Robbins Fom8 Tb 05

Fundamentals of Management, 8e (Robbins et al.)Chapter 5 Foundations of Planning

1) All managers plan in some way, either formally or informally.Answer: TRUEExplanation: Planning has been identified as the primary management function, indicating that it is the activity that managers concern themselves with most.Diff: 1 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

2) Informal plans are not recognized to be an effective form of planning.Answer: FALSEExplanation: Informal plans can be highly effective and highly appropriate for some organizations, especially those that are small in size. As organizations increase in size, the need for formal planning tends to increase.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

3) At some point, all managers create formal plans.Answer: FALSEExplanation: Many managers, especially those who are part of small organizations, do not ever resort to making systematic formal plans.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

4) Planning provides direction to managers and nonmanagers alike.Answer: TRUEExplanation: Part of the function of planning is to let everyone in the organization know what the future holds, so planning is very important because it informs nonmanagers of what to expect and how to prepare for the future.Diff: 1 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

5) A key function of planning is to create goals.Answer: TRUEExplanation: Creating goals is one of four major reasons that managers plan. The other three major functions of planning are to reduce uncertainty, reduce waste, and set goals and standards.Diff: 2 Page Ref: 107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

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6) Informal planning typically works better in large organizations.Answer: FALSEExplanation: Informal planning is generally adequate only for small organizations in which a single individual or small group can keep the plans to themselves. Once the organization grows to a larger size, it becomes necessary for many people to have access to the organization's plans—and that almost always requires formal planning.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

7) The four reasons that organizations plan is to provide direction, set standards, minimize waste, and reduce uncertainty and the impact of change.Answer: TRUEExplanation: Direction tells organization members where the organization is going with respect to goals and objectives. Standards identify the goals of the organization. Minimizing waste and redundancy makes the organization efficient. Reducing the impact of change makes the organization more able to avoid the damage that change can bring on and to take advantage of the opportunities that changes often present.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

8) Planning rarely improves teamwork and cooperation among employees.Answer: FALSEExplanation: In fact, teamwork and cooperation are two things that planning often helps most. The better the plans are, the more coordinated the organization's efforts tend to be.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

9) An organization that fails to plan will find it hard to assess progress.Answer: TRUEExplanation: Goals and standards developed in the planning process give the organization something to compare its performance against. Without clearly identified goals and standards, an organization has no idea of how to judge whether it has succeeded or failed.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

10) A major argument against formal plans is that they can't replace intuition and creativity.Answer: TRUEExplanation: Formal plans typically cannot avoid being more rigid than informal plans, leaving less room for using intuition, spontaneity, and creativity.Diff: 2 Page Ref: 107Objective: 5.1Learning Outcome: Describe the innovation process and identify strategies for stimulating creativity and innovation


11) Formal planning can increase creativity in an organization.Answer: TRUEExplanation: If done well, formal plans can enhance, rather than stifle, creativity. The key is for the formal plans to be flexible enough to allow creativity to be employed.Diff: 2 Page Ref: 107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

12) Managers who make formal plans are more likely to help an organization "break the mold" and carry out truly groundbreaking work that redefines an entire industry.Answer: FALSEExplanation: Formal plans tend to focus on existing opportunities in the current climate rather than the opportunities of the future that are as yet unimagined. Therefore, formal plans are likely to impede, rather than promote, truly groundbreaking work.Diff: 2 Page Ref: 107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

13) A major strength of formal planning is that it reinforces past successes and incorporates them into the future.Answer: FALSEExplanation: Focusing on past successes is a weakness, not a strength, of formal planning. Formal plans tend to fixate on what worked well in the past, not what might work well in the changed circumstances of the future.Diff: 2 Page Ref: 107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

14) A major strength of formal planning is that it gives an organization rigidity.Answer: FALSEExplanation: Rigidity is a weakness of formal planning. Formal planning can lock an organization into a preset sequence of events that might not be able to cope with changing conditions and circumstances.Diff: 2 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

15) A major strength of formal planning is that it generally correlates with higher profits.Answer: TRUEExplanation: Studies show that organizations that use formal planning generally have higher profits than those that don't use formal planning.Diff: 2 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


16) Successful planning depends more on whether managers plan than on the quality of their planning.Answer: FALSEExplanation: Evidence shows that organizations often fail not because they focused their planning efforts on the wrong things but because the quality of their planning was deficient.Diff: 2 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

17) Research indicates that organizations that don't use formal planning always outperform organizations that do use formal planning.Answer: FALSEExplanation: To the contrary, evidence from studies shows that planning organizations generally outperform nonplanning organizations. Diff: 2 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

18) Strategic management is the act of figuring out how an organization will compete in the marketplace and attract loyal customers.Answer: TRUEExplanation: Strategic management involves developing an organization's strategies. Those strategies involve making plans for how an organization will do business and achieve its goals.Diff: 2 Page Ref: 108Objective: 5.2

19) The first step in the strategic management process is analyzing the external environment.Answer: FALSEExplanation: The first step in the strategic management process is for the organization to identify its goals, mission, and strategies. Only then can it move on to start analyzing its external situation.Diff: 2 Page Ref: 109-110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

20) A mission statement for a kayak manufacturer might be as follows: To make the highest-quality kayaks and sell them at a competitive price.Answer: TRUEExplanation: A mission statement defines what the organization is in business to do. This statement clearly states why the kayak company is in business.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


21) An external analysis will identify the threats to a company's well-being, but not opportunities for success.Answer: FALSEExplanation: An external analysis, the second step in the strategic management process, involves not just identifying threats to an organization, but also finding opportunities that the organization can take advantage of.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

22) Core competencies include an organization's major capabilities and its resources.Answer: FALSEExplanation: Core competencies include the capabilities of an organizational—its skills and abilities only—not its resources.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

23) Capabilities are "what" an organization has; resources are "how" it uses what it has.Answer: FALSEExplanation: The statement has it reversed. Capabilities are what an organizational can do; resources are strengths and assets that it has.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

24) SWOT analysis includes the identification of an organization's strengths, weaknesses, opportunities, and threats.Answer: TRUEExplanation: The term SWOT is an acronym for strengths, weaknesses, opportunities, and threats. Diff: 1 Page Ref: 110-111AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


25) The final three steps in the strategic management process involve the creation and implementation of strategies for realizing organizational goals. Answer: TRUEExplanation: The last three steps in the strategic management process are formulating strategies, implementing strategies, and evaluating results. Together, these steps create and carry out strategies that help an organization attain its goals and objectives.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

26) A corporate strategy may be a growth strategy, a stability strategy, or a renewal strategy.Answer: TRUEExplanation: The three major corporate strategies are growth strategies that focus on expansion, stability strategies that focus on maintaining position, and renewal strategies that focus on fixing problems.Diff: 2 Page Ref: 111Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

27) A diversification strategy focuses on a company becoming its own supplier of inputs.Answer: FALSEExplanation: A company becoming its own supplier describes backward vertical integration, not diversification.Diff: 2 Page Ref: 112Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

28) A company with a stability strategy will plan to dramatically increase market share in a highly competitive market.Answer: FALSEExplanation: A stability strategy would tend to focus on maintaining existing market share, rather than increasing market share.Diff: 2 Page Ref: 112-113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

29) The most drastic renewal strategy an organization can carry out is a retrenchment strategy.Answer: FALSEExplanation: Retrenchment is less drastic than a turnaround strategy, in which a company takes extreme steps to remake itself.Diff: 2 Page Ref: 113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


30) "Build a better mousetrap" is a way of describing a competitive advantage.Answer: TRUEExplanation: Having a competitive advantage means that an organization has some kind of edge on its competition with respect to price, quality, the product itself, or some other characteristic.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

31) Innovation and super-high quality are typically the keys to a cost-leadership strategy.Answer: FALSEExplanation: Efficiency, rather than innovation or quality, is the key to a cost-leadership strategy in which a company has lower prices than its competitors.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

32) A focus strategy seeks to appeal to a narrow segment of a market. Answer: TRUEExplanation: An example of a focus strategy is a super premium ice cream that tries to appeal to a narrow, but important segment of the market.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

33) Customer service cannot be considered a strategic weapon for an organization.Answer: FALSEExplanation: Anything that a company has or does that gives it an edge on its competition qualifies as a strategic weapon. Since customer service can serve as such an edge, it can be considered a strategic weapon.Diff: 2 Page Ref: 115Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

34) Southwest Airlines studied race car pit crews as an example of benchmarking.Answer: TRUEExplanation: Benchmarking involves learning practices from other organizations that can be applied to your own organization, so learning maintenance speed from race car crews definitely qualifies as benchmarking.Diff: 2 Page Ref: 116Objective: 5.2


35) Goals are documents that outline how plans are to be carried out.Answer: FALSEExplanation: Goals are desired targets or outcomes, not outlines of how plans are to be carried out.Diff: 1 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

36) Traditional goal setting requires top managers to set goals that are carried out by the organizational levels below.Answer: TRUEExplanation: Traditional goals are set by top managers and distributed to the levels below. Nontraditional goal setting can be accomplished by others in the organization who are not necessarily at the top of the pyramid.Diff: 2 Page Ref: 118Objective: 5.3

37) The key to MBO, or management by objectives, is that managers and subordinates mutually agree on goals.Answer: TRUEExplanation: MBO includes both managers and subordinates in the process of setting goals. With subordinates participating in the process, the likelihood of misunderstanding and resentment is reduced. Diff: 2 Page Ref: 118-119Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

38) Goals typically should be reserved for managers only. Goals should not be shared with subordinates.Answer: FALSEExplanation: Ideally, goals should be shared with any and all employees who have a need to know what those goals are.Diff: 2 Page Ref: 120Objective: 5.3

39) Long-term plans used to refer to plans that covered a period of over three years, but now it refers to any time period over one year.Answer: FALSEExplanation: Long-term plans, in fact, used to refer to plans that covered periods of over seven years. Now long-term plans cover a time period of three years or more.Diff: 2 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

40) A six-month plan qualifies as a short-term plan.Answer: TRUEExplanation: Short-term plans are defined as plans of one year or less, so a six-month plan qualifies as a short-term plan.Diff: 2 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


41) Directional plans leave no room for interpretation.Answer: FALSEExplanation: Directional plans are designed to be flexible, so they have more, not less, room for interpretation than specific plans.Diff: 2 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

42) In general, upper-level managers focus on tactical or operational planning.Answer: FALSEExplanation: Upper-level managers usually focus on strategic plans, while lower-level managers take care of operational planning.Diff: 2 Page Ref: 120Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

43) Buying a competitor's product for evaluation is a form of environmental scanning.Answer: TRUEExplanation: Environmental scanning involves surveying the competitive environment to detect emerging trends. Buying a competitor's product would help an organization understand its environment, so it would qualify as environmental scanning.Diff: 2 Page Ref: 124Objective: 5.4

44) Which of the following is NOT a function of planning?A) defining goalsB) identifying a strategy for attaining goalsC) settling disputes between employeesD) coordinating organizational activitiesAnswer: CExplanation: C) Defining goals, identifying strategies for attaining goals, and coordinating organizational activities are all recognized functions of planning, whether it is formal or informal, so these choices are incorrect. Settling disputes is not something that can be planned for, since most disputes are spontaneous and can occur at any time over any issue. This means that settling disputes is not a function of planning, therefore making that the correct response.Diff: 2 Page Ref: 106Objective: 4.1Learning Outcome: Discuss the processes and tools of developing different types of plans


45) Planning is concerned with ________.A) both ends and meansB) ends onlyC) means onlyD) neither ends nor meansAnswer: AExplanation: A) Planning is concerned with goals or ends, as well as how those goals are reached, or means. Therefore, the choice indicating both ends and means is the correct response and all of the other responses are incorrect.Diff: 1 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

46) In informal planning, goals are usually ________ shared with others in the organization.A) written, but little isB) unwritten and little isC) written and much isD) unwritten, but much isAnswer: BExplanation: B) A key difference between formal and informal planning is that informal planning rarely involves recording the plans in written form. Informal planners also typically keep their plans to themselves, or share them with few others. Together, these factors make the choice indicating "unwritten and much" the correct response. The two choices indicating "written" can be immediately ruled out because informal plans are not written. "Unwritten, but much is" can be ruled out because little is shared with informal plans.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

47) Informal planning is ________.A) always performed at the lowest organizational levelB) general and usually lacks continuityC) performed exclusively by middle managersD) more specific than formal planningAnswer: BExplanation: B) Informal plans typically are not specific and are performed by leaders or owners rather than by middle managers or individuals on the lowest organizational level, ruling out all of these choices. This leaves the correct response, as it correctly states that informal plans are usually nonspecific and lacking in continuity.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


48) In formal planning, ________.A) specific goals covering a period of years are definedB) to maximize flexibility, specific goals are never spelled outC) very broad general goals are developedD) goals may be written or unwrittenAnswer: AExplanation: A) Formal planning requires written, not unwritten plans and specific, rather than general, goals. Since only the choice regarding specific goals covering a period of years identifies specific goals, it is the correct response.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

49) Which of the following is NOT a reason for managers to plan?A) to give direction to an organizationB) to deal with changeC) to establish goalsD) to establish responsibility for mistakesAnswer: DExplanation: D) Planning provides an organization with direction, goals, and a way to deal with change. Since all of these choices are reasons for a manager to plan, they can be ruled out as the correct response for this question. Blaming people for mistakes is not a function of planning, so establishing responsibility for mistakes is the correct response for this question.Diff: 2 Page Ref: 106AACSB: Ethical understanding and reasoning abilitiesObjective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

50) Planning gives organizations direction that primarily helps them ________. A) improve teamwork and coordinate activitiesB) improve their image in the business communityC) improve morale of middle managersD) improve morale of all employeesAnswer: AExplanation: A) Direction provides a common path for all employees in an organization, thus helping employees work together in a coordinated, cooperative effort. This makes improving teamwork and coordinating activities the correct response since it mentions teamwork and coordination. Planning is not concerned with organizational morale or image, so all of those choices can be ruled out as correct responses.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


51) Planning gives organizations a way to deal with change that ________.A) eliminates all uncertaintyB) reduces uncertaintyC) reduces certaintyD) increases ambiguityAnswer: BExplanation: B) A key function of planning is to help organizations deal with uncertainty, making the choice regarding reducing uncertainty the correct response. Uncertainty unfortunately cannot be completely eliminated, so that is not the correct response here. Both reducing certainty or increasing ambiguity are tantamount to increasing, rather than decreasing, uncertainty, so they are incorrect responses. Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

52) Organizations that don't formally plan may be more likely to have ________.A) corrupt managersB) legal problemsC) multiple departments performing the same taskD) a single department carrying out all company functionsAnswer: CExplanation: C) A major advantage to formal planning is that it reduces redundancy. That means that organizations that don't carry out formal plans would be more likely to have more than one department carrying out the same task, making that the correct response. Formal planning has little effect on corruption or legal problems, so those choices can be ruled out. A single department carrying out all company functions is essentially the opposite of redundancy, so it too can be ruled out.Diff: 2 Page Ref: 106-107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

53) One effect of planning on managers is that it forces them to ________.A) fear changeB) anticipate and consider the effect of changeC) work to prevent changeD) ignore any change that doesn't directly affect themAnswer: BExplanation: B) A major benefit of planning is that it forces managers to think systematically about the future. Rather than fear change, try to prevent change, or ignore change, planning requires managers to think constructively about change and its consequences. Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


54) Managers who fail to plan may ________.A) take advantage of changeB) stimulate changeC) be positively affected by changeD) be adversely affected by changeAnswer: DExplanation: D) Change can be disruptive and even destructive in the best of circumstances, so managers who fail to plan thoughtfully are likely to suffer negative consequences of change, making "be adversely affected" the correct response. Without planning, managers are likely to be surprised by change, making it highly unlikely that they would be able to benefit or in any way be positively affected by the change—making these choices incorrect. There is no connection between planning and stimulating change, so "stimulate change" would also be an incorrect response for this question.Diff: 2 Page Ref: 106Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

55) Which of the following is a frequently cited criticism of formal planning?A) Plans lock organizations into rigid goals and timetables.B) Plans take too long to create.C) Plans create resentment within different levels of the organization.D) Formal planning works well only for smaller companies.Answer: AExplanation: A) Planning works better for larger rather than smaller companies. Few serious complaints are ever voiced that planning is too time consuming or that it creates discord, making these responses incorrect. What planning does do is lock organizations into commitments that are sometimes overly confining or destructive, making that the correct response.Diff: 3 Page Ref: 107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

56) One criticism of formal planning is that it focuses on how to beat the competition rather than how to ________.A) have cordial relationships with the competitionB) focus on new opportunitiesC) balance the organization's budgetD) cooperate with the competitionAnswer: BExplanation: B) Critics of planning do not complain that planning focuses too much on organizational budgets or too-close relationships of an organization with its rivals. Critics do complain that organizations that put too much emphasis on planning end up being small-minded and myopic as they spend all of their energy trying to beat the competition rather than in being innovative and creating whole new products or industries. This makes "focus on new opportunities" the correct response.Diff: 2 Page Ref: 107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


57) Failing to discard successful plans from the past is likely to lead to ________. A) more success because conditions are unlikely to change in the future B) failure because conditions are likely to change in the future C) success because of the high quality of the plansD) failure because of the low quality of the plansAnswer: BExplanation: B) The trouble with focusing too much on successes of the past is that it is rare that these successes can be duplicated in the changed circumstances of the future. So organizations that rigidly stick to a tried-and-true success formula can get "burned" when conditions change. This makes "failure because conditions are likely to change" the correct response and eliminates the other choices.Diff: 3 Page Ref: 107Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

58) Studies of performance in organizations that plan have reached ________ with respect to the benefits of formal planning.A) somewhat negative conclusionsB) no conclusionC) extremely negative conclusionsD) generally positive conclusionsAnswer: DExplanation: D) Studies have shown that formal planning usually results in higher profits and general financial and organizational success, making "generally positive conclusions" the correct response. Both choices regarding negative conclusions can be ruled out because they indicate negative, rather than positive, outcomes for formal planning. The choice indicating no conclusion can be ruled out because it fails to indicate a positive outcome for formal planning.Diff: 2 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

59) Studies of planning show that the key to successful planning is to make sure that the plans ________.A) cover every possible detailB) are high in quality and insight C) are exceedingly simple to followD) are not shared with employeesAnswer: BExplanation: B) Success in planning seems to hinge more on the quality of the planning itself rather than the the subject of the planning. A company may focus its plans on all of the right topics, but unless those plans are systematic, comprehensive, and high in insight, they will not provide successful direction for the organization. These factors make the choice indicating "high in quality and insight" the correct response. Whether or not details are covered, plans are easy to follow, or plans are shared extensively matter less than the quality of the plans themselves.Diff: 3 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


60) In studies in which high-quality formal planning did not lead to higher performance, ________ usually the culprit.A) unforeseen events or conditions wereB) demanding employees wereC) stubborn ownership wasD) lack of communication wasAnswer: AExplanation: A) Even the best plans can be foiled by unforeseen events, such as economic disruptions or political turmoil—meaning that "unforeseen events or conditions" is the correct response for this question. Plans can only take into account known events of the past, they can't anticipate unknown future events, especially highly unlikely future events. When it comes to spoiling plans, such things as demanding employees, stubborn owners, or poor communication are minor factors compared to important outside events, so these choices are all incorrect responses.Diff: 2 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

61) Formal planning typically leads to which of the following?A) higher profitsB) lower productivityC) higher sales, but lower profitsD) tension between different management levelsAnswer: AExplanation: A) Studies show a positive correlation between formal planning and profits along with other economic indicators, making "higher profits" the correct response. Lower productivity and lower profits both show a negative correlation between planning and economic success, so those choices can be ruled out. There is no evidence that planning results in tension of any kind, so that choice can also be ruled out.Diff: 1 Page Ref: 108Objective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

62) The first step in the six-step strategic management process is to ________.A) analyze the organization's strengths and weaknessesB) identify the organization's missionC) identify strategies to reach the organization's goalsD) analyze the opportunities the organization hasAnswer: BExplanation: B) Identifying the organization's mission is the first step in the strategic management process, making that the correct response. Analysis of strengths, weaknesses, and opportunities are all part of the second and third SWOT analysis steps of the process, while identification of strategies would be included in the fourth step, formulate strategies.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


63) The first three steps of the strategic management process involve ________ strategies.A) planningB) implementingC) evaluatingD) identifyingAnswer: AExplanation: A) The first three steps of the process include stating the mission of the organization, followed by an analysis of its position (strengths, weaknesses, etc.) in the marketplace. These first three steps are planning strategies, rather than implementation (step 5), evaluation (step 6), or identification (step 4) strategies, making planning the correct answer.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

64) A mission statement includes identification of an organization's ________.A) strengths and weaknessesB) products and basic philosophyC) assets and resourcesD) resources and strengthsAnswer: BExplanation: B) Finding the organization's strengths, weaknesses, assets, and resources are all part of an internal analysis, so the choices indicating strengths and weaknesses, assets and resources, and resources and strengths can be ruled out because they include one or more of those items. That leaves products and basic philosophy as the correct response, as it correctly identifies that a mission statement should include a description of an organization's products as well as a summary of its basic philosophy.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

65) A mission statement does NOT include which of the following?A) the customers of a companyB) strategy for successC) why the company is in business and what it hopes to accomplishD) the company's basic beliefsAnswer: BExplanation: B) A mission statement should identify an organization's customers, its core philosophy and beliefs, and its basic purpose, so these choices can be eliminated as possible correct responses. The one item listed that should not be part of a mission statement is strategy for success—the organization's mission has nothing to do with its strategy. The strategy is something that will be determined by the strategic management process.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


66) An external analysis, the second step of the strategic management process, helps identify ________.A) the products that a company makesB) the long-term goals of a companyC) a company's opportunities and threatsD) a company's concern for its employeesAnswer: CExplanation: C) The focus of an external analysis is to locate the organization's place in the external business environment, analyzing the competition that the organization faces, the opportunities it might take advantage of, and the things that threaten the organization, making "opportunities and threats" the correct response. Long-term goals, product descriptions, and company policy toward its workers have nothing to do with analyzing the external environment, so those choices are ruled out.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

67) An internal analysis, the third step of the strategic management process helps identify ________.A) opportunities and threatsB) resources and capabilitiesC) opportunities and possibilitiesD) values and philosophyAnswer: BExplanation: B) An organization's values and philosophy are part of its mission statement, not an internal analysis, which rules out that choice as a correct response. Finding opportunities is part of an external, not an internal, analysis, which eliminates the choices regarding opportunities as correct responses. The internal analysis should identify resources (a company's physical, financial, and human assets) and capabilities (a company's skills and abilities), making "resources and capabilities" the correct response.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

68) Which term refers to an organization's capital, workers, and patents?A) resourcesB) capabilitiesC) abilitiesD) core competenciesAnswer: AExplanation: A) An organization's workers, patents, and financial capital are all types of assets, or resources that the organization has, making resources the correct response. Items such as financial capital do not qualify as capabilities, abilities, or core competencies because they are tangible goods, not abstract abilities. Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


69) An organization's resources identify ________.A) how the organization gets things doneB) where the organization operatesC) when the organization operatesD) what the organization hasAnswer: DExplanation: D) In informal terms, an organization's resources identify what the organization has, while its capabilities refer to what it does. This means that how, where, or when the organization operates qualify as capabilities, so they can be ruled out as correct responses for this question. Resources are generally tangible assets, while capabilities refer to skills and abilities, making "what the organization has" the correct response.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

70) An organization's capabilities identify ________.A) what the organization knowsB) who the organization isC) assets that the organization can rely onD) what the organization can doAnswer: DExplanation: D) In informal terms, an organization's resources identify what the organization has, while its capabilities refer to what it does. What the organization has, who it is, or what its assets are refer to what the organization has, so they are all resources, not capabilities. What the organization can do is a capability, so that is the correct response here.Diff: 2 Page Ref: 110Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

71) Together, an organization's resources and core competencies make up which of the following?A) core philosophyB) competitive weaponsC) core assetsD) fundamental beliefsAnswer: BExplanation: B) Finding the organization's strengths, weaknesses, assets, and resources are all part of an internal analysis, so core philosophy, core assets, and fundamental beliefs can be ruled out because they include one or more of those items. That leaves competitive weapons as the correct response, as it correctly identifies that a mission statement should include a description of an organization's products as well as a summary of its basic philosophy.Diff: 2 Page Ref: 88Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


72) SWOT analysis identifies and analyzes an organization's ________.A) strengths, weaknesses, opportunities, and threatsB) strategy for competing in the marketC) human resource assetsD) long-term goalsAnswer: AExplanation: A) The term SWOT is an acronym for strengths, weaknesses, opportunities, and threats, making that the correct response and eliminating the other choices as possible correct answers.Diff: 2 Page Ref: 110-111AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

73) SWOT analysis combines ________.A) a company's mission with its goalsB) external and internal analysesC) a company's philosophy with its ethicsD) profit with productivityAnswer: BExplanation: B) An external analysis identifies threats to an organization and opportunities that it has. An internal analysis identifies strengths and weaknesses of the organization. Together, these two analyses make up the SWOT items—strengths, weaknesses, opportunities, and threats, making external and internal analyses the correct response. SWOT analysis has nothing to do with mission or company philosophy, making these choices incorrect. SWOT does not address profit or productivity, which rules out that choice.Diff: 2 Page Ref: 111AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


74) Once SWOT analysis is complete, managers ________ to address the issues that came up during the analysis.A) formulate strategiesB) implement strategiesC) evaluate strategiesD) eliminate strategiesAnswer: AExplanation: A) The ultimate goal of a SWOT analysis is to come up with strategies that will use an organization's strengths to take advantage of opportunities, defend against threats, and shore up weaknesses, making formulating strategies the correct response. Implementation and evaluation of the strategies will come later in the process, making these choices incorrect. Elimination of strategies might be considered a minor part of strategy formulation, but it certainly is not the objective of a SWOT analysis.Diff: 2 Page Ref: 111AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

75) Which of the following do managers NOT typically use to formulate strategies?A) finding ways to exploit the organization's strengthsB) finding ways to protect the organization from external threatsC) finding ways to rule out existing organizational opportunitiesD) finding ways to correct organizational weaknessesAnswer: CExplanation: C) The incorrect choices all identify strategies that might emerge from a SWOT analysis—to exploit organizational strengths, correct weaknesses, and protect against threats, so they can all be ruled out as correct responses. The one thing that organizations would not typically do is rule out possible opportunities—instead the organization would be looking to exploit those opportunities, making "finding ways to rule out existing organizational opportunities" the correct response.Diff: 2 Page Ref: 111Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


76) The three different types of strategies that managers implement are ________.A) corporate, private, functionalB) corporate, competitive, functionalC) long-term, short-term, publicD) competitive, noncompetitive, corporateAnswer: BExplanation: B) Organizations typically choose corporate, competitive, or functional strategies, making that the correct response. Corporate strategies function on the largest scale, encompassing the entire corporation. Competitive strategies concentrate on strategic business units of a corporation. Functional strategies specialize even more, focusing on individual corporate departments.Diff: 1 Page Ref: 111-112Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

77) A corporate strategy focuses primarily on ________.A) an organization's missionB) an organization's strengthsC) an organization's weaknessesD) an organization's peopleAnswer: AExplanation: A) An organization's mission is the primary focus of a corporate strategy, making that the correct response. Strengths, weaknesses, and the people of the organization will certainly be incorporated into the overall corporate strategy, but on their own none of these items represent its primary focus.Diff: 2 Page Ref: 111-112Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

78) Which of the following makes up the three main types of corporate strategies?A) growth, vertical integration, horizontal integrationB) growth, retrenchment, renewalC) renewal, retrenchment, diversificationD) growth, stability, renewalAnswer: DExplanation: D) The three basic corporate strategies are termed growth, stability, and renewal, making that the correct response. The choice indicating growth, vertical integration, and horizontal integration includes only growth strategies, so it can be eliminated. Both of the remaining choices leave out at least one major corporate strategy and include at least two forms of renewal, making these choices redundant and incorrect.Diff: 1 Page Ref: 111-112Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


79) Growth strategies include ________.A) diversification, concentration, integration, stabilizationB) vertical integration, horizontal integration, concentration, diversificationC) vertical integration, horizontal integration, lateral integration, horizontal concentrationD) integration, allocation, horizontal diversification, vertical diversificationAnswer: BExplanation: B) The choice indicating vertical integration, horizontal integration, concentration, and The choice indicating vertical integration, horizontal integration, concentration, and diversification is the only choice that lists all four types of growth strategy, so it is the correct response. The other choices fail to include all four items and substitute at least one erroneous item.Diff: 1 Page Ref: 112Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

80) General Mills expanding its line so that it sells several different types of Cheerios is an example of which of the following?A) concentrationB) horizontal integrationC) vertical integrationD) diversificationAnswer: AExplanation: A) When a company focuses its attention on a single product or line of products, it is employing concentration as a strategy, making that the correct response. Integration and diversification are forms of growth by either expanding the control a company has over its operations or combining with other companies—neither of which is being done by General Mills here.Diff: 3 Page Ref: 112Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


81) A salad dressing company that buys a large olive grove to provide olive oil is practicing which of the following?A) concentrationB) forward vertical integrationC) backward vertical integrationD) horizontal integrationAnswer: CExplanation: C) Buying an olive grove is an example of a company trying to become its own supplier, which is termed backward vertical integration. Forward vertical integration involves a company seizing control of its distribution, not its suppliers, so that is not a correct response. Horizontal integration involves combining with competitors, something that is not being done here, so that is incorrect. Finally, concentration is incorrect because concentration requires a company to expand on a product or line of products.Diff: 3 Page Ref: 112AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

82) A sneaker company creating its own stores where it sells only its own brand is an example of which of the following?A) forward vertical integrationB) backward horizontal integrationC) forward horizontal integrationD) reverse vertical integrationAnswer: AExplanation: A) The company is taking control of its distribution here, which is an example of forward vertical integration, making that the correct response. Backward horizontal integration is incorrect because it would entail taking control of supply, not distribution. Forward horizontal integration would have the company combining with competitors, something that is not being done here, making that choice incorrect. Finally, reverse vertical integration is not a recognized strategy.Diff: 3 Page Ref: 112AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


83) In forward vertical integration, a company becomes its own ________, while in backward vertical integration, the company is its own ________.A) supplier; distributorB) supplier; customerC) distributor; monitorD) distributor; supplierAnswer: DExplanation: D) Forward vertical integration involves a company taking control of distribution, while in backward vertical integration, a company takes control of its suppliers. This makes the choice indicating "distributor; supplier" the correct response and eliminates all other responses.Diff: 2 Page Ref: 112AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

84) Two movie studios combining to form one larger studio is an example of which of the following?A) forward vertical integrationB) horizontal integrationC) backward vertical integrationD) diversificationAnswer: BExplanation: B) Each movie studio is combining with a competitor, a clear example of horizontal integration, making that the correct response. Since neither company is taking control of supply or distribution, both forms of vertical integration can be eliminated as correct responses. Horizontal integration differs from diversification in that in diversification the company doesn't combine with competitors but rather makes purchases of supporting industries. Clearly, the studios are combining with competitors here, making horizontal integration correct and diversification incorrect.Diff: 2 Page Ref: 112AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


85) The U.S. Federal Trade Commission monitors horizontal integration carefully to make sure that consumers aren't harmed by which of the following?A) increased competitionB) too much competitionC) deceptive adsD) decreased competitionAnswer: DExplanation: D) Horizontal integration reduces the number of competitors in an industry. When one shoe company combines with another, the number of companies in the shoe industry is reduced by one, thereby decreasing competition. This makes decreased competition the best response. Increased competition and too much competition can be eliminated because both constitute increased competition, and horizontal integration decreases, rather than increases, competition. Deceptive ads can be eliminated because there is no reason to expect that deception would result from organizations joining together.Diff: 2 Page Ref: 112AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

86) When Google purchased YouTube, a company that featured different, but related products, Google was engaging in which of the following?A) concentrationB) forward vertical integrationC) backward vertical integrationD) diversificationAnswer: DExplanation: D) Google was clearly not focusing on existing products, taking control of distribution or supply, so those choices can be ruled out as correct responses. What Google was doing was buying a company that it can use to complement or support its existing products. YouTube makes Google a more diversified product, so the purchase is an example of diversification, making that the correct response.Diff: 2 Page Ref: 112Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


87) Two companies that both sell fine time pieces combine. What are they doing?A) diversifying, because they both sell the same productsB) integrating vertically, because they both sell the same productsC) integrating vertically in a backward direction, because they are sharing distributionD) integrating horizontally, because they both sell similar productsAnswer: DExplanation: D) The merger has nothing to do with controlling supply or distribution, so both vertical integration and backward vertical integration can be eliminated as correct responses. Diversification would require one of the companies to purchase an unrelated company that somehow supports or complements its business, but both companies sell the exact same products, so diversification is not occurring. Instead, the merging of two companies that have the same product is an example of horizontal integration, making that the correct response.Diff: 3 Page Ref: 112AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

88) A company whose goal is to retain its ideal size and market share is employing which kind of strategy?A) noncorporateB) growthC) renewalD) stabilityAnswer: DExplanation: D) A corporate strategy that does not explicitly seek growth is termed a stability strategy, making stability the correct response and growth incorrect. A renewal strategy would require the company to be in some kind of trouble, so that is not the right answer here. The remaining choice is also not correct because stability clearly is a corporate, not a noncorporate, strategy.Diff: 2 Page Ref: 112-113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

89) Troubled companies seek ________ to address serious problems.A) competitive strategiesB) corporate strategiesC) vertical and horizontal strategiesD) renewal strategiesAnswer: DExplanation: D) The strategies that specialize in fixing troubled organizations are termed renewal strategies, making that the correct response. Competitive, corporate, vertical, and horizontal strategies do not specialize in troubled organizations, so they are incorrect responses.Diff: 2 Page Ref: 113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


90) To address limited, short-term problems, a company is most likely to employ a ________ strategy. A) retrenchmentB) turnaroundC) doomsdayD) self-criticalAnswer: AExplanation: A) When the problems of a troubled organization are limited, a retrenchment strategy is typically employed, which helps cut costs and stabilize the company so it can compete successfully, making retrenchment the correct response. When problems are more drastic, a turnaround strategy is employed. Doomsday and self-critical approaches are not recognized renewal strategies, so these choices are incorrect.Diff: 2 Page Ref: 113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

91) A company that is on the verge of collapse or bankruptcy might employ this strategy.A) retrenchmentB) incremental improvementC) turnaroundD) hunker downAnswer: CExplanation: C) When a company finds itself in truly dire conditions, it goes beyond incremental improvement, "hunkering" down to try to wait out its troubles, or retrenchment. Instead, it employs a turnaround strategy, making that the correct response. A turnaround strategy is a full-fledged reorganization of the entire corporation, making it the most serious remedy for corporate woes.Diff: 2 Page Ref: 113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

92) Remedies that all renewal strategies employ include which of the following?A) hiring efficiency expertsB) new ad campaignsC) emulating competitorsD) cutting costsAnswer: DExplanation: D) New ad campaigns, efficiency experts, or studying the competition are all possible, but not essential, elements of a renewal strategy. The only recognized essential element of a renewal strategy is to cut costs, making that the correct response.Diff: 2 Page Ref: 113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


93) The ________ strategy occupies the level below the corporate strategy.A) business unitB) competitiveC) functionalD) performanceAnswer: BExplanation: B) On an organizational strategies hierarchy chart (Exhibit 5-4, page 112), the top of the hierarchy is occupied by corporate strategies, the second level by competitive strategies, and the third level by functional strategies. This makes "competitive" the correct response and eliminates "functional." "Business units" and "performance" do not identify recognized corporate strategies, so they are incorrect responses for this question.Diff: 1 Page Ref: 112-113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

94) A diversified corporation is likely to have ________.A) multiple competitive strategiesB) a single competitive strategyC) no more than two competitive strategiesD) thousands of competitive strategiesAnswer: AExplanation: A) A single competitive strategy might exist for a small company that has only one line of business. A large, diversified organization will consist of multiple businesses, so it will have multiple competitive strategies, making that the correct response and ruling out the choices indicating a single or no more than two competitive strategies. It is unlikely that an organization would have thousands of different lines of business, so it would be equally unlikely to have thousands of competitive strategies, ruling out that choice.Diff: 2 Page Ref: 113Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

95) The thing that makes your product special is known as your ________.A) assetsB) destruction deviceC) competitive advantageD) competitive strengthAnswer: CExplanation: C) A competitive advantage is something that one organization has that other organizations cannot offer. A competitive advantage can be a product, service, or some other quality that sets the organization apart. A company may use its assets or strengths to develop a competitive advantage, but weapons or strengths themselves do not constitute the advantage. Destruction device can be ruled out because it is not a recognized term.Diff: 2 Page Ref: 113-114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


96) Competitive advantages for a high-prestige, premium coffee franchise like Starbucks are likely to include all of the following EXCEPT ________.A) high qualityB) lowest pricesC) well-trained employeesD) pleasant venuesAnswer: BExplanation: B) Starbuck's as a premium alternative in the marketplace may offer high-quality coffee, pleasant store fronts, and well-trained employees. However, as a high-prestige choice, the least likely thing for Starbucks to offer would be lowest prices, making that the correct response. Low prices might actually harm the high-prestige image that Starbucks tries to project. Note that for some other, nonpremium company, low prices may indeed comprise a competitive advantage.Diff: 3 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

97) A cost leadership competitive strategy focuses on which of the following?A) efficiencyB) innovationC) elegant designD) luxuryAnswer: AExplanation: A) A company with a cost leadership strategy is the pacesetter for prices in its competitive market. In order to get the lowest prices, a company typically will eschew elegant design, innovative products, and luxury in favor of efficiency. This makes efficiency the correct response.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

98) Which of the following would you expect to find in a clothing store that follows a cost leadership strategy?A) only the finest, most expensive materials B) pampered, personalized serviceC) state-of-the-art designD) basic, no frills, practical itemsAnswer: DExplanation: D) A company that uses a cost leadership strategy would tend to forego expensive materials, specialized service, and high-tech design and instead focus on practicality. This makes the choice indicating basic, no frills, practical items the correct response, as products for a cost leadership company would most likely be of the "no frills" category.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


99) A company with a differentiation strategy focuses on making its products or services ________.A) unique and specialB) similar to its competitorsC) familiarD) affordableAnswer: AExplanation: A) The key to a differentiation strategy is for the company to somehow make itself or its products distinct from all of its competitors. This distinction may reside in a product, service, or brand image that sets the company apart from others in the market. These factors make "unique and special" the correct response. Being familiar, similar to competitors, or affordable would have little value to a company that uses a differentiation strategy as none of these qualities makes its products different or distinguished.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

100) A differentiation strategy ________.A) usually focuses on priceB) must focus on priceC) can focus on a brand imageD) can focus on value, but not serviceAnswer: CExplanation: C) A company with a differentiation strategy tries to make its products and services distinct and different, so price would not typically be part of the approach. Service can function as something that differentiates the company, so the choice indicating focus on value but not service cannot be a correct response. Surprisingly, brand image can be the determining factor for a differentiation strategy. Though hard to establish, once it exists, a unique and special brand name can distinguish a company from all of its competitors.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


101) A company that looks for a niche in the market is following which strategy?A) cost leadershipB) differentiationC) focusD) turnaroundAnswer: CExplanation: C) The key to a focus strategy is for a company not to try to appeal to a broad market, but rather to find a narrow niche in the market and serve it with something extraordinary and special. This makes focus the correct response and eliminates differentiation and cost leadership as possible correct responses because both try to appeal to broad audiences. A turnaround strategy is a corporate rather than a competitive strategy, so that choice is not correct.Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

102) Which of the following describes a company that is following a focus strategy?A) a software company that makes a wide variety of games and financial productsB) a software company that makes games for a wide audienceC) a software company that makes financial products for accountants, consumers, and businessesD) a software company that makes financial products for accountants onlyAnswer: DExplanation: D) The correct answer for this question is the choice that describes a product that serves the narrowest and most specialized audience. The two choices regarding a wide variety of games and a wide audience identify broad audiences, so they are incorrect. The choice regarding making financial products for accountants among others and the choice regarding making financial products for accountants only refer to making only financial products, whereas the company serving only accountants serves a more narrow market segment, so it is the correct response.Diff: 3 Page Ref: 114AACSB: Use of information technologyObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


103) According to Michael Porter, a company with good products that has no clear competitive advantage is said to be ________.A) perfectly positionedB) stuck in the middleC) in the wheelhouseD) outside of the boxAnswer: BExplanation: B) Porter's phrase "stuck in the middle" describes a company that has no clear edge over its competitors, so "stuck in the middle" is the correct response for this question. A company may be efficient, innovative, and produce high-quality products, but if it cannot establish some kind of significant advantage over its rivals, it will remain "stuck." Diff: 2 Page Ref: 114Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

104) Most successful companies find that ________ a competitive advantage is almost as difficult as developing a competitive advantage.A) assessing B) sustainingC) modifyingD) eliminatingAnswer: BExplanation: B) Once a company establishes its competitive advantage, you might think that it would be able to rest on its achievement. In fact, today's world is so competitive that few companies can do this. Once they gain an advantage they need to work hard to keep that advantage as rivals scramble to reduce the company's edge or develop an edge of their own. These factors all make sustaining a competitive advantage the correct response.Diff: 2 Page Ref: 115Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

105) All of the following are threats to a sustainable, long-term competitive advantage EXCEPT ________. A) market stabilityB) market instabilities and disturbancesC) evolution of the industryD) new technology in the industryAnswer: AExplanation: A) Instability, new technology, and an evolving industry all can function to erase the edge a company has and threaten its competitive advantage. Market stability is the only choice that is not a threat to an established edge, since the edge is likely to persist as long as conditions don't change, making market stability the correct response.Diff: 2 Page Ref: 115Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


106) To gain a sustainable competitive advantage, a pharmaceutical company might ________.A) market aggressivelyB) set high prices for its productsC) secure exclusive rights to produce a drugD) produce as many generic drugs as possibleAnswer: CExplanation: C) Marketing aggressively might minimally help the company in gaining an advantage, but it probably would not be effective enough to make any advantage permanent or sustainable. Setting high prices or making generics might reduce a company's competitive advantage, so those choices can be eliminated. The one thing that might help the company sustain its advantage would be to gain exclusive rights to a successful drug. Since no other company could produce that drug, the monopoly that the company would have would constitute a sustainable competitive advantage—at least as long as the rights remained exclusive.Diff: 3 Page Ref: 115Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

107) A company's strategic weapon is any product, service, or other attribute it has that ________.A) gives it an edge over its competitorsB) identifies problems that the company hasC) identifies the potential of employeesD) helps diversify the companyAnswer: AExplanation: A) A strategic weapon is some kind of asset or ability that a company can use to gain an advantage in the marketplace. For example, a strategic weapon that Apple has is its ability to innovate. When Apple needs to try to gain in the market, it looks to innovation above all other characteristics for its edge. These factors make the choice regarding giving it an edge over competitors the correct response and eliminate the other responses.Diff: 2 Page Ref: 115Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


108) To create a competitive advantage that is sustainable, a company can begin by focusing on quality, then ________A) make sure quality doesn't decline at too rapid a paceB) make incremental improvements to keep quality levels highC) change its entire product line frequentlyD) slowly diminish quality and raise the prices of its productsAnswer: BExplanation: B) Diminishing quality would be likely to erode a competitive advantage, not make it more sustainable. Changing a successful formula would also tend to be counterproductive, making "change its entire product line frequently" incorrect. The only effective strategy would be to refuse to let well enough alone—keep the same product, but keep improving the product to stay ahead of rivals—making the choice regarding incremental improvements the correct response.Diff: 3 Page Ref: 115Objective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

109) This term describes an electric shaver company that carefully observes its competitor's production line to look for ways to improve its own manufacturing process.A) trademarkingB) benchmarkingC) quality engineeringD) reverse marketingAnswer: BExplanation: B) The practice of learning production techniques and similar practices from other organizations is called benchmarking. Note that a company can successfully benchmark in a completely unrelated industry. A car company, for example, might observe a shipping company for clues about improving efficiency. Diff: 2 Page Ref: 116Objective: 5.2

110) Which of the following best defines plans?A) documents that identify company problemsB) documents that define goalsC) documents that describe how goals will be metD) documents that identify how goals from the past were metAnswer: CExplanation: C) Plans do not specifically identify goals per se, problems, or past goals. Instead, plans focus on how goals will be met, making that the correct response.Diff: 2 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


111) Which of the following best defines goals?A) likely outcomes for the futureB) unlikely outcomes for the futureC) desired outcomes for the futureD) short-term targetsAnswer: CExplanation: C) The key to defining goals is not whether they are likely or unlikely, long term or short term, but rather that goals are desired outcomes, making that the correct response.Diff: 1 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

112) In reality, all organizations have ________.A) a single goalB) multiple goalsC) the same goalsD) the same single goalAnswer: BExplanation: B) Different organizations clearly have different goals. For example, one organization may want to maximize profits while another may wish to make products that truly help people. What all organizations share is that they have more than one goal. For example, the company above that wants to help people may also seek to make large profits, work toward environmental sustainability, and provide good jobs for as many people as possible. Multiple goals are a feature of all organizations in one way or another, so that is the correct response.Diff: 2 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

113) In most cases, strategic goals include ________.A) all financial objectivesB) all objectives that are not financialC) all objectives, both financial and nonfinancialD) some financial objectivesAnswer: BExplanation: B) Most company goals can be classified as either strategic or financial. Strategic goals, therefore, do not include financial objectives. This makes the choice indicating all objectives that are not financial the correct response and eliminates the other three choices because they all include some kind of financial objective.Diff: 2 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


114) Which of the following is an example of a strategic goal for a professional baseball team?A) to increase attendance by 5 percent over the next three yearsB) to increase television revenues over the next 5 yearsC) to decrease payroll by 20 million over the next 2 yearsD) to average over 90 wins a year for the next 5 years Answer: DExplanation: D) A strategic goal is any kind of objective that is not financial in nature. Increasing TV income, attendance, and decreasing payroll all have a financial component, so they can be eliminated as correct responses for this question. The choice indicating an average of over 90 wins a year identifies a baseball, rather than a financial, goal, so it is the correct response.Diff: 2 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

115) An organization's real goals and priorities are best revealed by ________.A) its official stated goalsB) its actions in the marketplaceC) its statements to the pressD) its mission statementAnswer: BExplanation: B) Mission statements, press releases, and official stated goals all include a political dimension in which an organization is telling you what it would like to want to do rather than stating its actual intentions. Therefore, the only true measure of a company's priorities are its actions, making that the correct response. For example, an organization may officially state that jobs are its main goal, but its actual hiring record would be a much better indication of its true objective than any official statement.Diff: 2 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

116) ________ are important because they provide the standards against which all organizational accomplishments are measured.A) GoalsB) GuidelinesC) ModelsD) RulesAnswer: AExplanation: A) Goals are more than just something for an organization to shoot for. Goals are also a metric by which an organization can measure success. Without stating goals, an organization has no way of judging how successful it is. This makes goals the correct response and rules out guidelines, models, and rules because none of these choices provide standards by which organizational progress can be measured.Diff: 2 Page Ref: 117Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


117) In traditional goal setting, these individuals set goals.A) top managersB) middle and low-level managersC) middle managersD) managers and employeesAnswer: AExplanation: A) The traditional hierarchical organizational model has top managers setting goals, with the goals flowing down to lower organizational levels. This makes top managers the correct response and eliminates the other choices because they do not exclusively identify top managers as the decision makers.Diff: 2 Page Ref: 118Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

118) In traditional goal setting, as they work their way from top management to employees, goals are likely to ________. A) become more clearB) be more rigorously followedC) be unchangedD) become less clearAnswer: DExplanation: D) As they filter down from level to level, goals repeatedly get reinterpreted and distorted, making the choice regarding becoming less clear the correct response and eliminating becoming more clear and being unchanged. Being more rigorously followed is also incorrect because there is no evidence to show that goals are more likely to be followed at lower levels of an organization than at higher levels.Diff: 2 Page Ref: 118Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

119) In a means-ends chain, a goal at a lower level ________. A) is the bridge to a goal at the next higher levelB) is attained only after higher level goals are fulfilledC) is separate from the goal at the next higher levelD) is ignored if goals at higher levels are attainedAnswer: AExplanation: A) A means-ends chain links goals at high levels to lower goals. For example, in a means-ends chain, a goal at a high level cannot be considered accomplished until goals below it have been fulfilled first. This links goals at different levels and makes them less subject to degradation and distortion as they pass through organizational hierarchy. This means that the bridge to a goal at the next higher level is the correct response, ruling out the choices regarding a goal being separate and being ignored because they describe situations in which goals are not linked. The choice regarding being attained only after higher-level goals are fulfilled shows linked goals, but their order is reversed—in a means-ends chain, the lower-level goals are fulfilled first.Diff: 3 Page Ref: 118AACSB: Analytic skillsObjective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


120) In management by objectives (MBO), goals ________.A) must be easily accomplishedB) are jointly determined by employees and managersC) are determined by top managementD) are developed by employeesAnswer: BExplanation: B) The key to goals set by an MBO arrangement is that goals are not handed down from management to employees. Instead, employees participate in goal setting, thus insuring a more equitable result and more accountability for all sides of the process, especially the employees. MBO goals are not exclusively developed by managers or employees, making both of those choices incorrect. MBO goals are not required to be easily accomplished, making that choice incorrect.Diff: 2 Page Ref: 118-119Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

121) In addition to being made by by both managers and employees, MBO goals must be ________.A) nonspecific and open-ended with regard to timeB) specific and open-ended with regard to timeC) specific and include an explicit time limitD) nonspecific and include no time limitAnswer: CExplanation: C) To eliminate ambiguity and misunderstanding, MBO goals are required to be specific and include a time limit. That way parties can't come back later and say that they weren't warned with regard to what exactly was expected. This makes the choice regarding being specific and including an explicit time limit the correct response and eliminates the other three choices because they are either nonspecific or open-ended with regard to time.Diff: 2 Page Ref: 118-119Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

122) MBO programs usually are successful largely because they ________.A) give employees a sense of ownership of goalsB) free managers from the responsibility of setting goals C) give managers a sense of ownership of goalsD) free employees from responsibility if goals are not metAnswer: AExplanation: A) MBO goals do not free managers from the task of goal setting or give them any special sense of goal ownership, since in traditional situations managers alone set goals. MBO goals make employees more, not less, responsible. What MBO goals clearly do accomplish is to make employees more accountable and responsible for goals, giving them a sense of ownership of goals. This makes giving employees a sense of ownership the correct response.Diff: 2 Page Ref: 118-119Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


123) Which goal-setting sequence is correct for the following steps?1. Evaluate resources.2. Identify goals.3. Review the mission and job tasks.4. Communicate goals. 5. Link rewards to goals.6. Build feedback mechanisms.A) 1, 2, 4, 6, 3, 5B) 4, 2, 5, 3, 1, 6C) 3, 4, 2, 6, 5, 1D) 3, 1, 2, 4, 6, 5Answer: DExplanation: D) Only the correct choice (3, 1, 2, 4, 6, 5) gives the correct sequence: review the mission, evaluate resources, identify goals, communicate goals, build feedback, link rewards to goals.Diff: 3 Page Ref: 120AACSB: Analytic skillsObjective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

124) The breadth of a plan refers to ________ concerns.A) long-term versus short-termB) strategic versus tacticalC) specific versus directionalD) single use versus standingAnswer: BExplanation: B) Breadth does not refer to how specific, long term, or repeatable a plan is, but rather whether it is tactical or strategic, making that the correct response. Strategic plans address overall organizational goals. Tactical plans provide details of how those strategic goals can be achieved.Diff: 2 Page Ref: 120Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

125) The specificity of a plan refers to ________ concerns.A) long-term versus short-termB) strategic versus tacticalC) specific versus directionalD) single use versus standingAnswer: CExplanation: C) Specificity does not refer to the duration, goals, or repeatability of a plan. Rather, specificity addresses how flexible plans are, making specific versus directional the correct response. Specific plans are inflexible and leave little or no room for interpretation or modification. Directional plans are flexible and can be modified if the situation warrants.Diff: 2 Page Ref: 120Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


126) Strategic plans address ________.A) overall organizational goalsB) goals for a single branch of the organizationC) how overall goals are to be achievedD) how a single goal is to be achievedAnswer: AExplanation: A) Strategic plans have the broadest overall scope, addressing the larger, more general issues and goals that an organization has. This makes overall organizational goals the correct response and eliminates the other three choices because they all refer to more narrow objectives.Diff: 2 Page Ref: 120Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

127) Tactical plans are operational plans that identify ________.A) overall organizational goalsB) how overall goals are to be achievedC) the mission of an organizationD) specific goals for accomplishing a specific objectiveAnswer: BExplanation: B) Tactical plans do not address an organization's mission or its larger, overall goals. The focus of tactical plans is always how goals are to be achieved rather than specific goals themselves. This rules out specific goals and makes the choice regarding how overall goals are to be achieved the correct response.Diff: 2 Page Ref: 120Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

128) A politician whose ultimate goal is to get elected is planning campaign ads for TV. In planning the ads, the politician is functioning at a ________ level.A) strategicB) long-termC) tacticalD) directionalAnswer: CExplanation: C) In this situation, the politician's overall strategic goal is to get elected. His immediate goal is to plan effective TV ads. Since he is working on his immediate goal, the politician is functioning on a tactical, rather than a strategic, level, making tactical the correct response.Diff: 3 Page Ref: 120AACSB: Analytic skillsObjective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


129) Which of the following defines the time frame of a long-term plan?A) over seven yearsB) over three yearsC) under three yearsD) over one yearAnswer: BExplanation: B) In the past, long-term plans were defined as plans that were seven years or longer in duration. This definition has been replaced by a new time duration that requires a long-term plan to be any plan that covers a time frame of over three years. This makes over three years the correct response and eliminates all other choices.Diff: 1 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

130) Directional plans ________.A) leave no room for interpretationB) are flexible general guidelinesC) are difficult to modifyD) must be short-term plansAnswer: BExplanation: B) The key to directional plans is flexibility, making "flexible general guidelines" the correct response. Flexible plans cannot be hard to modify, leave no room for interpretation, or be focused only on short-term goals. This rules out all of the other choices and confirms that flexible general guidelines is the correct response.Diff: 2 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

131) Standing plans typically can be used ________.A) only onceB) only in conjunction with specific, long-term plansC) twice at mostD) repeatedlyAnswer: DExplanation: D) Standing plans are not confined to being used only once, twice, or exclusively in conjunction with specific long-term plans. The key to a standing plan is that it is repeatable. This indicates that "repeatedly" is clearly the correct response for this question.Diff: 2 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


132) Top managers, for the most part, focus on this type of planning.A) operationalB) strategicC) tacticalD) short termAnswer: BExplanation: B) Tactical, short-term, and operational planning are typically reserved for lower-level or mid-level managers. Strategic planning is typically done by top managers, making "strategic" the correct response.Diff: 2 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

133) The more uncertain a situation is, the more ________ plans must be.A) unspecificB) long termC) flexibleD) short termAnswer: CExplanation: C) In a situation of high uncertainty, both flexibility and specificity are important. A plan must be specific, but also flexible so it can be changed if the situation requires it. These requirements make flexible the correct response and eliminate unspecific. Uncertainty has no bearing on whether a plan is long or short term, so these choices can be eliminated.Diff: 2 Page Ref: 121Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

134) The commitment concept states that plans should ________.A) always stake out a longer time period than is estimatedB) always stake out a shorter time period than is estimatedC) stake out a time period that is neither too long nor too short D) not include time periods because they are too confiningAnswer: CExplanation: C) The commitment concept states that plans should extend to meet any commitments that they directly or indirectly specify. For example, a plan to finance only the construction of a bridge, but not its upkeep and maintenance, fails to meet its basic time commitment. The preceding ideas identify staking out a time period that is neither too long nor too short as the correct response. Staking out too long, too short, or no time periods all fail to meet time commitments and are therefore incorrect responses. Diff: 3 Page Ref: 122Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


135) Most managers feel that formal, top-down plans created by corporate planning departments are ________.A) very usefulB) usually unsatisfactoryC) indispensibleD) excellentAnswer: BExplanation: B) Rather than find plans created by specialized corporate planning departments useful, indispensible, or excellent, a survey shows that over 75 percent of managers were dissatisfied with formal planning department plans, making "usually unsatisfactory" the correct response.Diff: 2 Page Ref: 122Objective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

136) In the twenty-first century, managers increasingly need to consider their plans as ________.A) highly explicit recipes that must be scrupulously followedB) a vague philosophy that should not interfere with actionsC) flexible road maps with destinations that may changeD) rigid road maps with a single destinationAnswer: CExplanation: C) In the unstable, fast-changing business environment of today, managers value flexibility over other qualities. They do not see plans as explicit recipes or rigid road maps. Though flexibility is key, managers do not want to go too far and get plans that are vague, so a vague philosophy can also be eliminated. In the end, managers see plans as road maps that are flexible because they allow paths and even final destinations to change if the situation requires it. Diff: 3 Page Ref: 123Objective: 5.4Learning Outcome: Discuss the processes and tools of developing different types of plans

137) A cell phone company might ask managers to do some environmental scanning of blogs that deal with electronics as a way to ________.A) obtain new customersB) identify emerging trendsC) obtain new advertisersD) identify potential rivalsAnswer: BExplanation: B) The purpose of environmental scanning is not to obtain customers, advertisers, or competitors, but rather to get a feel for the business environment that an organization functions in and detect emerging trends in its industry. This makes "identify emerging trends" the correct response.Diff: 2 Page Ref: 124Objective: 5.4


138) Which of the following is NOT something that a company would be likely to do as a part of a competitive intelligence program?A) buy competitors' productsB) attend trade showsC) have employees evaluate competing productsD) buy stock in a competitor's companyAnswer: DExplanation: D) A company would be likely to buy competing products, attend trade shows, or assess rival products as a part of a competitive intelligence program. It would not, however, buy stock in a rival company because the purchase would not provide any insight into the company's competitor. Since the company would not be likely to do this, "buy stock in a competitor's company" is the correct response.Diff: 2 Page Ref: 124Objective: 5.4

Taco Rocket (Scenario)

Imagine that you are the president of Taco Rocket, a new and successful chain of 8 Mexican fast-food restaurants. The success you have experienced in the last 5 years has you thinking of what to do with the business next. Should you expand the business at the current rate? Open new and different restaurants? What?

139) Up to now your success has been based on selling high-quality tacos and burritos at a price that others can't match. Your business is pursuing which of Porter's strategies?A) differentiation strategyB) cost leadership strategyC) competitive advantage strategyD) focus strategyAnswer: BExplanation: B) A focus strategy would have Taco Rocket trying to appeal to a narrow segment of the market, something that it clearly is not doing. A differentiation strategy would have Taco Rocket trying to make tacos that were superior in some way to all competitors, again something that it is not attempting to do. What Taco Rocket is doing is selling good quality food at low prices, so it is using a cost leadership strategy. A competitive advantage strategy is not one of Porter's recognized categories, so it is an incorrect response for this question.Diff: 2 Page Ref: 114AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


140) You are thinking of buying a tortilla factory in a nearby state. This action would be an example of ________.A) forward vertical integrationB) horizontal integrationC) backward vertical integrationD) forward diversificationAnswer: CExplanation: C) Buying a tortilla factory is an attempt by the company to be its own supplier. This is an example of backward vertical integration. Forward vertical integration would involve some aspect of distribution rather than supply, so that choice is incorrect. The remaining choices (horizontal integration and forward diversification) describe situations in which the company is not trying to become its own supplier, so both choices are incorrect.Diff: 2 Page Ref: 114AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

141) Recently, Taco Rocket has considered buying a local competitor and the two would combine under the Taco Rocket name. This is an example of which of the following?A) stabilityB) vertical integrationC) horizontal integrationD) diversificationAnswer: CExplanation: C) When a company combines with a competitor, it is integrating horizontally. When a company purchases a company from another industry, it is diversifying. In this case, Taco Rocket is integrating horizontally because it is combining with a rival, not a company in another industry. This makes horizontal integration the correct response and rules out diversification. Stability can be ruled out because it is not a key factor in this situation.Diff: 3 Page Ref: 114AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


142) For a limited time, Taco Rocket is thinking of coming out with a new Fifth Degree Burrito that is so hot it "burns a hole in the plate." Catering to the small segment of the market that likes super-hot food is an example of a ________.A) focus strategyB) cost leader strategyC) long-term strategyD) differentiation strategyAnswer: AExplanation: A) Taco Rocket is not trying to have the lowest cost in this example or create an ultra-premium product to differentiate itself from competitors. The product is clearly not a long-term strategy because it is being offered for a "limited time." What Taco Rocket is doing is trying to serve a very narrow segment of the market—people who like super-hot food. In doing this, Taco Rocket is using a focus strategy.Diff: 3 Page Ref: 114AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

143) In a short essay, define planning and compare formal and informal planning as they are used in various organizations.Answer: Planning involves defining the organization's goals, establishing an overall strategy for achieving those goals, and developing a system to implement that strategy. Planning is concerned with both ends and means.

All managers engage in some form of planning whether it is formal or informal. In informal planning, little or nothing is written down and there is little or no sharing of goals with others within the organization. This type of planning is often done in small businesses where the owner-manager has a vision of where he or she wants the business to go and how to get there.

In formal planning, goals and plans covering a specific period of time are developed. These goals and plans are written and shared with organizational members. Specific programs exist in formal planning to achieve planning goals; that is, managers clearly define the path they want to take and the actions they will carry out to reach their goals.Diff: 3 Page Ref: 106-107AACSB: Analytic skillsObjective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


144) In a short essay, list and discuss two reasons for planning.Answer: (any two of the following)

Planning establishes coordinated effort. It gives direction to managers and nonmanagers alike. When employees know where the organization is going and what they must contribute to reach goals, they can focus their individual and collective efforts to accomplish those goals. Without planning, departments and individuals might end up working at cross-purposes, preventing the organization from moving efficiently toward its goals.

Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses to change. Even though planning can't eliminate change, managers plan in order to anticipate changes and develop the most effective response to them.

Planning reduces overlapping and wasteful activities. When work activities are coordinated around established plans, waste and redundancy can be minimized. Furthermore, when means and ends are made clear through planning, inefficiencies often become obvious and can be easily corrected or eliminated.

Planning establishes goals or standards that are used in controlling. If managers are unsure of what they are trying to accomplish, they will be unable to determine whether or not they have been successful. In planning, goals and standards are clearly developed and stated. Then actual performance can be compared against the goals and corrective action is taken, if necessary. Without the goals identified in a planning process, there is no way for an organization to assess its own progress.Diff: 2 Page Ref: 106-107AACSB: Analytic skillsObjective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans

145) In a short essay, identify criticisms of formal planning.Answer: One of the main arguments directed at formal planning is that it is rigid and can lock an organization into specific goals and timetables that must be achieved, no matter how circumstances may change.

Another criticism of plans is that they cannot replace intuition and creativity, and in many cases are said to stifle these qualities. Many people advise planners to try to take intuition and creativity into account when they formulate their plans so their plans will enhance rather than undermine these qualities.

A third criticism of planning is that it often fixates on the current business climate, not on how the climate might change in the future. This can result in plans that are short-sighted and limited. Rather than look for new opportunities, managers keep trying to perfect what they did in the past.

Finally, plans often focus too much on successes of the past, forcing a company to stick to tried-and-true methods of operating rather than forging into new areas and blazing new trails.Diff: 3 Page Ref: 107AACSB: Analytic skillsObjective: 5.1Learning Outcome: Discuss the processes and tools of developing different types of plans


146) In a short essay, compare strategic plans and tactical plans.Answer: Strategic plans are plans that apply to the entire organization, establish the organization's overall goals, and seek to position the organization in terms of the overall business environment.

Plans that specify the details of how the overall goals are to be achieved are called tactical or operational plans. Tactical plans tend to cover a shorter time frame and a more narrow view of an organization than strategic plans. Where strategic plans focus on identifying goals, tactical plans focus on how to reach those goals.Diff: 3 Page Ref: 120AACSB: Analytic skillsObjective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

147) In a short essay, compare specific plans and directional plans.Answer: Specific plans are plans that are clearly defined and that leave no room for interpretation. There is little room for ambiguity or misunderstanding with a specific plan. The drawbacks of specific plans are that they can be rigid and often require a measure of predictability that in many cases does not exist.

When uncertainty is high and managers must be able to respond to unexpected changes, directional plans are preferable. Directional plans are flexible plans that set out general guidelines but don't lock managers into overly specific goals or courses of action. However, the flexibility inherent in directional plans must be weighed against the loss of clarity provided by specific plans. Diff: 3 Page Ref: 120AACSB: Analytic skillsObjective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans

148) In a short essay, define and discuss management by objectives (MBO). Answer: Management by objectives (MBO) is a system in which specific performance goals are jointly determined by employees and their managers. MBO requires that progress toward accomplishing these goals be periodically reviewed and rewards allocated on the basis of this progress. Rather than using goals exclusively as controls, MBO uses them to motivate employees as well.

Management by objectives consists of four elements: goal specificity, participative decision making, requiring an explicit time period, and performance feedback. MBO's appeal lies in its focus on employees working to accomplish goals they have had a hand in determining. Diff: 3 Page Ref: 118-119AACSB: Analytic skillsObjective: 5.3Learning Outcome: Discuss the processes and tools of developing different types of plans


149) In a short essay, describe the first two steps in the strategic management process.Answer: The first step in the strategic management process is to identify the organization's current mission, goals, and strategies. Defining the organization's mission forces managers to identify what it is in business to do. Knowing the company's current goals gives managers a basis for assessing whether those goals need to be changed.

The second step involves an external analysis. Managers need to know, for instance, what the competition is doing and how the current business environment is likely to affect the company. After analyzing the environment, managers need to assess what they have learned in terms of opportunities that the organization can exploit and threats that it must counteract or buffer against. Diff: 3 Page Ref: 110-111AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

150) In a short essay, describe the final four steps in the strategic management process.Answer: The third step in the strategic management process involves an internal analysis, which provides important information about an organization's specific resources and capabilities. After completing an internal analysis, managers can then complete a SWOT analysis. The SWOT analysis combines information from this step and the previous step in the process to formally identify an organization's strengths, weaknesses, opportunities, and threats.

The fourth step in the strategic management process is to put all of the information gathered together and use it to formulate strategies for putting the organization on the right track for the future. As managers formulate strategies, they have to consider the realities of the external environment and their available resources and capabilities and design strategies that will help the organization reach its goals.

After strategies are formulated, they must be implemented. A strategy is only as good as its implementation. The final step in the strategic management process is evaluating results. How effective have the strategies been? Have they helped the organization reach its goals? What adjustments, if any, are necessary?Diff: 3 Page Ref: 110-111AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


151) In a short essay, discuss environmental scanning and competitive intelligence.Answer: Managers in both small and large organizations use environmental scanning, which is the screening of large amounts of information, to anticipate and interpret trends and changes in the business environment. Extensive environmental scanning is likely to reveal issues, trends, and concerns that could affect an organization's current and planned activities.

One of the fastest growing areas of environmental scanning is competitive intelligence. Competitive intelligence is a process by which organizations gather information about their competitors and get answers to questions such as Who are they? What are they doing? How will what they're doing affect us? Competitive intelligence doesn't have to involve spying. Advertisements, promotional materials, press releases, reports filed with government agencies, annual reports, want ads, newspaper reports, and industry studies are all examples of readily accessible sources of information for competitive intelligence. Many firms also regularly purchase and analyze competitors' products to learn about new technical innovations.Diff: 3 Page Ref: 124AACSB: Analytic skillsObjective: 5.4

152) In a short essay, discuss the cost leadership strategy according to Michael Porter.Answer: When an organization sets out to be the lowest-cost player in its industry, it is following a cost leadership strategy. A low-cost leader aggressively searches out efficiencies in production, marketing, and other areas of operation. Overhead is kept to a minimum, and the firm does everything it can to cut costs. Although low-cost leaders don't place a lot of emphasis on "frills," the product or service being sold must be perceived as comparable in quality to that offered by rivals or at least be acceptable to buyers. Examples of companies that have used the low-cost leader strategy include Wal-Mart and Southwest Airlines.Diff: 3 Page Ref: 114AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies

153) In a short essay, discuss Porter's differentiation strategy.Answer: When a company seeks to offer unique products that are seen as truly special by customers, it is following a differentiation strategy. Ways in which companies differentiate themselves might include exceptionally high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image.

The key to this competitive strategy is that whatever product or service attribute is chosen for differentiation must set the firm apart from its competitors and be significant enough to justify a price premium that exceeds the cost of differentiation. Many highly successful businesses can be identified as examples of the differentiation strategy: L.L. Bean (customer service), Intel (higher-quality chip technology), Maytag (reliability), and Mary Kay Cosmetics (distribution).Diff: 3 Page Ref: 114AACSB: Analytic skillsObjective: 5.2Learning Outcome: Identify the steps of the strategic management process and describe common organizational and business strategies


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


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