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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
2.
Adequate, timely feedback is important to effective strategy evaluation. Ans: T
3.
Page: 337
Consistency, distinctiveness, advantage and feasibility are Richard Rumelt’s four criteria for evaluating a strategy. Ans: F
8.
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According to Rumelt, consistency and feasibility are largely based on a firm’s internal assessment. Ans: T
7.
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According to Richard Rumelt, consonance and consistency are based on a firm’s external assessment. Ans: F
6.
Page: 337
Strategy evaluation should have a long-run focus and avoid a short-run focus. Ans: F
5.
Page: 337
Too much emphasis on evaluating strategies may be expensive and counterproductive. Ans: T
4.
Page: 337
Page: 337
Strategy evaluation is becoming increasingly easier with the passage of time, given the technological advances. Ans: F
Page: 337
183
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
10.
Strategies may be inconsistent if policy problems and issues continue to be brought to the top for resolution. Ans: T
11.
Page: 339
Because large companies have more at stake, it is more important for large organizations to conduct strategy evaluation than small companies. Ans: F
14.
Page: 338
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
13.
Page: 338
Competitive advantages normally are the result of superiority in one of three areas: feasibility, consistency, or consonance. Ans: F
12.
Page: 337
Page: 339
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
16.
Page: 340
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
184
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
18.
When taking corrective action, you need to compare expected results to actual results. Ans: F
19.
Page: 343
Measuring organizational performance requires making changes to reposition a firm competitively for the future. Ans: F
25.
Page: 343
Most quantitative evaluation criteria are geared to long-term objectives rather than annual objectives. Ans: F
24.
Page: 343
Intuitive judgments are almost always involved in deriving quantitative criteria. Ans: T
23.
Page: 343
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
22.
Page: 343
Specific financial ratios are rarely used criteria to evaluate strategies. Ans: F
21.
Page: 342
Criteria for evaluating strategies should be measurable and easily verifiable. Ans: T
20.
Page: 341
Page: 344
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
185
26.
Corrective action in strategy evaluation is necessary to keep an organization on track toward achieving stated objectives. Ans: T
27.
Alvin Toffler argues that environments are becoming so dynamic and complex that they threaten people and organizations with future shock in his thoughtprovoking books entitled Future Shock and The Third Wave. Ans: T
28.
Page: 344
Future shock occurs when the type and speed of changes overpower an individual or organization’s ability and capacity to adapt. Ans: T
29.
Page: 344
Page: 344
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
31.
Page: 346
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
186
34.
Timely approximate information generally more desirable as a basis for strategy evaluation than accurate information that does not depict the present. Ans: T
35.
The test of an effective evaluation system is its usefulness and complexity. Ans: F
36.
Page: 349
Small organizations require a more elaborate and detailed strategy-evaluation system because they are still evolving. Ans: F
37.
Page: 349
Page: 349
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
39.
Organizations should prepare contingency plans just for unfavorable events. Ans: F
40.
Page: 350
Contingency plans should be as simple as possible. Ans: T
42.
Page: 350
Strategies should try to cover all bases by planning for all possible contingencies. Ans: F
41.
Page: 350
Page: 350
Alternative strategies not selected for implementation should be discarded, as they have a tendency to contaminate the contingency plans. Ans: F
Page: 350
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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
45.
Independent auditors are basically CPAs who provide their services to organizations for a fee. Ans: T
46.
Page: 353
The strategic management process should be completely open because participation and openness enhance understanding, commitment, and communication within the firm. Ans T:
50.
Page: 352
Moving environmental affairs from the line side of the organization to the staff side is required when instituting an environmental audit. Ans: F
49.
Page: 352
Two government agencies—IRS and GAO—employ government auditors responsible for making sure organizations comply with federal laws, statutes and policies. Ans: T
48.
Page: 352
Public accounting firms usually avoid strategy evaluation services. Ans: F
47.
Page: 352
Page 354
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
188
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
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
53.
Page: 336
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
54.
Page: 336
Page: 337
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
189
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
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
57.
Page: 337
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
59.
Page: 337
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
58.
Page: 337
Page: 337
A final broad test of strategy is its a. advantage. b. feasibility. c. consonance. d. consistency. e. distinctiveness. Ans: b
Page: 338
190
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
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
62.
Page 338
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
63.
Page: 338
Page: 338
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
191
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
65.
Page: 339
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
67.
Page: 340
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
192
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
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
70.
Page: 342-343
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
72.
Page: 340
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
71.
Page: 340
Page: 343
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
193
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
74.
Strategy evaluation is based on a. empirical data. b. qualitative criteria. c. objective data. d. qualitative and quantitative criteria. e. intuition. Ans: d
75.
Page: 343
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
76.
Page: 343
Page: 343
Most quantitative criteria are geared to objectives. a. top-management; employee b. short-term; annual c. annual; long-term d. environmental; community e. profit; social Ans: c
Page: 343
objectives rather than
194
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
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
79.
Page: 344
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
80.
Page: 344
Page: 344
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
195
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
82.
Page: 344
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
84.
Page: 346
What aims to balance long term with short term concerns, financial with nonfinancial 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
196
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
86.
Page: 346
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
88.
Page: 349
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
197
89.
The strategy-evaluation process should foster a. mutual understanding. b. implementation. c. corporate culture. d. profit centers. e. contingency plans. Ans: a
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
91.
Page: 349
Page: 349
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
198
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
94.
Page: 350
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
96.
Page: 352
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
199
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
99.
Page: 353
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
200
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
201
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
202
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
