CHAPTER 9 Strategy Review, Evaluation and Control True/False The Nature of Strategy Evaluation
1.
If stra strate tegy gy imp imple leme ment ntat atio ion n is succ succes essf sful ul,, an ent enter erpr pris isee can can be lull lulled ed int into o complacency with success. Ans: F
2.
Adeq Adequat uate, e, tim timel ely y fee feedb dback ack is impo import rtan antt to to effe effect ctiv ivee str strat ategy egy eval evaluat uatio ion. n. Ans: T
3.
Page: 300
Acco Accord rdin ing g to Rume Rumelt lt,, cons consis iste tenc ncy y and and feas feasib ibil ilit ity y are are larg largel ely y base based d on a fir firm’ m’ss internal assessment. Ans: T
7.
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Acco Accord rdin ing g to Richa Richard rd Rum Rumel elt, t, con conso sona nance nce and and cons consis iste tenc ncy y are are base based d on a firm firm’s ’s external assessment. Ans: F
6.
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Stra Strate tegy gy eva evalu luat atio ion n shoul should d have have a longlong-ru run n focu focuss and and avoi avoid d a shor shortt-ru run n focu focus, s, given that strategies are long term in nature. Ans: F
5.
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Too Too much much emp empha hasi siss on eva evalu luat atin ing g stra strate tegi gies es may may be be expe expens nsiv ivee and and counterproductive. Ans: T
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Page: 300
Page: 300
Regardless of the size of the organization, a certain amount of management by wandering around at all levels is essential to effective strategy evaluation. Ans: T
Page: 300
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8.
Fals Falsif ific icat atio ion n of repo report rtss can can resu result lt fro from m too too grea greatt an ins insis iste tenc ncee on att attai ainm nment ent of of objectives. Ans: T
9.
Cons Consis iste tency ncy,, disti distinc ncti tiven venes ess, s, adva advant ntage age and and feas feasib ibil ilit ity y are Ric Richa hard rd Rume Rumelt lt’s ’s four four criteria for evaluating a strategy. Ans: F
10.
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The final final broad broad test test of stra strateg tegy y is is consi consiste stency ncy,, that that is, is, can can the the stra strateg tegy y be implemented consistently every year. Ans: F
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The need need for strate strategis gists ts to to examin examinee sets sets of trends trends as well well as indi individ vidual ual tren trends ds in in evaluating strategies is referred to as consonance. Ans: T
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Consis Consisten tency cy refe refers rs to to the the need need for for strat strategi egists sts to exam examine ine sets sets of trends trends as well well as individual trends in evaluating strategies. Ans: F
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The decrea decreasin sing g time time span span for for which which plan plannin ning g can can be done done with with any degree degree of of certainty is a reason strategy evaluation is more difficult today. Ans: T
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Strat Strategy egy evalua evaluati tion on is becomin becoming g incre increasi asingl ngly y easie easierr with with the the pass passage age of time time,, given the technological advances. Ans: F
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Most top managers feel an organization’s well-being depends on evaluation of the strategic-management process. Ans: T
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Strat Strategi egies es may may be be incons inconsist istent ent if poli policy cy prob problem lemss and and issue issuess conti continue nue to be be brought to the top for resolution. Ans: T
Page: 302
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17.
Competitive advantages normally are the result of superiority in one of three areas: feasibility, consistency, or consonance. Ans: F
18.
Because large companies have more at stake, it is more important for large organizations to conduct strategy evaluation than small companies. Ans: F
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The end of the fiscal year is the best time of the year to do strategy evaluation. Ans: F
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Given that large amounts of money are at stake, strategy evaluation is primarily necessary for large, corporate companies, not small or no t-for-profit ones. Ans: F
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When empowered employees are held accountable for and pressured to achieve specific goals and are given wide latitude in their actions to achieve them, there can be dysfunctional behavior. Ans: T
20.
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Page: 304
Strategy-evaluation activities should be performed on a periodic basis. Ans: F
Page: 304
A Strategy-Evaluation Framework
23.
Changes in the organization’s management, marketing, finance, R&D and CIS strengths and weaknesses should all be the focus of a revised EFE matrix in strategy evaluation. Ans: F
24.
In strategy evaluation, a revised IFE matrix should indicate how effective a firm’s strategies have been in response to key opportunities and threats. Ans: F
25.
Page: 305
Page: 305
Strengths, weaknesses, opportunities and threats should continually be monitored for change because it is not really a question of whether these factors will change but rather when they will change and in what ways. Ans: T
Page: 305
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26.
Perhaps the most important part of preparing a revised External Factor Evaluation Matrix is determining how a firm’s position has changed relative to major competitors. Ans: T
27.
Comparing expected results to actual results is an activity included in taking corrective action. Ans: F
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Organizations need to be as objective as possible in considering qualitative factors in strategic management. Ans: F
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Measuring organizational performance requires making changes to reposition a firm competitively for the future. Ans: F
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Intuitive judgments are almost always involved in deriving quantitative criteria. Ans: T
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Measuring organizational worth includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance and examining progress being made toward meeting stated objectives. Ans: F
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Page: 307
Financial ratios are the most commonly used criteria to evaluate strategies. Ans: T
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Criteria for evaluating strategies should be measurable and easily verifiable. Ans: T
29.
Page: 305
Page: 308
Taking corrective actions does not necessarily mean that existing strategies will be abandoned, or even that new strategies must be formulated. Ans: T
Page: 308
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35.
Most quantitative evaluation criteria are geared to long-term objectives rather than annual objectives. Ans: F
36.
Corrective action in strategy evaluation is not needed when the firm is progressing satisfactorily toward achieving stated objectives. Ans: T
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When the type and speed of changes overpower an individual or organization’s ability and capacity to adapt, future shock occurs. Ans: T
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Alvin Toffler argues that environments are becoming so dynamic and complex that they threaten people and organizations with future shock in his thought provoking books entitled Future Shock and The Third Wave. Ans: T
39.
Page: 308-309
According to research, participation in strategy-evaluation activities is one of the best ways to overcome individuals’ resistance to change. Ans: T
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Often emotionally based, resistance to change is easily overcome by rational argument. Ans: F
Page: 309
Published Sources of Strategy-Evaluation Information
41.
Each year, Fortune publishes strategy evaluation research on both the United States and other countries. Ans: T
42.
Page: 310
An excellent evaluation of corporations in America, published annually in the January issue of Forbes, is the Annual Report on American Industry. Ans: T
Page: 310
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43.
France’s best company in 1999, according to Fortune, was BP Amoco in the petroleum refining industry. Ans: F
Page: 312
Characteristics of an Effective Evaluation System
44.
Advance warning, or predictions of results, may be more important than control reports. Ans: T
45.
Strategy-evaluation activities must be economical, i.e., they should specifically relate to a firm’s objectives. Ans: F
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Small organizations require a more elaborate and detailed strategy-evaluation system because they are still evolving. Ans: F
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The test of an effective evaluation system is its usefulness and complexity. Ans: F
50.
Page: 311-313
The strategy-evaluation process should dominate decisions to be effective. Ans: F
49.
Page: 311
The basic idea behind strategy evaluation is to alert management to problems or potential problems before a situation becomes critical. Ans: T
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Approximate information that is timely is generally more desirable as a basis for strategy evaluation than accurate information that does not depict the present. Ans: T
47.
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There is no one ideal strategy-evaluation system for all organizations. Ans: T
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Contingency Planning
52.
Alternative plans that can be put into effect if certain key events do not occur as expected are called contingency plans. Ans: T
53.
Organizations should prepare contingency plans just for unfavorable events. Ans: F
54.
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Alternative strategies not selected for implementation should be discarded, as they have a tendency to contaminate the contingency plans. Ans: F
58.
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Contingency plans should be as simple as possible. Ans: T
57.
Page: 313
Strategies should try to cover all bases by planning for all possible contingencies. Ans: F
56.
Page: 313
High-priority areas are the only areas requiring the insurance of contingency plans. Ans: T
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Identifying both beneficial and unfavorable events that could possibly derail the strategy or strategies is the first step of effective contingency planning. Ans: T
Page: 314
Auditing
59.
Independent auditors, government auditors and IRS auditors are the three groups of people who perform audits. Ans: F
60.
Page: 314
Independent auditors basically are CPAs who provide their services to organizations for a fee. Ans: T
Page: 314
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61.
Public accounting firms usually avoid strategy evaluation services. Ans: F
62.
Two government agencies—IRS and GAO—employ government auditors responsible for making sure organizations comply with federal laws, statutes and policies. Ans: T
63.
Page: 315
Page: 315
Moving environmental affairs from the line side of the organization to the staff side is required when instituting an environmental audit. Ans: F
Page: 316
Using Computers to Evaluate Strategies
64.
Business today has become so competitive that strategists are forced to extend planning horizons and to make decisions under greater degrees of uncertainty. Ans: T
65.
Personal values, attitudes, morals, preferences, politics, personalities and emotions are not programmable—an advantage o f computer-based systems to evaluate and monitor strategy execution. Ans: F
66.
Page: 316
Page: 316
In evaluating strategies, computers should be viewed as tools rather than as actual decision-making devices. Ans: T
Page: 316
Multiple Choice The Nature of Strategy Evaluation
67.
Which of these is/are a basic activity of strategy evaluation? a. Reviewing the underlying internal and external factors that represent the bases of current strategies b. Measuring organizational performance c. Taking corrective actions d. All of the above e. Both b and c Ans: d
Page: 300
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68.
Which of these is the cornerstone of effective strategy evaluation? a. Adequate and timely feedback b. Quality and quantity of managers c. Smaller ratio of top- to lower-level management d. Evaluation preceding implementation stage Ans: a
69.
All of these are Richard Rumelt’s criteria to evaluate a strategy except a. advantage. b. consistency. c. feasibility. d. distinctiveness. c. consonance. Ans: d
70.
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Strategy evaluation is becoming __________ with the passage of time. a. increasingly difficult b. much simpler c. very convenient d. an unnecessary activity Ans: a
72.
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The purpose of strategy evaluation is to a. increase the budget annually. b. alert management to problems or potential problems. c. make budget changes. d. evaluate employees’ performance. Ans: b
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All of the following are reasons strategy evaluation is more difficult today except a. a dramatic increase in the environment’s complexity. b. the increasing number of variables. c. the increase in the number of both domestic and world events affecting organizations. d. the decreasing difficulty of predicting the future with accuracy. e. the rapid rate of obsolescence of even the best plans. Ans: d
Page: 301
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73.
A final broad test of strategy is its a. advantage. b. feasibility. c. consonance. d. consistency. e. distinctiveness. Ans: b
74.
Competitive advantage normally is the result of superiority in all of these areas except a. resources. b. position. c. consistency. d. skills. Ans: c
75.
Page: 302
When empowered employees are held accountable for and pressured to achieve specific goals and are given wide latitude in their actions to achieve them, there can be a. increased productivity. b. dysfunctional behavior. c. decreased number of complaints. d. decreased turnover. e. increased number of litigations. Ans: b
77.
Page: 302
In evaluating strategies, __________, one of Rumelt’s criteria for evaluating strategies, refers to the need for strategists to examine sets of trends. a. consistency b. consonance c. feasibility d. advantage Ans: b
76.
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Page: 303
Strategy-evaluation activities should be performed a. on a periodic basis. b. at the onset of a problem. c. on a continuous basis. d. upon completion of major projects. Ans: c
Page: 304
200
78.
All of the following statements are true except a. strategy evaluation reviews conclusions reached during strategy formulation. b. strategy evaluation examines actions taken during strategy implementation. c. strategy evaluation should be performed at the end of specified periods. d. the three basic activities of strategy evaluation are appropriate for all sizes and kinds of organizations. Ans: c
79.
Page: 304
What is the best type of strategy evaluation? a. Intense b. Informal c. Continuous d. Periodic Ans: c
Page: 304
A Strategy-Evaluation Framework
80.
When you discover major changes have occurred in the firm’s internal strategic position while conducting strategy evaluation, you should a. continue on the present strategic course. b. immediately discontinue all aspects of the present strategic course. c. take corrective actions. d. add additional funds to the present strategic plan. Ans: c
81.
Page: 304
Changes in the organization’s management, marketing, finance/accounting, R&D and CIS strengths and weaknesses should be the focus of a revised a. mission. b. IFE matrix. c. vision. d. EFE matrix. e. EPM matrix. Ans: b
Page: 305
201
82.
A revised __________ should indicate how effective a firm’s strategies have been in response to key opportunities and threats. a. IFE matrix b. mission c. EFE matrix d. vision e. CPM matrix Ans: c
83.
Which of the following activities are included in reviewing underlying bases of the strategy phase of strategy-evaluation framework? a. Prepare a revised IFE matrix b. Compare a revised to an existing IFE matrix c. Prepare a revised EFE matrix d. Compare planned to actual progress e. Compare a revised to an existing EFE matrix Ans: d
84.
Page: 305
Which of these is not an activity included in measuring the organizational performance phase of strategy evaluation? a. Examining progress being made toward stated objectives b. Taking corrective action c. Comparing expected results to actual results d. Evaluating individual performance Ans: b
86.
Page: 305
How does a revised External Factor Evaluation Matrix compare to an existing External Factor Evaluation Matrix? a. The weightings may be different. b. The key factors may be different. c. The total weighted score may be different. d. All of the above Ans: d
85.
Page: 305
Page: 307
Which of the following is not included in measuring organizational performance? a. Comparing results to competitors’ expectations b. Examining financial statements c. Investigating deviations from plans d. Evaluating individual performance e. Comparing expected results to actual results Ans: a
Page: 307
202
87.
Ineffectiveness and/or inefficiencies indicate the need for a. layoffs. b. consultants. c. some form of correction action. d. reductions in pay. c. more synergy. Ans: c
88.
What is the basis for quantitative financial evaluation? a. Reduction in costs b. The EPS/EBIT Analysis c. Capital Asset Pricing Model d. Financial ratios e. Present value analysis Ans: d
89.
c. d.
Page: 307
Which of these is not a key financial ratio? a. Market share b. Production quality c. Earnings per share d. Asset growth Ans: b
91.
Page: 307
___________ are perhaps the most commonly used criteria to evaluate strategies. a. Financial ratios b. Revised factor evaluation matrices c. Organizational performance variables d. Industry averages Ans: a
90.
Page: 307
Page: 307
Corrective actions should a. strengthen an organization’s competitive position in its industry. b. streamline asset holdings. reduce the staff size. all of the above. Ans: a
Page: 308
203
92.
__________ is/are corrective actions a firm could take during strategy evaluation. a. Revising the business mission b. Issuing stock c. Revising objectives d. All of the above Ans: d
93.
______________ occur(s) when the nature, types and speed of changes overpower an individual’s or organization’s ability and capacity to adapt. a. Corporate downfall b. Corrective actions c. Future shock d. Corporate agility Ans: c
94.
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______________is/are the best way to overcome individuals’ resistance to change in strategy evaluation. a. Participation b. Command-and-control c. Laissez-faire system d. Rational argument e. Emotional reactions Ans: a
95.
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Page: 309
Corrective actions are __________ as a result of strategy evaluation. a. almost always needed b. definitely needed d. rarely needed e. none of the above Ans: a
Page: 309
Published Sources of Strategy-Evaluation Information
96.
In the important publication used to evaluate a firm’s strategy, the Fortune 50 includes what? a. The 50 highest-paid CEOs in several industries b. The 50 top manufacturing firms c. The 50 top political figures d. The 50 worst-performing companies of the year e. None of the above Ans: e
Page: 309
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97.
All of the following are key attributes that serve as evaluative criteria except a. ability to react. b. quality of products or services. c. innovativeness. d. financial soundness. e. use of corporate assets. Ans: a
98.
Which of these is not a key attribute in Fortune’s strategy evaluation research on “America’s Most Admired Companies”? a. Quality of management b. Innovation c. Long-term investment value d. Amount of physical resources e. Use of corporate assets Ans: d
99.
Page: 312
Which of these is France’s best soaps and cosmetics company? a. Clinique b. Christian Dior c. L’Oreal d. Estee Lauder e. Lancome Ans: c
101.
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Which of these is Britain’s best company in petroleum refining? a. Total Fina b. Royal Dutch/ Shell Group c. Unilever d. Reuters Group Ans: b
100.
Page: 310
Page: 312
__________ is German’s best electronics company, according to Fortune. a. Siemens b. L.M. Cricsson c. ABB Asea Brown Boveri d. Vinci e. BASF Ans: a
Page: 312
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Characteristics of an Effective Evaluation System
102.
__________is not a characteristic of an effective evaluation system. a. Economical b. Timely c. Information-oriented d. Meaningful Ans: c
103.
Controls need to be ____________ rather than ____________. a. action oriented; information oriented b. cultural; political c. qualitative; quantitative d. measurable; timely Ans: a
104.
Page: 311
The strategy-evaluation process should foster a. mutual understanding. b. implementation. c. corporate culture. d. profit centers. e. contingency plans. Ans: a
105.
Page: 311
Page: 312
______________ determine the final design of a firm’s strategy-evaluation and control system. a. Opportunities b. Threats c. External characteristics d. The organization’s characteristics e. The competition’s characteristics Ans: d
Page: 312
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Contingency Planning
106.
__________ is having alternative plans that can be put into effect if certain key events do not occur as expected. a. Corporate agility b. Scenario planning c. Strategy evaluation d. Contingency planning e. Forecasting Ans: d
107.
Page: 313
Which of the following statements about contingency plans is not true? a. Contingency plans should be as simple as possible. b. Only high-priority areas require the insurance of contingency plans. c. Contingency planning makes managers more adaptable. d. Develop contingency plans for all contingent events. Ans: d
Page: 314
Auditing
108.
All of the following perform audits except a. external auditors. b. government auditors. c internal auditors. d. independent auditors. Ans: a
109.
Page: 314
Who performs audits? a. Independent auditors b. Government auditors c. Internal auditors d. Marketing department auditor e. a, b & c Ans: e
Page: 314
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110.
__________ are auditors specifically responsible for safeguarding the assets of a company. a. Independent auditors b. Government auditors c. Internal auditors d. External auditors Ans: c
Page: 315
Using Computers to Evaluate Strategies
111.
___________ can allow diverse strategy-evaluation reports to be generated for different levels and types of managers. a. Strategists b. Networks c. Front-line employees d. Competitive analysis Ans: b
112.
Page: 316
In strategy evaluation, computers need to be viewed as _________ rather than as _________. a. unreliable; essential b. essential; unreliable c. tools; actual decision-making devices d. decision-making devices; tools Ans: c
Page: 316
Essay Questions 113.
Explain why strategy evaluation can be a complex and sensitive undertaking. Strategy can be a complex and sensitive undertaking because too much emphasis on evaluating strategies may be expensive and counterproductive. No one likes to be evaluated too closely! The more managers attempt to evaluate the behavior of others, the less control they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure stated objectives are being achieved. Page: 300
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114.
Compare and contrast two of Rumelt’s four criteria for evaluating strategies. Rumelt’s four criteria for evaluating strategies are consistency, consonance, feasibility and advantage. Students should take their answers from Table 9-1 on page 302, which provides descriptions of each. Page: 302
115.
Describe each of the activities that comprise strategy evaluation. The activities that comprise strategy evaluation are: (1) reviewing the underlying bases of an organization’s strategy, (2) measuring organizational performance and (3) taking corrective actions. Please refer to pages 305 -309 for descriptions of each activity. Page: 304-309
116.
What are the most commonly used quantitative criteria to evaluate strategies? Give several examples of these criteria. Quantitative criteria commonly used to evaluate strategies are financial ratios, which strategists use to make three critical comparisons: (1) comparing the firm’s performance over different time periods, (2) comparing the firm’s performance to that of competitors’ and (3) comparing the firm’s performance to industry averages. Some particularly useful key financial ratios used as criteria for strategy evaluation are: (1) ROI, (2) ROE, (3) profit margin, (4) market share, (5) debt to equity, (6) earnings per share, (7) sales growth and (8) asset growth. Page: 307
117.
When faced with resistance to taking corrective actions, what can/should a manager do? Hussey and Langham offered the following insight on taking corrective actions: Resistance to change is often emotionally based an d not easily overcome by rational argument. Resistance may be based on such feelings as loss of status, implied criticism of present competence, fear of failure in the new situation, annoyance at not being consulted, lack of understanding of the need for change, or insecurity in changing from well-known and fixed methods. It is necessary to overcome such resistance by creating situations of participation and full explanation when changes are envisaged. Page: 307-308
209
118.
Identify some important guidelines for effective strategic management, as presented in the chapter. Please refer to the entire discussion on pages 311-313 under Characteristics of an Effective Evaluation System. Page: 311-313
119.
Describe the seven-step process of effective contingency planning in strategy evaluation. The suggested seven-step process of effective contingency planning is as follows: (1) Identify both beneficial and unfavorable events that could possibly derail the strategy or strategies, (2) specify trigger points and calculate about when contingent events are likely to occur, (3) assess the impact of each contingent event, (4) develop contingency plans, (5) assess the counter impact of each contingency plan, (6) determine early warning signals for key contingent events and monitor them and (7) for contingent events with reliable early warning signals, develop advance action plans to take advantage of the available lead time. Page: 314
120.
Individuals who perform audits can be divided into three groups. Identify these three groups and give an example of each. People who perform audits can be divided into three groups: independent auditors, government auditors and internal auditors. An exa mple of an independent auditor is the CPAs at Arthur Andersen public accounting firm. The GAO and IRS are examples of government auditors. Employees within an organization who are responsible for safeguarding company assets, for assessing the efficiency of company operations and for ensuring the generally accepted business procedures are examples of internal auditors. Page: 314-315
121.
What are the advantages and disadvantages of using computers to evaluate strategies? Please refer to the discussion on pages 316-317 under Using Computers to Evaluate Strategies. Page: 316-317
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