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CHAPTER 9
Strategy Review, Evaluation and Control True/False
The Nature of Strategy Evaluation 1. Most strategists believe that an organizations well being depends on evaluation of the strategic-management process. Ans: T ". Page: !

Ade#uate$ timel% feedbac& is important to effective strateg% evaluation. Ans: T Page: !

Too much emphasis on evaluating strategies ma% be e'pensive and counterproductive. Ans: T Page: !

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)trateg% evaluation should have a long-run focus and avoid a short-run focus. Ans: * Page: "!

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According to ,ichard ,umelt$ consonance and consistenc% are based on a firms e'ternal assessment. Ans: * Page: !

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According to ,umelt$ consistenc% and feasibilit% are largel% based on a firms internal assessment. Ans: T Page: !

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.onsistenc%$ distinctiveness$ advantage and feasibilit% are ,ichard ,umelts four criteria for evaluating a strateg%. Ans: * Page: !

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)trateg% evaluation is becoming increasingl% easier with the passage of time$ given the technological advances. Ans: * Page: !

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The decreasing time span for which planning can be done with an% degree of certaint% is a reason strateg% evaluation is more difficult toda%. Ans: T Page: !

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)trategies ma% be inconsistent if polic% problems and issues continue to be brought to the top for resolution. Ans: T Page: /

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.ompetitive advantages normall% are the result of superiorit% in one of three areas: feasibilit%$ consistenc%$ or consonance. Ans: * Page: /

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,egardless of the size of the organization$ a certain amount of management b% wandering around at all levels is essential to effective strateg% evaluation. Ans: T Page: 0

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2ecause large companies have more at sta&e$ it is more important for large organizations to conduct strateg% evaluation than small companies. Ans: * Page: 0

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The end of the fiscal %ear is the best time to do strateg% evaluation. Ans: * Page: 0

A Strategy Evaluation Fra!ewor" 1+. .hanges in the organizations management$ mar&eting$ finance$ ,34 and .5) strengths and wea&nesses should all be the focus of a revised 6*6 matri' in strateg% evaluation. Ans: * 1-. Page: (1

5n strateg% evaluation$ a revised 5*6 matri' should indicate how effective a firms strategies have been in response to &e% opportunities and threats. Ans: * Page: (1

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)trengths$ wea&nesses$ opportunities and threats should continuall% be monitored for change because it is not reall% a #uestion of whether these factors will change but rather when the% will change and in what wa%s. Ans: T Page: (1

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7hen ta&ing corrective action$ %ou need to compare e'pected results to actual results. Ans: * Page: ("

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.riteria for evaluating strategies should be measurable and easil% verifiable. Ans: T Page: (

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)pecific financial ratios are rarel% used criteria to evaluate strategies. Ans: * Page: (

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Measuring organizational performance includes comparing e'pected results to actual results$ investigating deviations from plans$ evaluating individual performance and e'amining progress being made toward meeting stated ob8ectives. Ans: T Page: (

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5ntuitive 8udgments are almost alwa%s involved in deriving #uantitative criteria. Ans: T Page: (

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Most #uantitative evaluation criteria are geared to long-term ob8ectives rather than annual ob8ectives. Ans: * Page: (

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Measuring organizational performance re#uires ma&ing changes to reposition a firm competitivel% for the future. Ans: * Page: ((

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Ta&ing corrective actions does not necessaril% mean that e'isting strategies will be abandoned$ or even that new strategies must be formulated. Ans: T Page: ((

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.orrective action in strateg% evaluation is necessar% to &eep an organization on trac& toward achieving stated ob8ectives. Ans: T Page: ((

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Alvin Toffler argues that environments are becoming so d%namic and comple' that the% threaten people and organizations with future shoc& in his thoughtprovo&ing boo&s entitled Future Shock and The Third Wave. Ans: T Page: ((

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*uture shoc& occurs when the t%pe and speed of changes overpower an individual or organizations abilit% and capacit% to adapt. Ans: T Page: ((

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According to research$ participation in strateg%-evaluation activities is one of the best wa%s to overcome individuals resistance to change. Ans: T Page: ((- (+

The #alan$ed S$ore$ard 1. The basic form of a 2alanced )corecard is the same for all organizations and industries. Ans: * 1. Page: (-

The 2alanced )corecard Approach deals with the #uestion$ 9:ow satisfied are the firms customers.; Ans: T Page: (-

Pu%lished Sour$es of Strategy Evaluation &nfor!ation ". 6ach %ear$ Fortune publishes strateg% evaluation research on both the <nited )tates and other countries. Ans: T Page: (-

Chara$teristi$s of an Effe$tive Evaluation Syste! . )trateg%-evaluation activities must be meaningful$ i.e.$ the% should specificall% relate to a firms ob8ectives. Ans: T Page: (0

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Timel% appro'imate information generall% more desirable as a basis for strateg% evaluation than accurate information that does not depict the present. Ans: T Page: (0

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The test of an effective evaluation s%stem is its usefulness and comple'it%. Ans: * Page: (0

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)mall organizations re#uire a more elaborate and detailed strateg%-evaluation s%stem because the% are still evolving. Ans: * Page: (0

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There is no one ideal strateg%-evaluation s%stem for all organizations. Ans: T Page: (0

Contingen$y Planning /. .ontingenc% plans are alternative plans that can be put into effect if certain &e% events do not occur as e'pected. Ans: T 0. Page: +1

=rganizations should prepare contingenc% plans 8ust for unfavorable events. Ans: * Page: +1

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)trategies should tr% to cover all bases b% planning for all possible contingencies. Ans: * Page: +1

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.ontingenc% plans should be as simple as possible. Ans: T Page: +1

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Alternative strategies not selected for implementation should be discarded$ as the% have a tendenc% to contaminate the contingenc% plans. Ans: * Page: +1

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5dentif%ing both beneficial and unfavorable events that could possibl% derail the strateg% or strategies is the first step of effective contingenc% planning. Ans: T Page: +1

Auditing ((. 5ndependent auditors$ government auditors and 5,) auditors are the three groups of people who perform audits. Ans: * (+. Page: +"

5ndependent auditors are basicall% .PAs who provide their services to organizations for a fee. Ans: T Page: +"

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Public accounting firms usuall% avoid strateg% evaluation services. Ans: * Page: +"

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Two government agencies>5,) and ?A=>emplo% government auditors responsible for ma&ing sure organizations compl% with federal laws$ statutes and policies. Ans: T Page: +"

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Moving environmental affairs from the line side of the organization to the staff side is re#uired when instituting an environmental audit. Ans: * Page: +

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The strategic management process should be completel% open because participation and openness enhance understanding$ commitment$ and communication within the firm. Ans T: Page +(

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5ncreased education and diversit% of the wor&force at all levels are reasons wh% the top-down approach should be favored in organizations. Ans: * Page: +(

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'ulti(le Choi$e
The Nature of Strategy Evaluation +1. 7hich of these is@are a basic activit% of strateg% evaluationA a. ,eviewing the underl%ing internal and e'ternal factors that represent the bases of current strategies b. Measuring organizational performance c. Ta&ing corrective actions d. All of the above. e. 2oth b and c Ans: d +". Page: -

The purpose of strateg% evaluation is to a. increase the budget annuall%. b. alert management to problems or potential problems. c. ma&e budget changes. d. evaluate emplo%ees performance. e. improve ,34 programs. Ans: b Page: -

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7hat is the cornerstone of effective strateg% evaluationA a. Ade#uate and timel% feedbac& b. Bualit% and #uantit% of managers c. )maller ratio of top- to lower-level management d. 6valuation preceding implementation stage e. Ta&ing corrective actions Ans: a Page: !

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All of these are ,ichard ,umelts criteria to evaluate a strateg% except: a. advantage. b. consistenc%. c. feasibilit%. d. distinctiveness. e. consonance. Ans: d Page: !

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7hat is happening to strateg% evaluation with the passage of timeA a. increasingl% difficult b. much simpler c. ver% convenient d. an unnecessar% activit% e. less important Ans: a Page: !

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All of the following are reasons strateg% evaluation is more difficult toda% except: a. a dramatic increase in the environments comple'it%. b. the increasing number of variables. c. the increase in the number of both domestic and world events affecting organizations. d. the decreasing difficult% of predicting the future with accurac%. e. the rapid rate of obsolescence of even the best plans. Ans: d Page: !

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7hich of the following is not a reason for the increasing difficult% of evaluating strategiesA a. Product life c%cles are longer toda% than ever. b. 4omestic and world economies are less stable than ever. c. Product development c%cles are longer than ever. d. Technological advancement is more rapid. e. .hange is occurring more fre#uentl% than ever. Ans: a Page: !

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7hat is important because organizations face d%namic environments in which &e% e'ternal and internal factors often change #uic&l% and dramaticall%A a. )trateg% formulation b. )trateg% evaluation c. )trateg% simplification d. )trateg% modification e. )trateg% implementation Ans: b Page: !

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A final broad test of strateg% is its a. advantage. b. feasibilit%. c. consonance. d. consistenc%. e. distinctiveness. Ans: b Page: /

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.ompetitive advantage normall% is the result of superiorit% in resources$ s&ills and a. emplo%ees. b. position. c. consistenc%. d. feasibilit%. e. governance. Ans: b Page: /

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7hat term refers to the need for strategists to e'amine sets of trends$ as well as individual trends in evaluating strategiesA a. .onsistenc% b. .onsonance c. )%nerg% d. *easibilit% e. Advantage Ans: b Page /

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5n evaluating strategies$ which one of ,umelts criteria for evaluating strategies$ refers to the need for strategists to e'amine sets of trendsA a. consistenc% b. consonance c. feasibilit% d. advantage e. empowerment Ans: b Page: /

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5f success for one organizational department means failure for another department$ then strategies ma% be a. s%nergistic. b. advantageous. c. inconsonant d. failures. e. inconsistent. Ans: e Page: /

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7hen empowered emplo%ees 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 productivit%. b. d%sfunctional behavior. c. decreased number of complaints. d. decreased turnover. e. increased number of litigations. Ans: b Page: 0

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)trateg%-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 ma8or pro8ects. e. ever% two %ears. Ans: c Page: 0

A Strategy Evaluation Fra!ewor" --. .orrective actions are not needed when a. changes have occurred in the firms internal strategic position. b. e'ternal and internal factors have not significantl% changed. c. the firm is not progressing satisfactoril% toward achieving stated ob8ectives. d. competitive factors are on the rise. e. the industr% is slowing down. Ans: b -!. Page: (1

7hen %ou discover ma8or changes have occurred in the firms internal strategic position while conducting strateg% evaluation$ %ou should a. continue on the present strategic course. b. immediatel% discontinue all aspects of the present strategic course. c. ta&e corrective actions. d. add additional funds to the present strategic plan. e. cop% the actions of ma8or competitors. Ans: c Page: (1

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.hanges in the organizations management$ mar&eting$ finance@accounting$ ,34 and .5) strengths and wea&nesses should be the focus of a revised a. mission. b. 5*6 matri'. c. vision. d. 6*6 matri'. e. 6PM matri'. Ans: b Page: (1

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A revised CCCCCCCCCC should indicate how effective a firms strategies have been in response to &e% opportunities and threats. a. 5*6 matri' b. mission c. 6*6 matri' d. vision e. .PM matri' Ans: c Page: (1

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7hich of the following is not included in measuring organizational performanceA a. .omparing results to competitors e'pectations. b. 6'amining progress being made toward meeting stated ob8ectives. c. 5nvestigating deviations from plans. d. 6valuating individual performance. e. .omparing e'pected results to actual results. Ans: a Page: ("- (

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5neffectiveness and@or inefficiencies indicate the need for a. la%offs. b. consultants. c. some form of correction action. d. reductions in pa%. e. more s%nerg%. Ans: c Page: (

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7hat is the basis for #uantitative financial evaluationA a. ,eduction in costs b. The 6P)@625T Anal%sis c. .apital Asset Pricing Model d. *inancial ratios e. Present value anal%sis Ans: d Page: (

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7hich of these is not a &e% financial ratioA a. Mar&et share b. Production #ualit% c. 6arnings per share d. Asset growth e. ,eturn on e#uit% Ans: b Page: (

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)trateg% evaluation is based on a. empirical data. b. #ualitative criteria. c. ob8ective data. d. #ualitative and #uantitative criteria. e. intuition. Ans: d Page: (

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*inancial ratios are used to compare a firms performance over different time periods$ compare the firms performance to industr% averages$ and compare a firms performance with a. overall business standards. b. the performance of international firms. c. the performance of suppliers. d. non-financial ratios. e. the performance of competitors. Ans: e Page: ( ob8ectives rather than

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Most #uantitative criteria are geared to ob8ectives. a. top-managementD emplo%ee b. short-termD annual c. annualD long-term d. environmentalD communit% e. profitD social Ans: c Page: (

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7hat corrective actions should a firm ta&e during strateg% evaluationA a. ,evising the business mission b. 5ssuing stoc& c. ,evising ob8ectives d. )elling a division e. All of the above Ans: e Page: ((

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7hat occurs when the nature$ t%pes and speed of changes overpower an individuals or organizations abilit% and capacit% to adaptA a. .orporate downfall b. .orrective actions c. *uture shoc& d. .orporate agilit% e. Measuring performance Ans: c Page: ((

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.orrective actions should a. strengthen an organizations competitive position in its industr%. b. streamline asset holdings. c. reduce the staff size. d. involve abandoning e'isting strategies. e. all of the above. Ans: a Page: ((

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7hat is the best wa% to overcome individuals resistance to change in strateg% evaluationA a. Participation b. .ommand-and-control c. Eaissez-faire s%stem d. ,ational argument e. 6motional reactions Ans: a Page: ((

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An organizations abilit% to adapt successfull% to changing circumstances refers to its a. corporate agilit%. b. future shoc&. c. d%namism. d. revision power. e. li#uidit%. Ans: a Page: ((

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.orrective action should do all of the following except: a. capitalize upon internal strengths. b. avoid e'ternal opportunities. c. avoid e'ternal threats. d. improve internal wea&nesses. e. strengthen an organizations competitive position. Ans: b Page: (+

The #alan$ed S$ore$ard / . 7hich of the following is not a component of the 2alanced )corecardA a. )ocial responsibilit% b. *inancial performance c. .ustomer &nowledge d. 5nternal business processes e. Eearning and growth Ans: a /(. Page: (-

7hat aims to balance long term with short term concerns$ financial with nonfinancial concerns$ and internal with e'ternal concerns. a. .ontingenc% planning b. The 2alanced )corecard approach c. Ta&ing corrective action d. Measuring performance e. reviewing 2ases of )trateg% Ans: b Page: (-

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Pu%lished Sour$es of Strategy Evaluation &nfor!ation /+. 5n the important publication used to evaluate a firms strateg%$ the Fortune 50 includes all of the following except: a. the top retailers. b. the top transportation companies. c. the top utilities. d. the top ban&s. e. the top hospitals. Ans: e /-. Page: (-

7hich of these is not a &e% attribute in Fortunes strateg% evaluation research on 9Americas Most Admired .ompanies;A a. Bualit% of management b. 5nnovation c. Eong-term investment value d. Amount of ph%sical resources e. <se of corporate assets Ans: d Page: (-- (!

Chara$teristi$s of an Effe$tive Evaluation Syste! /!. 7hat is not a characteristic of an effective evaluation s%stemA a. 6conomical b. Timel% c. 5nformation-oriented d. Meaningful e. Provide a true picture of what is happening Ans: c //. Page: (0

.ontrols need to be CCCCCCCCC rather thanCCCCCCCCCC. a. action orientedD information oriented b. culturalD political c. #ualitativeD #uantitative d. measurableD timel% e. universalD diverse Ans: a Page: (0

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The strateg%-evaluation process should foster a. mutual understanding. b. implementation. c. corporate culture. d. profit centers. e. contingenc% plans. Ans: a Page: (0

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7hat factor determines the final design of a firms strateg%-evaluation and control s%stemA a. =pportunities b. Threats c. 6'ternal characteristics d. The organizations characteristics e. The competitions characteristics Ans: d Page: (0

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*amiliarit% with local environments usuall% ma&es gathering and evaluating information much easier for organizations than for ones. a. non-profitD for-profit b. for-profitD non-profit c. largeD small d. smallD large e. foreignD domestic Ans: d Page: (0

Contingen$y Planning 0". 7hat activit% is defined as having alternative plans that can be put into effect if certain &e% events do not occur as e'pectedA a. .orporate agilit% b. )cenario planning c. )trateg% evaluation d. .ontingenc% planning e. *orecasting Ans: d Page: +1

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7hich of the following statements about contingenc% plans is not trueA a. .ontingenc% plans should be as simple as possible. b. =nl% high-priorit% areas re#uire the insurance of contingenc% plans. c. .ontingenc% plans should be developed for favorable and unfavorable events. d. 4evelop contingenc% plans for all contingent events. e. .ontingenc% plans minimize the impact of potential threats. Ans: d Page: +1

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7hat permits #uic& response to change$ prevents panic in crisis situations$ and ma&es managers more adaptable. a. Auditing b. 5mplementing a balanced scorecard c. .ontingenc% planning d. Ta&ing corrective actions e. Measuring performance Ans: c Page: +1

Auditing 0+. 7hat term refers to a s%stematic process of ob8ectivel% obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria$ and communicating the results to interested usersA a. Auditing b. 5nnovation c. ,34 d. )trategic Management e. Accounting Ans: a 0-. Page: +"

7hich t%pe of auditors are specificall% responsible for safeguarding the assets of a compan%A a. 5ndependent auditors b. ?overnment auditors c. 5nternal auditors d. 6'ternal auditors e. ,esearch auditors Ans: c Page: +"

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The Environ!ental Audit 0!. Product design$ manufacturing$ transportation$ customer use$ pac&aging$ product disposal and corporate rewards should reflect considerations to develop constructive relations with emplo%ees$ consumers$ suppliers and distributors. a. profit b. union c. top-management d. environmental e. customer Ans: d Page: +"

Twenty First Century Challenges in Strategi$ 'anage!ent 0/. Most strateg% literature advocates that strategic management is a. more of a science than an art. b. more of an art than a science. c. based on anal%sis rather than research. d. based on intuition rather than anal%sis. e. based on creativit% rather than intuition. Ans: a 00. Page: +

All of the following are reasons to be completel% open with the strateg% process except: a. managers$ emplo%ees and other sta&eholders can readil% contribute to the process. b. investors$ creditors and other sta&eholders have greater basis for supporting a firm that is open. c. visibilit% promotes democrac% whereas secrec% promotes autocrac%. d. participation and openness enhances understanding$ commitment and communication within the firm. e. openness limits rival firms from imitating or duplicating the firms strategies. Ans: e Page: +(

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7hich of the following is not a reason wh% some firms prefer to conduct strategic-planning in secretA a. 4issemination of a firms strategies ma% translate into competitive intelligence for rival firms. b. 5t enhances understanding$ commitment and communication within the firm. c. 5t limits criticism$ second-guessing and hindsight. d. Participants in a visible strateg% process become more attractive to rival firms$ who ma% lure them awa%. e. )ecrec% limits rival firms from imitating or duplicating the firms strategies. Ans: b Page: +(

Essay )uestions
111. 6'plain wh% strateg% evaluation can be a comple' and sensitive underta&ing. )trateg% can be a comple' and sensitive underta&ing because too much emphasis on evaluating strategies ma% be e'pensive and counterproductive. Fo one li&es to be evaluated too closel%G The more managers attempt to evaluate the behavior of others$ the less control the% have. Het too little or no evaluation can create even worse problems. )trateg% evaluation is essential to ensure stated ob8ectives are being achieved. Page: 11". !

4iscuss some of the reasons wh% strateg% evaluation is becoming increasingl% difficult with the passage of time. Possible answers include: 4omestic and world economies were more stable in %ears pastD Product life c%cles were longerD product development c%cles were longerD technological advancement was slowerD change occurred less fre#uentl%D there were fewer competitorsD foreign companies were wea&D and there were more regulated industries. =ther reasons include: 1I A dramatic increase in the environments comple'it%D "I The increasing difficult% of predicting the future with accurac%D I The increasing number of variablesD (I The rapid rate of obsolescence of even the best plansD +I The increase in the number of both domestic and world events affecting organizationsD and -I The decreasing time span for which planning can be done with an% degree of certaint%. Page: !

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.ompare and contrast two of ,umelts four criteria for evaluating strategies. ,umelts four criteria for evaluating strategies are consistenc%$ consonance$ feasibilit% and advantage. )tudents should ta&e their answers from Table 0-1 on page /$ which provides descriptions of each. Page: /

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4escribe each of the activities that comprise strateg% evaluation. The activities that comprise strateg% evaluation are: J1I reviewing bases of an organizations strateg%$ J"I measuring organizational performance and J I ta&ing corrective actions. Please refer to pages (1- (" for descriptions of each activit%. Page: (1- ("

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7hat are the most commonl% used #uantitative criteria to evaluate strategiesA ?ive several e'amples of these criteria. Buantitative criteria commonl% used to evaluate strategies are financial ratios$ which strategists use to ma&e three critical comparisons: J1I comparing the firms performance over different time periods$ J"I comparing the firms performance to that of competitors and J I comparing the firms performance to industr% averages. )ome particularl% useful &e% financial ratios used as criteria for strateg% evaluation are: J1I ,=5$ J"I ,=6$ J I profit margin$ J(I mar&et share$ J+I debt to e#uit%$ J-I earnings per share$ J!I sales growth and J/I asset growth. Page: ("- (

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4iscuss the different perspectives and concerns of the 2alanced )corecard. The 2alanced )corecard is a process that allows firms to evaluate strategies from four perspectives: financial performance$ customer &nowledge$ internal business processes$ and learning and growth. 5t aims to balance long-term concerns with short-term concerns$ financial with non-financial concerns$ and internal with e'ternal concerns. Page: (-

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5dentif% some important guidelines for effective strategic management$ as presented in the chapter. Please refer to the entire discussion on pages (0 under .haracteristics of an 6ffective 6valuation )%stem. Page: (0

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4escribe the seven-step process of effective contingenc% planning in strateg% evaluation. The suggested seven-step process of effective contingenc% planning is as follows: J1I 5dentif% both beneficial and unfavorable events that could possibl% derail the strateg% or strategiesD J"I specif% trigger points and calculate about when contingent events are li&el% to occurD J I assess the impact of each contingent eventD J(I develop contingenc% plansD J+I assess the counter impact of each contingenc% planD J-I determine earl% warning signals for &e% contingent events and monitor themD and J!I for contingent events with reliable earl% warning signals$ develop advance action plans to ta&e advantage of the available lead time. Page: +1- +"

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5ndividuals who perform audits can be divided into three groups. 5dentif% these three groups and give an e'ample of each. People who perform audits can be divided into three groups: independent auditors$ government auditors and internal auditors. An e'ample of an independent auditor is the .PAs at Arthur Andersen public accounting firm. The ?A= and 5,) are e'amples of government auditors. 6mplo%ees within an organization who are responsible for safeguarding compan% assets$ for assessing the efficienc% of compan% operations and for ensuring the generall% accepted business procedures are e'amples of internal auditors. Page: +"

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4iscuss the three challenges that strategists face toda%. The three challenges that strategists face toda% are 1I deciding whether the process of strategic management should be more of an art or a scienceD "I deciding whether strategies should be visible or hidden from sta&eholdersD or I deciding whether the process should be more top-down or bottom-up in the firm. Page: + - ++