CHAPTER 9 Strategy Review, Evaluation and Control True/False The Nature of Strategy Evaluation 1. If strategy implementation is successful, an enterprise can be lulled into complacency with success. Ans: FPage: 300 2. Adequate, timely feedback is important to effective strategy evaluation. Ans: TPage: 300 3. Too much emphasis on evaluating strategies may be expensive and counterproductive. Ans: TPage: 300 4. Strategy evaluation should have a long-run focus and avoid a short-run focus, given that strategies are long term in nature. Ans: FPage: 300 5.
According to Richard Rumelt, consonance and consistency are based on a firm’s external assessment. Ans: FPage: 300 6. According to Rumelt, consistency and feasibility are largely based on a firm’s internal assessment. Ans: TPage: 300 7. 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: TPage: 300 8. Falsification of reports can result from too great an insistence on attainment of objectives. Ans: TPage: 300 9. Consistency, distinctiveness, advantage and feasibility are Richard Rumelt’s four criteria for evaluating a strategy.
Ans: FPage: 300 10. Most top managers feel an organization’s well-being depends on evaluation of the strategic-management process. Ans: TPage: 300 11. Strategy evaluation is becoming increasingly easier with the passage of time, given the technological advances. Ans: FPage: 301 12. The decreasing time span for which planning can be done with any degree of certainty is a reason strategy evaluation is more difficult today. Ans: TPage: 301 13. Consistency refers to the need for strategists to examine sets of trends as well as individual trends in evaluating strategies.
Ans: FPage: 302 14. The need for strategists to examine sets of trends as well as individual trends in evaluating strategies is referred to as consonance. Ans: TPage: 302 15. The final broad test of strategy is consistency, that is, can the strategy be implemented consistently every year. Ans: FPage: 302 16. Strategies may be inconsistent if policy problems and issues continue to be brought to the top for resolution. Ans: TPage: 302 17. Competitive advantages normally are the result of superiority in one of three areas: feasibility, consistency, or consonance.
Ans: FPage: 302 18. Because large companies have more at stake, it is more important for large organizations to conduct strategy evaluation than small companies. Ans: FPage: 303 19. 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: TPage: 303 20. Given that large amounts of money are at stake, strategy evaluation is primarily necessary for large, corporate companies, not small or not-for-profit ones. Ans: FPage: 303 21.
The end of the fiscal year is the best time of the year to do strategy evaluation. Ans: FPage: 304 22. Strategy-evaluation activities should be performed on a periodic basis. Ans: FPage: 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: FPage: 305 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: FPage: 305 25.
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: TPage: 305 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: TPage: 305 27. Comparing expected results to actual results is an activity included in taking corrective action. Ans: FPage: 307 28. Criteria for evaluating strategies should be measurable and easily verifiable.
Ans: TPage: 307 29. Financial ratios are the most commonly used criteria to evaluate strategies. Ans: TPage: 307 30. 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: FPage: 307 31. Intuitive judgments are almost always involved in deriving quantitative criteria. Ans: TPage: 308 32. Measuring organizational performance requires making changes to reposition a firm competitively for the future. Ans: FPage: 308 3. Organizations need to be as objective as possible in considering qualitative factors in strategic management. Ans: FPage: 308 34. Taking corrective actions does not necessarily mean that existing strategies will be abandoned, or even that new strategies must be formulated. Ans: TPage: 308 35. Most quantitative evaluation criteria are geared to long-term objectives rather than annual objectives. Ans: FPage: 308 36. Corrective action in strategy evaluation is not needed when the firm is progressing satisfactorily toward achieving stated objectives. Ans: TPage: 308-309 37.
According to research, participation in strategy-evaluation activities is one of the best ways to overcome individuals’ resistance to change. Ans: TPage: 309 38. 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: TPage: 309 39. When the type and speed of changes overpower an individual or organization’s ability and capacity to adapt, future shock occurs. Ans: TPage: 309 40. Often emotionally based, resistance to change is easily overcome by rational argument.
Ans: FPage: 309 Published Sources of Strategy-Evaluation Information 41. Each year, Fortune publishes strategy evaluation research on both the United States and other countries. Ans: TPage: 310 42. An excellent evaluation of corporations in America, published annually in the January issue of Forbes, is the Annual Report on American Industry. Ans: TPage: 310 43. France’s best company in 1999, according to Fortune, was BP Amoco in the petroleum refining industry. Ans: FPage: 312 Characteristics of an Effective Evaluation System 44. Advance warning, or predictions of results, may be more important than control reports.
Ans: TPage: 311 45. Strategy-evaluation activities must be economical, i. e. , they should specifically relate to a firm’s objectives. Ans: FPage: 311 46. 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: TPage: 311 47. The basic idea behind strategy evaluation is to alert management to problems or potential problems before a situation becomes critical. Ans: TPage: 311-313 48. The strategy-evaluation process should dominate decisions to be effective. Ans: FPage: 312 9. The test of an effective evaluation system is its usefulness and complexity. Ans: FPage: 312 50. Small organizations require a more elaborate and detailed strategy-evaluation system because they are still evolving. Ans: FPage: 312 51. There is no one ideal strategy-evaluation system for all organizations. Ans: TPage: 312 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: TPage: 313 53. Organizations should prepare contingency plans just for unfavorable events. Ans: FPage: 313 54.
High-priority areas are the only areas requiring the insurance of contingency plans. Ans: TPage: 313 55. Strategies should try to cover all bases by planning for all possible contingencies. Ans: FPage: 313 56. Contingency plans should be as simple as possible. Ans: TPage: 313 57. Alternative strategies not selected for implementation should be discarded, as they have a tendency to contaminate the contingency plans. Ans: FPage: 314 58. Identifying both beneficial and unfavorable events that could possibly derail the strategy or strategies is the first step of effective contingency planning.
Ans: TPage: 314 Auditing 59. Independent auditors, government auditors and IRS auditors are the three groups of people who perform audits. Ans: FPage: 314 60. Independent auditors basically are CPAs who provide their services to organizations for a fee. Ans: TPage: 314 61. Public accounting firms usually avoid strategy evaluation services. Ans: FPage: 315 62. Two government agencies—IRS and GAO—employ government auditors responsible for making sure organizations comply with federal laws, statutes and policies. Ans: TPage: 315 63.
Moving environmental affairs from the line side of the organization to the staff side is required when instituting an environmental audit. Ans: FPage: 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: TPage: 316 65. Personal values, attitudes, morals, preferences, politics, personalities and emotions are not programmable—an advantage of computer-based systems to evaluate and monitor strategy execution. Ans: FPage: 316 66.
In evaluating strategies, computers should be viewed as tools rather than as actual decision-making devices. Ans: TPage: 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: dPage: 300 68. Which of these is the cornerstone of effective strategy evaluation? a. Adequate and timely feedback b. Quality and quantity of managers . Smaller ratio of top- to lower-level management d. Evaluation preceding implementation stage Ans: aPage: 300 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: dPage: 300 70. 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 Page: 300 71. Strategy evaluation is becoming __________ with the passage of time. a. increasingly difficult b. uch simpler c. very convenient d. an unnecessary activity Ans: aPage: 301 72. 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: dPage: 301 73. A final broad test of strategy is its a. advantage. b. feasibility. c. consonance. d. consistency. e. distinctiveness.
Ans: bPage: 302 74. Competitive advantage normally is the result of superiority in all of these areas except a. resources. b. position. c. consistency. d. skills. Ans: cPage: 302 75. 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: bPage: 302 76. 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. . dysfunctional behavior. c. decreased number of complaints. d. decreased turnover. e. increased number of litigations. Ans: bPage: 303 77. 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: cPage: 304 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. he three basic activities of strategy evaluation are appropriate for all sizes and kinds of organizations. Ans: cPage: 304 79. What is the best type of strategy evaluation? a. Intense b. Informal c. Continuous d. Periodic Ans: cPage: 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: cPage: 304 81. 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: bPage: 305 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: cPage: 305 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: dPage: 305 84. 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: dPage: 305 85. 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: bPage: 307 86. 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: aPage: 307 87. Ineffectiveness and/or inefficiencies indicate the need for a. layoffs. b. consultants. c. ome form of correction action. d. reductions in pay. c. more synergy. Ans: cPage: 307 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: dPage: 307 89. ___________ 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: aPage: 307 90. Which of these is not a key financial ratio? a. Market share b. Production quality c. Earnings per share . Asset growth Ans: bPage: 307 91. Corrective actions should a. strengthen an organization’s competitive position in its industry. b. streamline asset holdings. c. reduce the staff size. d. all of the above. Ans: aPage: 308 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: dPage: 308 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 . Future shock d. Corporate agility Ans: cPage: 309 94. ______________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: aPage: 309 95. 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: aPage: 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: ePage: 309 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: aPage: 310 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 . Amount of physical resources e. Use of corporate assets Ans: dPage: 312 99. 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: bPage: 312 100. 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: cPage: 312 101. __________ 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: aPage: 312 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: cPage: 311 103. Controls need to be ____________ rather than ____________. a. action oriented; information oriented b. cultural; political c. qualitative; quantitative d. measurable; timely Ans: aPage: 311 104.
The strategy-evaluation process should foster a. mutual understanding. b. implementation. c. corporate culture. d. profit centers. e. contingency plans. Ans: aPage: 312 105. ______________ determine the final design of a firm’s strategy-evaluation and control system. . Opportunities b. Threats c. External characteristics d. The organization’s characteristics e. The competition’s characteristics Ans: dPage: 312 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: dPage: 313 107. 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. . Contingency planning makes managers more adaptable. d. Develop contingency plans for all contingent events. Ans: dPage: 314 Auditing 108. All of the following perform audits except a. external auditors. b. government auditors. cinternal auditors. d. independent auditors. Ans: aPage: 314 109. Who performs audits? a. Independent auditors b. Government auditors c. Internal auditors d. Marketing department auditor e. a, b & c Ans: ePage: 314 110. __________ are auditors specifically responsible for safeguarding the assets of a company. a. Independent auditors b. Government auditors c. Internal auditors d.
External auditors Ans: cPage: 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: bPage: 316 112. 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: cPage: 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: 300 114. 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 and 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: 307-308 118. 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 example of an independent auditor is the CPAs at Arthur Andersen public accounting firm. The GAO and IRS are examples of government auditors.
Employees within an organization who are responsible for safeguarding company assets, for assessing the efficiency of company operations and for ensuring the generally accepted business procedures are examples of internal auditors. Page: 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