Chapter 1 Study Guide: The Nature of Strategic Management True/False Questions
1) Strategic management focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and information systems to achieve organizational success. TRUE
2) Optimizing for tomorrow the trends of today is the purpose of strategic management. FALSE
3) Even though useful, strategic planning has been cast aside by corporate America since the early 1990s. FALSE
4) Resource allocation is included in strategy-formulation activities. TRUE
5) The terms strategic management and strategic planning are synonymous in this text. TRUE
6) A vision statement is, in essence, a company’s game plan. FALSE
7) Strategy implementation is often considered to be the most difficult stage in the strategic-management process because it requires personal discipline, commitment, and sacrifice. TRUE
8) The final stage in strategic management is strategy implementation. FALSE
9) Strategy formulation, implementation and evaluation activities occur at three hierarchical levels in a large diversified organization: corporate, divisional and functional. TRUE
10) One of the fundamental strategy evaluation activities is reviewing external and internal factors that are the bases for current strategies. TRUE
11) An objective, logical, systematic approach for making major decisions in an organization is a way to describe the strategic-management process. TRUE
12) Strategic management is an attempt to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty. TRUE
13) Analytical and intuitive thinking should complement each other. TRUE
14) According to Albert Einstein, “Knowledge is far more important than intuition.” FALSE
15) Management by intuition can be defined as operating from the “I’ve-already-made-up-my-mind-don’t-bother- me-with-the-facts mode.” FALSE
16) By occasionally monitoring external events, companies should be able to identify when change is required. FALSE
17) Firms, like organisms, must be “adept at adapting” or they will not survive. TRUE
18) To say U.S. firms are being challenged in the automobile industry is an inaccurate statement. FALSE
19) Anything the firm does especially well compared to rival firms could be considered a competitive advantage. TRUE
20) Once a firm acquires a competitive advantage, they are usually able to sustain the competitive advantage indefinitely. FALSE
21) Newspaper companies in the United States provide a good example of how a company can sustain a competitive advantage over the long-term. FALSE
22) Although the Internet has increased in popularity, it has actually led to increases in company expenses. FALSE
23) While the number of people shopping online has increased, the average amount spent online has decreased. FALSE
24) One of the ways in which the Internet has transferred power from businesses to individuals is by making comparison-shopping quick and easy. TRUE
25) Most traditional retailers have tried in vain to use their online sales to boost in-store sales. FALSE
26) In order for a firm to achieve sustained competitive advantage, a firm must continually adapt to changes in external trends and events and effectively formulate, implement, and evaluate strategies that capitalize upon those factors. TRUE
27) Strategists are usually found in higher levels of management and have considerable authority for decision-making in the firm. TRUE
28) The middle manager is the most visible and critical strategic manager. FALSE
29) All strategists have similar attitudes, values, ethics and concerns for social responsibility. FALSE
30) A vision statement answers the question, “What is our business?” whereas a mission statement answers, “What do we want to become?” FALSE
31) In the last five years, the position of chief strategy officer (CSO) has diminished in comparison to other top management ranks of many organizations. FALSE
32) A clear mission statement describes the values and priorities of an organization. TRUE
33) Strengths and weaknesses are determined relative to competitors. TRUE
34) In a multidivisional firm, objectives should be established for the overall company and not for each division. FALSE
35) Objectives should be measurable, challenging, reasonable, consistent and clear. TRUE
36) Annual objectives are long-term milestones that organizations must achieve to reach short-term objectives. FALSE
37) Annual objectives are especially important in strategy formulation. FALSE
38) According to research, a healthier workforce can more effectively and efficiently implement strategies. TRUE
39) Identifying an organization’s existing vision, mission, objectives and strategies is the final step for the strategic management process. FALSE
40) Once an effective strategy is designed, modifications are rarely required. FALSE
41) Application of the strategic-management process is typically more formal in larger and well-established organizations. TRUE
42) Followed by commitment, understanding is the most important benefit of strategic management.TRUE
43) The best thing strategists can do is develop strategic plans themselves and then present them to operating managers to execute. FALSE
44) The changes that occurred at Disney after Robert Iger took over as CEO exemplify the fact that more and more organizations are centralizing the strategic-management process. FALSE
45) Firms with planning systems more closely resembling strategic-management theory generally exhibit superior long-term financial performance relative to their industry. TRUE
46) Low-performing firms typically underestimate their competitor’s strengths and overestimate their own firm’s strengths. TRUE
47) According to Greenley, strategic management provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities. TRUE
48) The poor reward structure is one reason managers do not engage in strategic planning. TRUE
49) Crises and fires in an organization allow managers the training and time for effective strategic planning. FALSE
50) Making many intuitive decisions that conflict with the formal plan is one pitfall top managers should avoid in strategic planning. TRUE
51) Managers must be very formal in strategic planning because formality induces flexibility and creativity.FALSE
52) Many organizations mistakenly spend more time and effort on the implementation of a plan, than on the formulation of the plan itself. FALSE
53) Strategic-management must be a self-reflective learning process that familiarizes managers and employees in the organization with key strategic issues and feasible alternatives for resolving those issues. TRUE
54) Effective strategic management is ritualistic, predictable and formal. FALSE
55) For the strategic planning process to be effective, organizations must continually strengthen the “good ethics is good business” policy. TRUE
56) Military success is usually the happy result of accidental strategies, but business success is the product of continuous attention to changing conditions and insightful adaptations to those conditions. FALSE
57) In most situations, business strategy is very different than military strategy. FALSE
58) The element of surprise provides great competitive advantages in both military and business strategy. TRUE
59) Both military and business strategy are formulated, implemented, and evaluated with an assumption of competition. FALSE
60) Superior strategy formulation is well and good, but it cannot overcome an opponent’s superiority in numbers and resources. FALSE
61) All firms have a strategy, even if it is informal, unstructured, and sporadic. TRUE
62) Firms can be more proactive with strategic management. TRUE
Multiple Choice Questions
63) The goal of strategic management is to
A) achieve competitive advantage.
B) maintain competitive advantage.
C) achieve and maintain competitive advantage.
D) eliminate competitive advantage
E) eliminate and abolish competitive advantage.
64) Strategic management focuses on integrating management, ________, and information systems to achieve organizational success. A) marketing
D) research and development
E) all of the above
65) What can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to
achieve its objectives? A) Strategy formulation
B) Strategy evaluation
C) Strategy implementation
D) Strategic management
E) Strategic leading
66) ________ is used to refer to strategic formulation, implementation and evaluation, with ________ referring only to strategic formulation. A) Strategic planning; strategic management
B) Strategic planning; strategic processing
C) Strategic management; strategic planning
D) Strategic management; strategic processing
E) Strategic implementation; strategic focus
67) During what stage of strategic management are a firm’s specific internal strengths and weaknesses determined? A) Formulation
68) An important activity in ________ is taking corrective action. A) strategy evaluation
B) strategy implementation
C) strategy formulation
D) strategy leadership
E) all of the above
69) What step in the strategic development process involves mobilizing employees and managers to put strategies into action? A) Formulating strategy
B) Strategy evaluation
C) Implementing strategy
D) Strategic advantage
E) Competitive advantage
70) What types of skills are especially critical for successful strategy implementation? A) Interpersonal
71) Which phase of strategic management is called the action phase? A) Strategy formulation
B) Strategy implementation
C) Strategy evaluation
D) Allocating resources
E) Measuring performance
72) ________ is not a strategy-implementation activity.
A) Taking corrective actions
B) Establishing annual objectives
C) Devising policies
D) Allocating resources
E) Motivating employees
73) Strategy evaluation is necessary because
A) internal and external factors are constantly changing.
B) the SEC requires strategy evaluation.
C) success today is a guarantee of success tomorrow.
D) the IRS requires strategy evaluation.
E) firms have limited resources.
74) Which statement best describes intuition?
A) It represents the marginal factor in decision-making.
B) It represents a minor factor in decision-making integrated with analysis. C) It should be coupled with analysis in decision-making.
D) It is better than analysis in decision-making.
E) It is management by ignorance.
75) ________ and ________ are external forces transforming business and society today. A) E-commerce; strategy
B) E-commerce; globalization
C) Strategy; globalization
D) Corporate culture; stakeholders
E) Stakeholders; strategy
76) Anything that a firm does especially well compared to rival firms is referred to as A) competitive advantage.
B) comparative advantage.
C) opportunity cost.
D) sustainable advantage.
E) an external opportunity.
77) The three original broadcast networks captured about ________ of the prime-time audience in 1978, but today their combined market share is less than ________. A) 75%/40%
78) The fact that Apple has no manufacturing facilities of its own A) has caused it to build up massive debt on its balance sheet. B) has enabled it to remain financially lean with virtually no long-term debt. C) has been problematic for Apple in terms of debt.
D) illustrates that having more fixed assets than rival firms can provide major competitive advantages in a global recession. E) means that it is in the same position as Sony.
79) ________ allows firms to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, and eliminate paperwork. A) Social networking
D) Video sites
E) None of the above
80) The Internet has transferred power from ________ to ________. A) businesses, individuals
B) governments, businesses
C) individuals, businesses
D) businesses, governments
E) individuals, governments
81) The trends in newspaper circulation in the United States provide support for which statement? A) Sustainable competitive advantage is easy to maintain.
B) Several firms can have similar competitive advantages.
C) Some products are relatively immune to changes in the external environment. D) Most competitive advantages are hard to sustain.
E) Competition is generally good for companies and consumers.
82) The one factor that has most significantly impacted the nature and core of buying and selling in nearly all industries has been A) the Internet.
B) political borders.
C) corporate greed.
D) customer and employee focus.
E) the government.
83) Which individuals are most responsible for the success and failure of an organization? A) Strategists
B) Financial planners
C) Personnel directors
E) Human resource managers
84) The first step in strategic planning is generally
A) developing a vision statement.
B) establishing goals and objectives.
C) making a profit.
D) developing a mission statement.
E) determining opportunities and threats.
85) What are enduring statements of purpose that distinguish one business from other similar firms? A) Policies
B) Mission statements
E) Employee conduct guidelines
86) An organization’s vision statement
A) is a constant reminder to its employees of why the organization exists. B) broadly charts the future direction of an organization.
C) addresses the basic question: “What is our business?”
D) answers the question: “What do we want to become?”
E) none of the above
87) Usually, external opportunities and threats are
A) uncontrollable by a single organization.
B) controlled by governments.
C) not as important as internal strengths and weaknesses.
D) key functions in strategy implementation.
E) key functions in strategy exploitation.
88) Specific results an organization seeks to achieve in pursuing its basic mission are A) strategies.
89) Internal ________ are activities in an organization that are performed especially well. A) opportunities
90) What are the means by which long-term objectives will be achieved? A) Strategies
91) Long-term objectives should be all of the following except A) measurable.
B) continually changing.
92) ________ can best be described as short-term in nature.
A) Mission statements
C) Annual objectives
93) In which phase of strategic management are annual objectives especially important? A) Formulation
94) What are guides to decision making?
95) The strategic-management process
A) occurs once a year.
B) is a sequential process.
C) is a continuous process.
D) applies mostly to companies with sales greater than $100 million. E) applies mostly to small businesses.
96) Which of the following is not included in the strategic management model? A) Measure and evaluate performance
B) Perform internal research to identify customers
C) Establish long-term objectives
D) Implement strategies
E) Develop mission and vision statements
97) Strategic management enables an organization to ________, instead of just responding to threats in its business environment. A) be proactive
B) determine when the threat will subside
C) avoid the threats
D) defeat their competitors
E) foresee into the future
98) The act of strengthening employees’ sense of effectiveness by encouraging and rewarding them for participating in decision-making and exercising initiative and imagination is referred to as A) authoritarianism.
99) How do line managers become “owners” of the strategy?
A) By attending top manager meetings
B) By executing plans formulated by other people
C) By involvement in the strategic-management process
D) By becoming a shareholder of the firm
E) By buying off top managers
100) The changes that occurred when Robert Iger took over the reigns at Disney demonstrate which current trend in organizations? A) Increased formalization of the strategic management process B) Increased structuring of strategic management
C) Increased decentralizing of strategic management
D) Increased emphasis on strategic planning
E) Increased central planning of the strategic management process
101) According to research, organizations using strategic management are ________ than those that do not. A) more profitable
B) more complex
C) less profitable
D) less static
E) less complex
102) According to Greenley, strategic management offers all of these benefits except: A) it provides an objective view of management problems.
B) it creates a framework for internal communication among personnel. C) it encourages a favorable attitude toward change.
D) it maximizes the effects of adverse conditions and changes. E) it gives a degree of discipline and formality to the management of a business.
103) What is not a reason given for poor or no strategic planning in organizations? A) Waste of time
B) Being content with success
D) Poor reward structure
E) Trust of management
104) All of these are pitfalls an organization should avoid in strategic planning except: A) using plans as a standard for measuring performance.
B) using strategic planning to gain control over decisions and resources. C) failing to involve key employees in all phases of planning. D) too hastily moving from mission development to strategy formulation. E) being so formal in planning that flexibility and creativity are stifled. 105) What is not a pitfall an organization should avoid in strategic planning? A) Failing to communicate the plan to employees
B) Involving all managers rather than delegating planning to a “planner” C) Top managers not actively supporting the strategic planning process D) Doing strategic planning only to satisfy accreditation or regulatory requirements E) Failing to create a collaborative climate supportive of change
106) Which of the following statements is false?
A) Open-mindedness is an important guideline for effective strategic management. B) Strategic management must become a self-perpetuating socialist mechanism. C) No organization has unlimited resources.
D) Strategic decisions require trade-offs.
E) Strategic management must be a self-reflective learning process.
107) All of the following are guidelines for effective strategic planning except: A) it should be simple and nonroutine.
B) it should be a learning process for all managers and employees. C) it should be a paper process more than a people process.
D) it should not disregard qualitative information.
E) it should not be a formal system for control.
108) What is not a guideline given for effective strategic planning? A) Continually strengthen the “good ethics is good business” policy. B) It should not include jargon or arcane planning language. C) It should not be too formal, predictable, or rigid.
D) It should welcome bad news.
E) It should be controlled by “technicians.”
109) Which of the following statements is false?
A) No organization can pursue all the strategies that potentially could benefit the firm. B) Most organizations today recognize that strategic-management concepts and techniques can enhance the effectiveness of decisions. C) A key role of strategists is to facilitate continuous organizational learning and change. D) Effective strategic planning should accept the assumptions underlying the current corporate strategy. E) Even the most technically perfect strategic plan will serve little purpose if it is not implemented.
110) Terms such as objectives, mission, strengths, and weaknesses were first formulated to address problems A) on the battlefield.
B) in the boardroom.
C) on the trading floor.
D) in the military hierarchy.
E) in interpersonal relationships.
111) According to Webster’s New World Dictionary, ________ is “the science of planning and directing large-scale military operations, of maneuvering forces into the most advantageous position prior to actual engagement with the enemy.” A) competitive advantage
112) Business or military success is
A) generally the happy result of accidental strategies.
B) undermined by the element of surprise.
C) the product of both attention to changing external and internal conditions and the insightful adaptations to those conditions. D) unrelated to external
E) none of the above.
113) Superior strategy formulation and implementation ________ an opponent’s superiority in numbers and resources. A) are irrelevant to
B) are not enough to surmount
C) can overcome
D) can lead to
114) A strong ________ heritage underlies the study of strategic management. A) military
115) Military strategy is based on an assumption of ________, whereas business strategy is based on an assumption of ________. A) conflict; cooperation
B) conflict; competition
C) cooperation; conflict
D) competition; conflict
E) cooperation; competition
116) Both business and military organizations must ________ and ________ to be successful. A) be impervious to change; continually improve
B) adapt to change; continually improve
C) shun change; stay the course
D) be impervious to change; stay the course
E) none of the above
117) The strategic-management process is becoming more widely used by A) small firms.
B) nonprofit institutions.
C) governmental organizations.
D) multinational conglomerates.
E) all of the above
118) Organizations should take a(n) ________ approach in their industry. A) adversarial rather than a collegial
B) collegial rather than an adversarial
C) reactive rather than a proactive
D) proactive rather than a reactive
E) cooperative rather than a competitive
119) The strategic-management process represents a(n) ________, ________, and ________ approach for determining an enterprise’s future direction. A) logical; systematic; subjective
B) intuitive; disorganized; subjective
C) logical; systematic; objective
D) intuitive; disorganized; objective
E) intuitive; systematic; subjective
Short Answer Questions
120) Compare and contrast strategic planning with strategic management. Answer: Strategic planning is more often used in the business world, whereas strategic management is often used in academia. Sometimes, strategic management is used to refer to strategy formulation, implementation and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today.
121) Which stage in the strategic-management process is most difficult? Explain why. Answer: Strategy implementation is the most difficult stage in the strategic-management process because it requires personal discipline, commitment and sacrifice. Successful strategy implementation hinges upon managers’ ability to motivate employees, which is more of an art than a science.
122) Explain the relationship between strategic management and competitive advantage for firms. How can a firm achieve sustained competitive advantage? Answer: Strategic management is all about gaining and maintaining competitive advantage. Competitive advantage is anything a firm does especially well compared to rival firms. When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage. Getting and keeping competitive advantage is essential for long-term success of an organization. A firm must strive to achieve sustained competitive advantage by 1) continually adapting to changes in external trends and events and internal capabilities, competencies and resources, and by 2) effectively formulating, implementing and evaluating strategies that capitalize upon those factors.
123) Define what strategists are. Describe what they do in an organization. Answer: Strategists are individuals who are most responsible for the success or failure of an organization. They help an organization gather, analyze and organize information. They track industry and competitive trends, develop forecasting models and scenario analyses, identify business threats and develop creative action plans. Strategic planners usually serve in a support or staff role. Usually found in higher levels of management, they typically have considerable authority for decision making in the firm.
124) Define and discuss the differences between vision and mission statements. Answer: Many organizations today develop a vision statement that answers the question “What do we want to become?” Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of your vision.” Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” It addresses the basic question that faces all strategists: “What is our business?” A clear mission statement describes the values and priorities of
an organization. Developing a mission statement compels strategists to think about the nature and scope of present operations and to assess the potential attractiveness of future markets and activities. A mission statement broadly charts the future direction of an organization.
125) Discuss some forces that influence the formality of strategic-management systems. Answer: Firms that compete in complex, rapidly changing environments, such as technology companies, tend to be more formal in strategic planning. Firms that have many divisions, products, markets and technologies also tend to be more formal in applying strategic-management concepts. Greater formality in applying the strategic-management process is usually positively related with the cost, comprehensiveness, accuracy and success of planning across all types and sizes of organization.
126) List 10 major benefits of strategic management, as stated by Greenley. Answer: There are 14 benefits stated by Greenley. Students are to list any 10 of the following: 1) it allows for identification, prioritization and exploitation of opportunities; 2) it provides an objective view of management problems; 3) it represents a framework for improved coordination and control of activities; 4) it minimizes the effects of adverse conditions and changes; 5) it allows major decisions to better support established objectives; 6) it allows more effective allocation of time and resources to identified opportunities; 7) it allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions; 8) it creates a framework for internal communication among personnel; 9) it helps integrate the behavior of individuals into a total effort; 10) it provides a basis for clarifying individual responsibilities; 11) it encourages forward thinking; 12) it provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities; 13) it encourages a favorable attitude toward change; and 14) it gives a degree of discipline and formality to the management of a business.
127) Give at least seven reasons why some firms do no strategic planning. Answer: Some reasons for poor or no strategic planning are as follows: lack of knowledge or experience in strategic planning, poor reward structures,
firefighting, waste of time, too expensive, laziness, content with success, fear of failure, overconfidence, prior bad experience, self-interest, fear of the unknown, honest difference of opinion, and suspicion.
128) What are the pitfalls in strategic planning that management in an organization should watch out for or avoid? Identify any five pitfalls. Answer: There are 13 pitfalls. Students should list any five of the following: 1) using strategic planning to gain control over decisions and resources; 2) doing strategic planning only to satisfy accreditation or regulatory requirements; 3) too hastily moving from mission development to strategy formulation; 4) failing to communicate the plan to employees, who continue to work in the dark; 5) top managers making many intuitive decisions that conflict with the formal plan; 6) top managers not actively supporting the strategic-planning process; 7) failing to use plans as a standard for measuring performance; 8) delegating planning to a “planner” rather than involving all managers; 9) failing to involve key employees in all phases of planning; 10) failing to create a collaborative climate supportive of change; 11) viewing planning to be unnecessary or unimportant; 12) becoming so engrossed in current problems that insufficient or no planning is done; and 13) being so formal in planning that flexibility and creativity are stifled.
129) Discuss the importance of the implementation phase of strategic management. Answer: Even the most technically perfect strategic plan will serve little purpose if it is not implemented. Many organizations tend to spend an inordinate amount of time, money, and effort on developing the strategic plan, treating the means and circumstances under which it will be implemented as an afterthought! Change comes through implementation and evaluation, not through the plan. A technically imperfect plan that is implemented well will achieve more than the perfect plan that never gets off the ground.
130) Discuss the value of integrating intuition and analysis. Answer: Most organizations can benefit from strategic management, which is based upon integrating intuition and analysis in decision making. Choosing an intuitive
or analytic approach to decision making is not an either-or-proposition. Managers at all levels in an organization inject their intuition and judgment into strategic-management analyses. Analytical thinking and intuitive thinking complement each other. Operating from the” I’ve-already-made-up-my-mind-don’t-bother-me-with-the-facts” mode is not management by intuition; it is management by ignorance. Drucker says, “I believe in intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but don’t check it out with facts, are the ones in medicine who kill people, and in management kill businesses.” In a sense, the strategic-management process is an attempt both to duplicate what goes on in the mind of a brilliant, intuitive person who knows the business, and to couple it with analysis.
131) Compare and contrast business and military strategy.
Answer: Business and military strategy are very similar. A key aim of both business and military strategy is “to gain competitive advantage.” They both also try to use their own strengths to exploit competitor’s weaknesses. Success is not the happy result of accidental strategies in either business or military organizations. The element of surprise provides great competitive advantages in both military and business strategy. Information systems that provide data on opponents’ or competitors’ strategies and resources are also vitally important. Finally, both business and military organizations must adapt to change and constantly improve to be successful. While business and military strategy are the same in many ways, they have one major difference–business strategy is formulated, implemented and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict.
132) What are some opportunities and threats that face many firms during a global economic recession? Answer: Some of the opportunities and threats are: availability of capital can no longer be taken for granted; consumers expect green operations and products; marketing is moving rapidly to the Internet; consumers must see the value in all that they consume; global markets offer the highest growth in revenues; too much debt can crush even the best firms; layoffs are rampant among many firms as revenues and profits
fall and credit sources dry up; the housing market is depressed; demand for health services does not change much during a recession; borrowers are faced with much bigger collateral requirements than in years past; equity lines of credit often now are not being extended; firms that have cash or access to credit have a competitive advantage over debt-laden firms; discretionary spending has fallen dramatically; the business world has moved from a credit-based economy to a cash-based economy; there is reduced capital spending in response to reduced consumer spending.