can be a complex and sensitive undertaking.
Strategy can be a complex and sensitive undertaking because too much emphasis on
evaluating strategies may be expensive and counterproductive. No one likes to be evaluated
too closely! The more managers attempt to evaluate the behavior of others, the less control
they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation
is essential to ensure stated objectives are being achieved.
Page: 337

102 Discuss some of the reasons why strategy evaluation is becoming increasingly
difficult with the passage of time.
Possible answers include: Domestic and world economies were more stable in years past;
Product life cycles were longer; product development cycles were longer; technological
advancement was slower; change occurred less frequently; there were fewer competitors;
foreign companies were weak; and there were more regulated industries.  Other reasons
include: 1) A dramatic increase in the environment’s complexity; 2) The increasing difficulty
of predicting the future with accuracy; 3) The increasing number of variables; 4) The rapid
rate of obsolescence of even the best plans; 5) The increase in the number of both domestic
and world events affecting organizations; and 6) The decreasing time span for which
planning can be done with any degree of certainty.
Page: 337

103 Compare and contrast two of Rumelt’s four criteria for evaluating strategies.
Rumelt’s four criteria for evaluating strategies are consistency, consonance, feasibility and
advantage. Students should take their answers from Table 9-1 on page 338, which provides
descriptions of each.
Page: 338
104 Describe each of the activities that comprise strategy evaluation.
The activities that comprise strategy evaluation are: (1) reviewing bases of an organization’s
strategy, (2) measuring organizational performance and (3) taking corrective actions. Please
refer to pages 340-342 for descriptions of each activity.
Page: 340-342

105 What are the most commonly used quantitative criteria to evaluate strategies? Give
several examples of these criteria.
Quantitative criteria commonly used to evaluate strategies are financial ratios, which
strategists use to make three critical comparisons: (1) comparing the firm’s performance over
different time periods, (2) comparing the firm’s performance to that of competitors’ and (3)
comparing the firm’s performance to industry averages. Some particularly useful key
financial ratios used as criteria for strategy evaluation are: (1) ROI, (2) ROE, (3) profit
margin, (4) market share, (5) debt to equity, (6) earnings per share, (7) sales growth and (8)
asset growth.
Page: 342-343

106 Discuss the different perspectives and concerns of the Balanced Scorecard.
The Balanced Scorecard is a process that allows firms to evaluate strategies from four
perspectives: financial performance, customer knowledge, internal business processes, and
learning and growth.  It aims to balance long-term concerns with short-term concerns,
financial with non-financial concerns, and internal with external concerns.
Page: 346

107 Identify some important guidelines for effective strategic management, as presented
in the chapter.
Please refer to the entire discussion on pages 349 under Characteristics of an Effective
Evaluation System.
Page: 349

108.  Describe the seven-step process of effective contingency planning in strategy

evaluation.
The suggested seven-step process of effective contingency planning is as follows:
(1) Identify both beneficial and unfavorable events that could possibly derail the strategy or
strategies;
(2) specify trigger points and calculate about when contingent events are likely to occur;
(3) assess the impact of each contingent event;
(4) develop contingency plans; (
5) assess the counter impact of each contingency plan;
(6) determine early warning signals for key contingent events and monitor them; and
(7) for contingent events with reliable early warning signals, develop advance action plans to
take advantage of the available lead time.
Page: 351-352

109.  Individuals who perform audits can be divided into three groups. Identify these
three groups and give an example of each.
People who perform audits can be divided into three groups:
independent auditors, government auditors and internal auditors. An example of an
independent auditor is the CPAs at Arthur Andersen public accounting firm. The GAO and
IRS are examples of government auditors. Employees within an organization who are
responsible for safeguarding company assets, for assessing the efficiency of company
operations and for ensuring the generally accepted business procedures are examples of
internal auditors.
Page: 352

110 Discuss the three challenges that strategists face today.

The three challenges that strategists face today are 1) deciding whether the process of
strategic management should be more of an art or a science; 2) deciding whether strategies
should be visible or hidden from stakeholders; or 3) deciding whether the process should be
more top-down or bottom-up in the firm.
Page: 353-355