Concepts in Strategic Management and Business Policy Globalization, Innovation and Sustainability, 1

Type:

Test Bank

Concepts in Strategic Management and Business Resource: Policy Globalization, Innovation and Sustainability Edition:

15th Edition

Author(s):

Thomas L. Wheelen J. David Hunger Alan N. Hoffman Charles E. Bamford

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 1 Basic Concepts in Strategic Management 1) The emphasis of strategic management is on A) long-term performance.

B) first line managers.

C) the short-run performance of the corporation.

D) an examination of the organization's internal environment.

E) an investigation of competitor actions.

Answer: A Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 2) Research suggests that strategic management evolves through four sequential phases in corporations. The first phase is A) externally oriented planning.

B) basic financial planning.

C) internally oriented planning.

D) forecast-based planning.

E) strategic management.

Answer: B Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 3) The time horizon involved with regard to basic financial planning is usually A) one year.

B) one quarter.

C) three to five years.

D) less than one month.

E) five to ten years.

Answer: A Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 4) A difference between basic financial planning and forecast-based planning is A) the time horizon is shorter in forecast-based planning.

B) forecast-based planning incorporates environmental data and extrapolates current trends.

C) basic financial planning utilizes consultants with sophisticated techniques.

D) basic financial planning utilizes scenarios and contingency strategies.

E) basic financial planning relies heavily on input from lower levels in the organization.

Answer: B Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 1 .

5) Top-down planning that emphasizes formal strategy formulation and leaves the implementation issues to lower management levels is known as A) forecast-based planning.

B) externally oriented planning.

C) strategic management.

D) basic financial planning.

E) none of the above Answer: B Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 6) In the final phase of strategic management, strategic information is available to A) people throughout the organization.

B) the top management responsible for decision-making.

C) middle management.

D) operational personnel.

E) only those responsible for implementing the strategy.

Answer: A Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 7) In a survey of 50 corporations, which of the following was rated as one of the three top benefits of strategic management?

A) clearer sense of strategic vision for the firm B) higher levels of employee motivation C) higher levels of job satisfaction D) improved productivity E) lower employee turnover Answer: A Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 8) When an organization is evaluating its strategic position, which is not one of the strategic questions that an organization generally may ask itself?

A) Where is the organization now?

B) Are we on target to hit our financial objectives next year?

C) If no changes are made, where will the organization be in one year?

D) If the evaluation is negative, what specific actions should management take?

E) If no changes are made, where will the organization be in 10 years?

Answer: B Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 2 .

9) Research of the planning practices of companies in the oil industry concludes that the real value of modern strategic planning is more in the ________ that is part of a future-oriented planning process than in any resulting written strategic plan.

A) planning B) strategic thinking and organizational learning C) resulting written strategic plan D) formality of the process E) improved communication within the organization Answer: B Difficulty: Difficult Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 10) Strategic planning within a small organization A) may be informal and irregular.

B) must be elaborate to allow for future growth.

C) should always be formalized and explicitly stated.

D) should be done by the president only.

E) is unnecessary and a waste of time.

Answer: A Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 11) Strategic planning in a multidivisional corporation A) should be informal to allow complete understanding by the many participants.

B) should be instigated only from the main corporate office.

C) should be accomplished quickly to decrease the likelihood of it becoming outdated.

D) should encourage a clear delineation between top management and lower-level managers.

E) should be a formalized and sophisticated system.

Answer: E Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 12) Strategic management is the set of managerial decisions that determines the short-term performance of a corporation.

Answer: FALSE Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge

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13) In the externally oriented planning phase, plans are developed by heavily involving the input of managers from lower levels.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 14) General Electric led the transition from strategic planning to strategic management during the 1980s.

Answer: TRUE Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 15) One of the benefits of strategic management is a clearer sense of strategic vision for the firm.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 16) To be effective, strategic management must be a formal process.

Answer: FALSE Difficulty: Difficult Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 17) What are the benefits of strategic management?

Answer: The three most highly rated benefits of strategic management are: 1. Clearer sense of strategic vision for the organization 2. Sharper focus on what is strategically important 3. Improved understanding of a rapidly changing environment Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 18) The integrated internationalization of markets and corporations is called A) normalization.

B) economic integration.

C) globalization.

D) nationalization.

E) regionalization.

Answer: C Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 4 .

19) The term used to describe new products, services, methods, and organizational approaches that allow businesses to achieve extraordinary returns is A) ROI. B) innovation.

C) competitive advantage.

D) sustainability.

E) profit maximization.

Answer: B Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 20) The free trade area composed of Argentina, Brazil, Uruguay, Venezuela, and Paraguay is called A) EU. B) ASEAN. C) NAFTA. D) Mercosur.

E) ABUP. Answer: D Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 21) Members of the European Union (EU) include all of the following EXCEPT A) Ireland.

B) Great Britain.

C) Belgium.

D) France.

E) Slovakia.

Answer: B Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge

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22) Canada, the United States, and Mexico are affiliated economically under which trade alliance?

A) ASEAN B) Mercosur C) EU D) NAFTA E) CAFTA Answer: D Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 23) The currency used to integrate the monetary systems of the European Union (EU) is called the A) peso.

B) dollar.

C) euro.

D) franc.

E) pound.

Answer: C Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 24) The triple bottom line refers to which of the following?

A) water, air, and oil B) footprints, finance, and environment C) physical environment, traditional profit/loss, and air D) traditional profit/loss, social responsibility, and environmental responsibility E) social responsibility, people, and ethics Answer: D Difficulty: Difficult Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge

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25) One of the benefits of globalization is A) economies of scale.

B) decreased outsourcing.

C) increased union negotiations.

D) increased taxes.

E) additional human resource training.

Answer: A Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management 26) Knowing a company is mindful of its impact on the environment seldom changes consumer buying habits.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management 27) Globalization is the integrated internationalization of markets and corporations.

Answer: TRUE Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 28) As more industries become global, strategic management is becoming less important in positioning a company for long-term competitive advantage.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Analytical thinking 29) Business sustainability reflects business practices to manage the firm's triple bottom line.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 30) One member of the European Union (EU) is Chile.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 7 .

31) The goal of NAFTA is complete economic integration among Canada, the United States, and Mexico.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 32) Climate change has become a growing concern for businesses to include in their corporate strategies.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 33) Boston Consulting Group (BCG) found that innovation is a top 3 priority for three-quarters of the companies in the 2014 BCG global innovation survey.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 34) A Gallup study reported that companies that focused on business sustainability had 3.9 times the EPS growth rates as compared to organizations that did not focus on business sustainability.

Answer: TRUE Difficulty: Difficult Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 35) Define globalization and identify the role of strategic management in globalization.

Answer: Globalization is the internationalization of markets and corporations. It has changed the way that modern corporations do business. As more industries become global, strategic management is becoming an increasingly important way to keep track of international developments and position the company for long-term competitive advantage.

Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge

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36) Which theory proposes that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions?

A) population ecology B) institution C) citizenship D) strategic choice E) organizational learning Answer: A Difficulty: Moderate Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge 37) The theory that proposes organizations can and do adapt to changing conditions by imitating other successful organizations is known as A) population ecology.

B) institution theory.

C) citizenship theory.

D) strategic theory.

E) sample theory.

Answer: B Difficulty: Moderate Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge 38) The ability of an organization to reshape its environment is described by A) population ecology theory.

B) institution theory.

C) the strategic choice perspective.

D) organizational learning theory.

E) organizational citizenship theory.

Answer: C Difficulty: Moderate Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge 39) Population ecology is a theory that proposes organizations can and do adapt to change by imitating other successful organizations.

Answer: FALSE Difficulty: Easy Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge

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40) The ability of a corporation to shift from one dominant strategy to another is called A) strategy implementation.

B) chaos formulation.

C) contingency management.

D) logical incrementalism.

E) strategic flexibility.

Answer: E Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 41) An organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights is a(n) A) learning organization.

B) strategically managed corporation.

C) innovative organization.

D) hypercompetitive competitor.

E) entrepreneurial firm.

Answer: A Difficulty: Easy Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 42) All of the following reflect activities of a learning organization EXCEPT A) experimenting with new approaches.

B) learning from its own experiences and past history.

C) solving problems systematically.

D) alienating competitors in the industry.

E) transferring knowledge quickly and efficiently throughout the organization.

Answer: D Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 43) According to Alfred Chandler, A) high-tech industries cannot be defined by "paths of learning" if they want to evolve.

B) companies spring from an individual entrepreneur's knowledge, which is composed exclusively of technical skills.

C) once a corporation has built its learning base to the point where it has become a core company in its industry, entrepreneurial start-ups are rarely able to successfully enter.

D) learned capabilities derive from organizational strengths.

E) organizational knowledge can seldom be a competitive advantage.

Answer: C Difficulty: Difficult Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 10 .

44) According to organizational learning theory, an organization uses knowledge to improve the fit between itself and its environment.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 45) Strategic flexibility is the ability to shift from one dominant strategy to another.

Answer: TRUE Difficulty: Easy Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 46) One tenet of the learning organization is to maintain stability.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 47) What are the four main activities of a learning organization?

Answer: The four main activities of a learning organization are solving problems systematically, experimenting with new approaches, learning from their experiences and history as well as from the experiences of others, and transferring knowledge quickly and efficiently throughout the organization.

Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 48) Strategic management is that set of managerial decisions and actions that determine the longrun performance of a corporation. Which one of the following is not one of the basic elements of the strategic management process?

A) strategy formulation B) strategy implementation C) statistical process control D) evaluation and control E) environmental scanning Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge

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49) The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation is referred to as A) environmental scanning.

B) external scanning.

C) internal scanning.

D) strategy formulation.

E) strategy implementation.

Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 50) The S in SWOT stands for A) strategies.

B) scanning.

C) strengths.

D) societal.

E) sociocultural.

Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 51) The T in SWOT stands for A) trust.

B) technical.

C) terminal.

D) threats.

E) task.

Answer: D Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 52) The variables structure, culture, and resources pertain to the A) external environment.

B) internal environment.

C) sociocultural forces.

D) task environment.

E) societal environment.

Answer: B Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge

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53) The task environment A) includes those elements or groups within an organization's industry.

B) encompasses the physical working areas of the organization.

C) is an accounting of the many jobs within an organization.

D) is an advisory committee to top-management.

E) includes general forces that only indirectly affect an organization's activities.

Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 54) Which one of the following is included in the firm's societal environment?

A) competitors B) economic forces C) resources D) governments E) special interest groups Answer: B Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 55) Which one of the following is included in the firm's task environment?

A) technological factors B) sociocultural factors C) culture D) stockholders E) political-legal forces Answer: D Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 56) The Strategic Management Model presents the following process for strategy formulation: A) Objectives – Policies – Strategies – Mission.

B) Mission – Policies – Strategies – Objectives.

C) Policies – Mission – Strategies – Objectives.

D) Policies – Strategies – Objectives – Mission.

E) Mission – Objectives – Strategies – Policies.

Answer: E Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking

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57) The development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses is known as A) strategy formulation.

B) strategy implementation.

C) strategy control.

D) strategic analysis.

E) strategy evaluation.

Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 58) The corporate mission is best described by which one of the following?

A) a description of the activities carried out by the organization B) the purpose or reason for the corporation's existence C) a description of top management's responsibilities D) a statement of corporate objectives E) a statement of what the organization would like to become Answer: B Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 59) Which one of the following is an example of a mission with a narrow scope?

A) transportation (vs. railroads) B) computers (vs. office equipment) C) health care (vs. hospitals) D) real estate (vs. apartments) E) telecommunications (vs. television) Answer: B Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 60) The organization's corporate mission statement A) should have a different mission statement for each subsidiary division.

B) should be less formally stated to allow for growth.

C) should contain explicit descriptions of their competitive advantages.

D) should state what the organization would like to become.

E) should describe the organization's SWOT. Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge

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61) Which of the following is an example of a mission statement?

A) diversify product line to appeal to more people B) increase sales by ten percent over last year C) pay highest salaries to keep high quality employees D) develop and sell quality appliances worldwide E) divide a sales region into a group of sales districts Answer: D Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 62) A goal differs from an objective because it A) is open-ended.

B) is quantified.

C) specifies measurable results.

D) is clearly specified.

E) provides a time horizon.

Answer: A Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 63) Which of the following is an example of an objective?

A) to diversify product line to appeal to more people B) to increase sales by ten percent over last year C) to pay highest salaries to keep high quality employees D) to develop and sell quality appliances worldwide E) to divide a sales region into a group of sales districts Answer: B Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 64) Which of the following is an example of a corporate strategy?

A) diversify product line to appeal to more people B) imitate products of competitors C) pay highest salaries to keep high quality employees D) develop and sell quality appliances worldwide E) divide a sales region into a group of sales districts Answer: A Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge

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65) The type of strategy, which describes a company's overall direction in terms of its general attitude toward growth and the management of its various businesses is A) functional.

B) operational.

C) business.

D) product.

E) corporate.

Answer: E Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 66) The type of strategy, which emphasizes the improvement of the competitive position of a corporation's products or services in a particular industry or market segment served by a business unit is A) functional.

B) operational.

C) business.

D) environmental.

E) corporate.

Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 67) The type of strategy, which achieves corporate and business unit objectives and strategies by maximizing resource productivity is A) functional.

B) operational.

C) business.

D) product.

E) corporate.

Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 68) A large business has three levels in its hierarchy of strategy: A) Corporate – Business – Functional.

B) Environmental – Corporate – Functional.

C) Environmental – Enterprise – Corporate.

D) Business – Divisional – Functional.

E) Industry – Corporate – Divisional.

Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 16 .

69) As defined in this course, a policy is A) the purpose or reason for a corporation's existence.

B) a statement of activities or steps needed to accomplish a single-use plan.

C) a broad guideline for making decisions that links the formulation of strategy with its implementation.

D) a comprehensive master plan stating how a corporation will achieve its mission and objectives.

E) a statement of a corporation's programs in dollar terms.

Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 70) Which of the following is an example of a policy?

A) Diversify product line to appeal to more people.

B) Increase sales by ten percent over last year.

C) Only acquire companies of 75 employees or more; 75 percent must be engineers.

D) Develop and sell quality appliances worldwide.

E) Diversify from retailing into delivery.

Answer: C Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 71) The process by which strategies and policies are put into action through the development of programs, budgets, and procedures is A) strategy formulation.

B) strategy control.

C) strategy implementation.

D) strategy development.

E) strategy evaluation.

Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 72) Which of the following is not a part of strategy implementation?

A) performance evaluation B) budgets C) programs and tactics D) procedures E) operational planning Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 17 .

73) Which of the following is an example of a program?

A) diversify product line to appeal to more people B) increase sales by ten percent over last year C) must be "number one" wherever we compete D) develop and sell quality appliances worldwide E) reduce final assembly time to three days by having suppliers build plan sections Answer: E Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 74) A program or tactic is A) a detailed cost statement in terms of dollars.

B) a system of sequential steps.

C) a statement of the activities needed to support a strategy.

D) the process by which strategies and policies are put into action.

E) none of the above Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 75) A budget is a statement of a corporation's programs in dollar terms. Which is not true of the budgetary function?

A) It is used in planning and control.

B) It serves as a detailed plan of strategy in action.

C) Only one budget is necessary to capture all programs.

D) It details the impact on the firm's future financial situation.

E) It is used as a means of measuring success based on certain criteria.

Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 76) FedEx stipulates specific employee behaviors including how a driver dresses to how keys are held when approaching a customer's door. This is an example of a A) program.

B) budget.

C) procedure.

D) policy.

E) control.

Answer: C Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 18 .

77) As a part of the strategic management process, evaluation and control is concerned with all of the following, EXCEPT A) generating feedback to decision makers.

B) monitoring corporate activities and performance.

C) stimulating a review of the corporation's strategic management.

D) pinpointing problem areas.

E) determining top management benefits packages.

Answer: E Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 78) A set of sequential steps or techniques that describe in detail how a particular task or job is to be done is referred to as A) a standard operating procedure.

B) a systems operating procedure.

C) a standard operating program.

D) a standard outside procedure.

E) a systems operating plan.

Answer: A Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 79) A hierarchy of strategy emphasizes the need for the three levels of strategy to complement and support one another.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components 80) The internal environment includes the variables within the organization itself that are within the short-run control of top management.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 81) A broad mission statement may limit the scope of a firm's activities in terms of the product or service offered.

Answer: FALSE Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking

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82) An example of an objective is "increased profitability," while an example of a goal is "to increase the firm's profitability in 2017 by 15 percent over 2016."

Answer: FALSE Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 83) A strategy maximizes competitive advantage and minimizes competitive disadvantage.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 84) Corporate strategy occurs at the business unit or product level.

Answer: FALSE Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 85) A functional strategy may include competitive or cooperative strategies.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 86) Hierarchy of strategy is a nesting of one strategy within another so that they complement and support one another.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 87) A budget is a statement of a corporation's programs in terms of dollars.

Answer: TRUE Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 88) Performance results are monitored at the strategy formulation phase of the strategic management process.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge

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89) Briefly describe the four basic elements of strategic management.

Answer: Strategic management consists of four basic elements. Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. Strategy formulation is the development of long-range plans for effective management of environmental opportunities and threats, in light of corporate strengths and weaknesses. Strategy implementation is the process by which strategies and policies are put into action through the development of programs, budgets, and procedures.

Evaluation and control is the process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance.

Difficulty: Difficult Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 90) Research done by Henry Mintzberg suggests that strategy formulation A) is typically an irregular and a discontinuous process.

B) should be followed unswervingly to ensure success of the plan.

C) is a process to which organizations find they must make significant yearly changes.

D) should be reviewed after a specific interval of time to make sure it is still applicable.

E) is merely a checklist of actions following a logical process.

Answer: A Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Analytical thinking 91) The phenomenon that describes corporations as evolving through relatively long periods of stability punctuated by relatively short bursts of fundamental change (revolutionary change) is known as A) revolution.

B) equilibrium.

C) punctuated equilibrium.

D) logical incrementalism.

E) discontinuity.

Answer: C Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge

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92) Which of the following is not one of the four triggering events listed in the text that is the stimulus for a strategic change?

A) intervention by the organization's bank B) annual strategic planning conference C) threat of a takeover D) new CEO E) awareness by management of decreased profitability Answer: B Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 93) The existence of a performance gap A) should cause management to question their objectives, strategies, and policies.

B) is not an indicator of problems if it only happens once.

C) is only the concern of top management because they set the original strategies.

D) should cause management to look only within the organization to determine the problem.

E) should signal the immediate need for a layoff.

Answer: A Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Analytical thinking 94) Which of the following statements is not true of a strategic inflection point?

A) The term was coined by Andy Grove, past CEO of Intel Corporation.

B) This represents what happens to a business when a major change takes place due to the introduction of new technology.

C) This represents what happens to a business when a major change takes place due to a change in customers' values or a change in what customers prefer.

D) This represents what happens to a business when a major change takes place due to a different regulatory environment.

E) A new CEO is an example of a strategic inflection point.

Answer: E Difficulty: Difficult Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 95) Henry Mintzberg discovered that strategic formulation is a regular, continuous process.

Answer: FALSE Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 22 .

96) Punctuated equilibrium describes organizations as evolving through relatively long periods of stability punctuated by relatively short bursts of fundamental change.

Answer: TRUE Difficulty: Difficult Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 97) What is a triggering event? List some possible examples.

Answer: A triggering event is something that acts as a stimulus for a change in strategy. Some possible triggering events are a new CEO, an external intervention, a threat of a change in ownership, a performance gap, and a strategic inflection point.

Difficulty: Difficult Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 98) Which of the following is not a characteristic of strategic decisions as mentioned in the text?

A) directive B) consequential C) rare D) continuous E) require commitment of substantial resources Answer: D Difficulty: Easy Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 99) According to Mintzberg, the entrepreneurial mode of strategy formulation A) is characterized by reactive solutions to existing problems.

B) assumes major responsibilities for strategy formulation.

C) is focused on opportunities; problems are secondary.

D) includes the proactive search for new opportunities and reactive solutions to existing problems.

E) assumes the environment is unresponsive to input.

Answer: C Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking

23 .

100) According to Henry Mintzberg, the three most typical approaches to strategic decisionmaking are A) entrepreneurial, adaptive, and planning.

B) entrepreneurial, logical incrementalism, and planning.

C) logical incrementalism, strategic planning, and systematic scanning.

D) environmental scanning, formulation, and implementation.

E) directive, rare, and consequential.

Answer: A Difficulty: Easy Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 101) Amazon.com, founded by Jeff Bezos and reflecting his vision, is an example of which mode of strategic decision-making?

A) adaptive B) entrepreneurial C) logical incrementalism D) planning E) customer relationship management Answer: B Difficulty: Difficult Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking 102) What characterizes the planning mode of strategy formulation?

A) Top management believes that the environment is a force to be used and controlled.

B) It assumes the environment is too complex to be completely comprehended.

C) It involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy.

D) Rather than utilizing a proactive search for new opportunities, it only has the opportunity for reactive behavior.

E) It is based on vision and large-picture strategy.

Answer: C Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking

24 .

103) IBM under CEO Louis Gerstner and his strategic decision to invest in services in 1993, is an example of which mode of strategic decision-making?

A) adaptive B) entrepreneurial C) logical incrementalism D) planning E) muddling through Answer: D Difficulty: Difficult Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 104) The mode of strategic decision-making typical of most universities, many large hospitals, a large number of governmental agencies, and a surprising number of large corporations is A) adaptive.

B) entrepreneurial.

C) logical incrementalism.

D) planning.

E) none of the above Answer: A Difficulty: Difficult Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 105) The mode of strategy formulation used when top management has a reasonably clear idea of the corporation's mission and objectives, but chooses to develop a series of tentative or partial strategies instead of developing full-blown strategies is called A) planning mode.

B) logical incrementalism.

C) entrepreneurial mode.

D) adaptive mode.

E) strategic mode.

Answer: B Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge

25 .

106) Which approach to decision-making is most useful when the environment is changing rapidly and when it is important to build consensus and develop needed resources before committing the entire corporation to a specific strategy?

A) planning mode B) entrepreneurial mode C) logical incrementalism D) adaptive mode E) strategic flexibility mode Answer: C Difficulty: Difficult Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking 107) A strategic decision is rare, consequential, and directive.

Answer: TRUE Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 108) Mintzberg's entrepreneurial mode is sometimes referred to as "muddling through" since this decision-making mode tends to be more reactive than proactive in the search for new opportunities.

Answer: FALSE Difficulty: Difficult Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 109) Logical incrementalism is a useful decision-making mode when the environment is rapidly changing and when it is important to build consensus to a specific strategy.

Answer: TRUE Difficulty: Difficult Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking

26 .

110) What is a strategic decision and what are its three characteristics?

Answer: A strategic decision deals with the long-run future of an entire organization. There are three characteristics of a strategic decision: 1. Rare: Strategic decisions are unusual and typically have no precedent to follow.

2. Consequential: Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels.

3. Directive: Strategic decisions set precedents for lesser decisions and future actions throughout an organization.

Strategic decisions are unusual and typically have no precedent to follow. They commit substantial resources and demand a great deal of commitment from people at all levels. And they set precedents for lesser decisions and future actions throughout the organization.

Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 111) A checklist of questions, by area or issue that enables a systematic analysis to be made of various corporate functions and activities is referred to as a(n) A) scenario.

B) portfolio.

C) strategic audit.

D) social responsibility audit.

E) SOP. Answer: C Difficulty: Easy Learning Obj.: 1.8: Use the strategic audit as a method of analyzing corporate functions and activities AACSB: Application of knowledge 112) While the strategic audit is not an all-inclusive list, it presents many of the critical questions needed for a detailed strategic analysis of any business.

Answer: TRUE Difficulty: Easy Learning Obj.: 1.8: Use the strategic audit as a method of analyzing corporate functions and activities AACSB: Application of knowledge

27 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 2 Corporate Governance 1) From the perspective of the public, the primary job of the board of directors is A) to lend credence to the decisions of the executive committee.

B) dictated solely by legal requirements.

C) to act as representatives for public identification.

D) to closely monitor the actions of management.

E) insulated from legal judgments because management actually makes the decisions.

Answer: D Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 2) The relationship among the board of directors, top management, and shareholders is referred to as A) corporate synergy.

B) corporate management.

C) corporate governance.

D) corporate strategy.

E) corporate responsibility.

Answer: C Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 3) The requirements of a board of directors vary significantly by country and by state; however, there is a developing consensus as to what the major responsibilities should be. Which of the following is not one of the responsibilities?

A) effective board leadership including the processes, makeup and output of the board B) strategy of the organization C) risk vs. initiative and the overall risk profile of the organization D) becoming directly involved in managerial decisions E) sustainability Answer: D Difficulty: Difficult Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking

1 .

4) Which of the following statements is not true regarding the board of directors?

A) The board is charged by law to act with due care.

B) If a director or the board as a whole fails to act with due care and, as a result, the corporation is in some way harmed, the careless director or directors can be held personally liable for the harm done.

C) Director liability insurance is often needed to attract people to become members of boards.

D) Directors must be aware of the needs of various constituent groups to balance all their interests.

E) More than half of all publicly traded companies in the United States are incorporated in New York, requiring that the corporation be managed in accordance with NY state laws.

Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 5) More than ________ of outside directors surveyed said that they had been named as part of a lawsuit against the corporation.

A) 40% B) 50% C) 60% D) 70% E) 80% Answer: A Difficulty: Difficult Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 6) A careless director or directors can be held personally liable for harm done to the corporation if they failed to act with A) codetermination.

B) figurehead role.

C) cumulative voting.

D) accountability.

E) due care.

Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge

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7) Which of the following is not a task of the board of directors in strategic management?

A) to monitor B) to implement C) to influence D) to initiate and determine E) to evaluate Answer: B Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 8) Catalyst-level boards of directors typically A) are less involved than active participation boards.

B) take leading roles in establishing and modifying the company mission, objectives, and strategy.

C) are involved in a limited degree of key decision-making.

D) are held to a greater degree of legal responsibility.

E) experience more financial success than less involved boards.

Answer: B Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 9) A highly involved board does all of the following EXCEPT A) tends to be very active.

B) provides advice when necessary.

C) keeps management alert.

D) takes their tasks of initiating and determining strategy very seriously.

E) manage the everyday operations of the organization.

Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking

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10) The ________ boards typically never initiate or determine strategy unless a crisis occurs.

A) rubber stamp B) active participation C) catalyst D) nominal participation E) minimal review Answer: A Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 11) According to the text, most publicly owned large corporations today tend to have boards with what degree of involvement in the strategic management process?

A) passive to minimal B) minimal to nominal C) rubber stamp type D) nominal to active E) active to catalyst Answer: D Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 12) What percentage of public corporations have periodic board meetings devoted primarily to the review of overall strategy?

A) 24% B) 34% C) 44% D) 64% E) 74% Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge

4 .

13) When a board of directors is involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management, the degree of involvement is referred to as A) rubber stamp.

B) nominal participation.

C) active participation.

D) minimal review.

E) phantom.

Answer: B Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 14) The board of directors has an obligation to approve all decisions that might affect the longrun performance of the corporation.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 15) The term "corporate governance" refers to the relationship among the board of directors, top management, and the shareholders in determining the direction and performance of the corporation.

Answer: TRUE Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 16) The more active professional boards are being replaced by the board as a rubber stamp of the CEO. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 17) Succession planning for the board and top management team is one of the five responsibilities of the board of directors.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 5 .

18) Those directors who fail to act with due care and allow the corporation to be harmed may be held personally liable.

Answer: TRUE Difficulty: Difficult Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 19) A 2011 McKinsey and Company survey found that less than ten percent of a board's time is spent on current strategy.

Answer: FALSE Difficulty: Difficult Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 20) The lowest degree of involvement for a board of directors is the catalyst level of interaction.

Answer: FALSE Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 21) Generally, the smaller the corporation, the less active is its board of directors.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 22) What are the responsibilities of the board of directors?

Answer: The five board of directors' responsibilities are 1. Effective board leadership, including the processes, makeup and output of the board 2. Strategy of the organization 3. Risk vs. initiative and the overall risk profile of the organization 4. Succession planning for the board and top management team 5. Sustainability Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge

6 .

23) Explain the continuum of board involvement.

Answer: The board of directors' continuum reflects the degree of involvement (from high to low) in the strategic management process. Boards can range from phantom boards with no real involvement to catalyst boards with a very high degree of involvement. Passive phantom or rubber stamp boards typically never initiate or determine strategy unless a crisis occurs.

Nominal participation reflects a board involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management. An active board approves, questions, and makes final decisions on mission, strategy, policies, and objectives. It also has active board committees and performs fiscal and management audits. The catalyst board takes the leading role in establishing and modifying the mission, objectives, strategy, and policies. It also has a very active strategy committee.

Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 24) Outside directors are defined as A) those individuals who scan the external environment.

B) individuals on the board who are not employed by the board's corporation.

C) those individuals with public relations responsibilities.

D) board members who are also officers or executives employed by the corporation.

E) individuals who organize and coordinate politically focused activities.

Answer: B Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 25) According to ________ theory, ________ directors tend to identify with the corporation and its success.

A) agency; inside B) corporate governance; inside C) stewardship; inside D) corporate governance; affiliated E) stewardship; outside Answer: C Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge

7 .

26) Surveys of large U.S. and Canadian corporations found outsiders make up what percentage of total board membership?

A) 2% B) 30% C) 50% D) 80% E) 98% Answer: D Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 27) The percentage of directors of small, publicly held U.S. corporations who are outsiders is approximately A) 2 - 12%.

B) 20 - 40%.

C) 40 - 60%.

D) 60 - 80%.

E) 98 - 100%.

Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 28) The theory which states that problems arise in corporations because top management no longer is willing to bear the brunt of their decisions unless they own a substantial amount of stock in the corporation is called A) codetermination.

B) agency theory.

C) interlocking management theory.

D) strategic leadership theory.

E) ownership theory.

Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking

8 .

29) Research reveals that the likelihood of a firm engaging in illegal behavior or being sued declines A) with a larger board.

B) with the addition of insiders on the board.

C) with the addition of outsiders on the board.

D) with a smaller board.

E) with a well-compensated board.

Answer: C Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Ethical understanding and reasoning 30) The average board member of a U.S. Fortune 500 firm serves on ________ board(s).

A) 3 B) 6 C) 9 D) 12 E) only 1 Answer: A Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 31) Board members who are not employed by the corporation, but handle the legal or insurance needs of the firm and are thus not true "outsiders," are what kind of directors?

A) affiliated directors B) family directors C) retired directors D) management directors E) interlocked directors Answer: A Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 32) Sixty-six percent of the outstanding stock in the largest U.S. and UK corporations is now owned by A) family directors.

B) affiliated directors.

C) institutional investors.

D) retired directors.

E) management directors.

Answer: C Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 9 .

33) ________ theory argues that senior executives over time tend to view the corporation as an extension of themselves.

A) Population ecology B) Motivation C) Stewardship D) Agency E) Goal setting Answer: C Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 34) An agency problem can occur when A) the desires and objectives of the owners and agents conflict.

B) there is too much oversight.

C) the owners and agents share the same attitudes toward risk.

D) executives select risky strategies because they fear losing their jobs if the strategy fails.

E) there is a dual role for the CEO and chair of the board.

Answer: A Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 35) Which of the following regions is the most globalized region of the world in terms of boards of directors with most companies having one or more non-national directors?

A) Asia B) Middle East C) North American D) Pacific Rim E) Europe Answer: E Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 36) Korn/Ferry International reported that amongst the 100 largest companies listed in 2011 ________ of boards of directors had at least one female director.

A) 4% B) 20% C) 50% D) 82% E) 96% Answer: E Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Diverse and multicultural work environments 10 .

37) A study by Korn/Ferry found that ________ of U.S. boards of directors had at least one ethnic minority member in 2007.

A) 6% B) 26% C) 47% D) 78% E) 96% Answer: D Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Diverse and multicultural work environments 38) The vast majority of inside directors are from all of the following EXCEPT A) lower-level operating employee.

B) president of the corporation.

C) vice-president of operational units.

D) chief executive officer.

E) vice-president of functional units.

Answer: A Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 39) Codetermination A) is the process by which both management and the board establish corporate strategic management.

B) is the inclusion of a corporation's employees on its board.

C) occurs when one or more individuals on one board also serve on other boards.

D) is present when all board members are also employed by the corporation.

E) occurs when minority shareholders concentrate their votes.

Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 40) Which country pioneered the use of worker participation on corporate boards?

A) England B) France C) Sweden D) Japan E) Germany Answer: E Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge

11 .

41) Under what circumstances does a DIRECT interlocking directorate exist?

A) when both management and the board establish corporate strategic management B) when a corporation's employees are included on its board C) occurs when two firms share a director or when an executive of one firm sits on the board of a second firm D) when all board members are also employed by the corporation E) when two corporations have directors who serve on the board of a third firm Answer: C Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 42) Under what circumstances does an INDIRECT interlocking directorate exist?

A) when both management and the board establish corporate strategic management B) when a corporation's employees are included on its board C) when one or more individuals on one board also serve on a board of a second firm D) when all board members are also employed by the corporation E) when two corporations have directors who serve on the board of a third firm Answer: E Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 43) The U.S. Clayton Act and the Banking Act of 1933 A) promote interlocking directorates by U.S. companies to foster better communications and working relationships.

B) prohibit acts or contracts tending to create a monopoly.

C) prevent unfair practices in interstate commerce.

D) promote racial parity on the board of directors.

E) prohibit interlocking directorates by U.S. companies competing in the same industry.

Answer: E Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 44) Which of the following is not descriptive of interlocking directorates?

A) Interlocking directorates occur because large firms have a large impact on other corporations.

B) Interlocking directorates are more common in small, family-owned companies.

C) Interlocking directorates are a useful method for gaining inside information about an uncertain environment.

D) Interlocking directorates occur in about 20% of the 1000 largest U.S. firms.

E) Interlocking directorates provide objective expertise about a firm's strategy.

Answer: B Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 12 .

45) The function of a nominating committee is to A) find board members who have compatible viewpoints with management.

B) find outside board members for election by the stockholders.

C) search for internal employees who would provide valuable insight into the working operations of the corporation.

D) search for candidates who could bring prestige to the board.

E) find inside board members for election by the stockholders.

Answer: B Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 46) The percentage of large U.S. corporations using nominating committees to identify potential new directors is approximately A) less than 6%.

B) 37%.

C) 57%.

D) 87%.

E) 97%.

Answer: E Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 47) A staggered board A) increases the chances of a hostile takeover.

B) has only a portion of the board stand for election each year.

C) makes it easier for shareholders to curb a CEO's power.

D) is seen in less than 50% of U.S. boards.

E) provides little continuity.

Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 48) All of the following reflect survey findings of the reasons for which individuals serve on a board EXCEPT A) notoriety/prestige.

B) interested in the business.

C) make a difference.

D) willing to always agree with executive decisions.

E) stay active in the business community.

Answer: D Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 13 .

49) The average large, publicly held U.S. corporation has around A) 7 directors.

B) 10 directors.

C) 19 directors.

D) 25 directors.

E) 30 directors.

Answer: B Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 50) What percent of boards now have truly independent chairs?

A) less than 10%.

B) approximately 30%.

C) approximately 50%.

D) approximately 75%.

E) over 90%.

Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 51) A lead director A) has not been a popular approach in the United Kingdom.

B) creates a balance of power when the CEO is also Chair of the Board.

C) has lost popularity in the United States since 2003.

D) has no involvement in the CEO's evaluation.

E) totally replaces the CEO position.

Answer: B Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 52) All of the following are true of the dual chair/CEO position EXCEPT A) it is being increasingly criticized because of the potential for conflict of interest.

B) it endangers the ability to properly oversee top management.

C) it is separated by law in Germany, the Netherlands, and Finland.

D) it is more popular in American corporations than firms in the United Kingdom.

E) firms with a dual chair/CEO role have significantly better stock performance.

Answer: E Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge

14 .

53) The concept of the lead director originated in A) the United Kingdom.

B) the United States.

C) France.

D) Sweden.

E) Germany.

Answer: A Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 54) According to the text, which of the following is not a typical standing committee of boards of directors?

A) audit committee B) compensation committee C) executive committee D) nominating committee E) public relations committee Answer: E Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 55) Outside directors may be executives of other firms but are not employees of the board's corporation.

Answer: TRUE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 56) Population theory states that problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation.

Answer: FALSE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 57) Agency theory suggests that the majority of a board needs to be from outside the firm.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge

15 .

58) Stewardship theory proposes insiders (senior leadership) tend to identify with the corporation and its success.

Answer: TRUE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 59) A minority percentage of large corporations in the Americas and Europe may keep the firm's recently retired CEO on the board after retirement since there is a greater likelihood of a conflict of interest and less objectivity.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 60) The majority of outside directors are active or retired CEOs and COOs of other corporations.

Answer: TRUE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 61) Codetermination has been used in Germany since the 1950s, but has not been used in the United States.

Answer: FALSE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 62) A direct interlocking directorate occurs when two corporations have directors who also serve on the board of a third firm.

Answer: FALSE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 63) Interlocking directorates are a useful method for gaining both inside information about an uncertain environment and objective expertise about potential strategies and tactics. They are, however, increasingly frowned upon because of the possibility of collusion.

Answer: TRUE Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking

16 .

64) While 97% of large U.S. corporations now use nominating committees to identify potential directors, this practice is not as common in Europe.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 65) A survey of directors of U.S. corporations found that the main reason individuals serve on a board is for the compensation.

Answer: FALSE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 66) By 2012, 56% of the S&P 500 boards had split the role of chairperson and CEO. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 67) The combined chairperson/CEO position is being increasingly criticized because of the potential for conflict of interest.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 68) Contrast agency theory and stewardship theory.

Answer: Agency theory states that problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation. The theory suggests that a majority of a board needs to be from outside the firm so that top management is prevented from acting selfishly to the detriment of the shareholders.

Stewardship theory proposed that, because of their long tenure with the corporation, insiders (senior executives) tend to identify with the corporation and its success. Rather than use the firm for their own ends, these executives are thus most interested in guaranteeing the continued life and success of the corporation.

Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge

17 .

69) Explain the difference between a direct and indirect interlocking directorate.

Answer: A direct interlocking directorate occurs when two firms share a director or when an executive of one firm sits on the board of a second firm. An indirect interlock occurs when two corporations have directors who also serve on the board of a third firm.

Difficulty: Difficult Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 70) Why is the use of the combined Chair/CEO role being increasingly criticized?

Answer: The use of the combined Chair/CEO role is increasingly criticized because of the potential for conflict of interest. The CEO is supposed to concentrate on strategy, planning, external relations, and responsibility to the board. The Chairman's responsibility is to ensure that the board and its committees perform their functions as stated in the board's charter. Critics of having one person in both roles ask how the board can properly oversee top management if the Chairman is also a part of top management.

Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 71) The New York Stock Exchange (NYSE) requires corporations to have A) a majority of the board be outsiders.

B) cumulative voting.

C) at least one employee director as a representative on the board.

D) at least two outside directors providing stockholder representation.

E) an audit committee composed entirely of independent, outside members.

Answer: E Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Application of knowledge 72) The Sarbanes-Oxley Act was designed to protect A) retired workers from losing their pensions.

B) CEOs from losing their golden parachutes.

C) CEO salary increases.

D) shareholders from the excesses and failed oversight of firms.

E) corporations from misguided whistleblowers.

Answer: D Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning

18 .

73) In implementing the Sarbanes-Oxley Act, the SEC required in 2003 that a company disclose A) the number of insiders on their PR committee.

B) if it has adopted a code of ethics that applied to the CEO and the CFO. C) the CEO's pay.

D) the CFO's pay.

E) all of the above Answer: B Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning 74) Which of the following is not one of the four major issues researched by the S&P Corporate Governance Scoring System?

A) ownership structure and influence B) research and development initiatives C) financial stakeholder rights and relations D) financial transparency and information disclosures E) board structure and processes Answer: B Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning 75) The role of the board of directors in the strategic management of the corporation is likely to A) be more active in the future.

B) be less active in the future.

C) be nonexistent as planning departments take over.

D) remain the same.

E) shift more toward managing daily operations.

Answer: A Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Application of knowledge 76) A benefit of the increased disclosure requirements of the Sarbanes-Oxley Act has been more reliable corporate financial statements.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Application of knowledge

19 .

77) The SEC requires that the audit, nominating, and compensation committees be staffed entirely by outside directors.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Application of knowledge 78) Explain the impact of the Sarbanes-Oxley Act on corporate governance.

Answer: In response to the many scandals uncovered since 2000, the U.S. Congress passed the Sarbanes-Oxley Act (SOX) in June 2002. This act was designed to protect shareholders from the excesses and failed oversight that characterized failures at Enron, Tyco, WorldCom, Adelphia Communications, Qwest, and Global Crossing, among other prominent firms. Several key elements of Sarbanes-Oxley were designed to formalize greater board independence and oversight. For example, the act required that all directors serving on the audit committees be independent of the firm and receive no fees other than for services as a director. Additionally, boards may no longer grant loans to corporate officers. The act also established formal procedures for individuals to report incidents of questionable accounting or auditing. Firms are prohibited from retaliating against anyone reporting wrong doing. Both the CEO and CFO must certify the corporation's financial information. The act banned auditors from providing both external and internal audit services to the same company. The bill also required that firms identify whether they have a "financial expert" serving on the audit committee, which is independent from management.

Difficulty: Difficult Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning 79) Which of the following is not a trend in corporate governance expected to continue?

A) Institutional investors are becoming active on boards.

B) Boards are getting more involved in shaping company strategy.

C) Boards are getting larger.

D) Shareholders are demanding directors and top managers own more than token amounts of stock in the corporation.

E) Outside directors are taking charge of annual CEO evaluations.

Answer: C Difficulty: Moderate Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge

20 .

80) Which of the following is a trend in corporate governance?

A) Boards are getting less involved in shaping corporate strategy.

B) Shareholders are demanding that directors and top managers own less stock in the company.

C) Boards are establishing mandatory retirement ages for board members.

D) Boards are getting larger.

E) Boards are looking for fewer members with international experience.

Answer: C Difficulty: Moderate Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge 81) The role of the board of directors in reviewing, evaluating, and shaping corporate strategy is likely to be less active in the future.

Answer: FALSE Difficulty: Easy Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge 82) Society increasingly expects corporate boards to balance the economic goal of profitability with the social needs of society.

Answer: TRUE Difficulty: Easy Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge 83) When calculating a "deserved pay" for CEOs based upon earnings growth and shareholder return, financial research firm Obermatt found that A) there is a negative correlation between CEO pay and company performance.

B) there is a positive correlation between CEO pay and company performance.

C) there is no correlation in the 100 S&P companies between CEO pay and company performance.

D) CEO pay packages were rejected by 90% of shareholders.

E) most compensation systems were aligned with the interests of shareholders.

Answer: C Difficulty: Difficult Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Analytical thinking

21 .

84) All of the following are true of overconfident CEOs EXCEPT A) overconfident CEOs tend to charge ahead with mergers and acquisitions even though they are aware that most acquisitions destroy shareholder value.

B) overconfident CEOs view their company as undervalued by outside investors.

C) overconfident CEOs are more likely to do deals that diversify their firm's lines of businesses.

D) the overconfidence of CEOs may lead to hubris.

E) overconfident CEOs were less likely to make an acquisition when they could avoid selling new stock to finance them.

Answer: E Difficulty: Difficult Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Analytical thinking 85) According to the text, one of the primary responsibilities of top management in strategic management is A) ensuring that day-to-day operations are efficient and well run.

B) providing executive leadership.

C) balancing the budget.

D) managing the short-term planning process.

E) making all important decisions.

Answer: B Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 86) Which of the following provides an example of a transformational leader?

A) Phil Knight at Nike has energized his corporation and commanded respect.

B) Louis Gerstner proposed a new vision for IBM to change its business model from computer hardware to services.

C) Microsoft CEO, Steve Ballmer, crawled under tables to plug in PC monitors and diagnosed problems with an operating system.

D) Verizon Communications CEO Ivan Seidenberg showed his faith in his people by letting his key managers handle important projects and represent the company in public forums.

E) all of the above Answer: E Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge

22 .

87) A description of what the company is capable of becoming is referred to as A) strategic vision.

B) strategic concept.

C) strategic mission.

D) strategic flexibility.

E) strategic familiarity.

Answer: A Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 88) Individuals such as Phil Knight at Nike and Steve Jobs at Apple who energized their companies and provided change and movement by providing a vision for that change are known as A) transformational leaders.

B) strategic implementers.

C) strategists.

D) corporate governors.

E) directors.

Answer: A Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 89) Which of the following is not a key characteristic of transformational executive leaders?

A) The CEO presents a role for others to identify with and to follow.

B) The CEO communicates high performance standards for all employees.

C) The CEO demonstrates confidence in the employees' abilities to meet the expressed high standards.

D) The CEO energizes the board to formulate strategy.

E) The CEO articulates a strategic vision for the corporation.

Answer: D Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge

23 .

90) According to the research, in turbulent environments, the best type of planning is A) top-down strategic planning.

B) bottom-up strategic planning.

C) horizontal strategic planning.

D) concurrent strategic planning.

E) composite strategic planning.

Answer: A Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Analytical thinking 91) According to a survey of 156 large corporations, in what percentage of the firms were strategies first proposed in business units and then sent to headquarters for approval?

A) 10% B) 36% C) 50% D) 66% E) 96% Answer: D Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 92) For many large corporations the typical strategic planning staff has just fewer than how many people?

A) 5 B) 10 C) 7 D) 15 E) 3 Answer: B Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 93) The confidence levels of executive leaders may blind them to information that is contrary to a decided course of action; this may help to understand why overconfident CEOs are more likely to conduct mergers and acquisitions.

Answer: TRUE Difficulty: Difficult Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 24 .

94) Executive leadership is the directing of activities toward the accomplishment of corporate objectives.

Answer: TRUE Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 95) Transformational leaders transform organizations from market leaders in one industry to market leadership in another.

Answer: FALSE Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 96) The negative side of confident executive leaders is that their very confidence may lead to hubris, in which their confidence blinds them to information that is contrary to a decided course of action.

Answer: TRUE Difficulty: Difficult Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 97) Jeff Bezos, CEO of Amazon.com, uses the S team (senior management) to engage in continuous strategic planning.

Answer: TRUE Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 98) Usually, the strategic planning staff is charged with supporting only top management in the strategic planning process.

Answer: FALSE Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge

25 .

99) What are the responsibilities of top management?

Answer: Top management responsibilities involve getting things accomplished through and with others to meet the corporate objectives. Top management's job is multidimensional and oriented toward the welfare of the total organization. Specific top management tasks vary from firm-tofirm and developed from an analysis of the mission, objectives, strategies, and key activities of the corporation. Tasks are typically divided among the members of the top management team.

The CEO, with the support of the rest of the top management team, must successfully handle two primary responsibilities crucial to the effective strategic management of the corporation: (1) provide executive leadership and a strategic vision, and (2) manage the strategic planning process.

Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge

26 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 3 Social Responsibility and Ethics in Strategic Management 1) The concept that proposes private corporations have responsibilities to society that extend beyond making a profit is known as A) flexible responsibility.

B) social responsibility.

C) social flexibility.

D) managerial responsibility.

E) profit maximization.

Answer: B Difficulty: Easy Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 2) Which one of the following is not one of the arguments against social responsibility as used by economist Milton Friedman?

A) Spending money for social responsibility is spending the stockholder's money for a general social interest.

B) Businesses can actually do very little in terms of social responsibility.

C) Spending money on social responsibility is acting from motives other than economic and may, in the long run, cause harm to the very society the firm is trying to help.

D) There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.

E) Through taking on the burden of social costs, the organization becomes less efficient, causing price increases or postponement of growth.

Answer: B Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 3) Who said that the social responsibility of business is a "fundamentally subversive doctrine" and that the one social responsibility of business is "to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game..."?

A) Adam Smith B) Edward Freeman C) Archie Carroll D) William C. Norris E) Milton Friedman Answer: E Difficulty: Easy Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Application of knowledge 1 .

4) Economist Milton Friedman has argued that a business's only responsibility is to A) maximize profits and stay within the rules of the game.

B) sustain its market share.

C) promote the welfare of society.

D) satisfy its employees.

E) satisfy its customers.

Answer: A Difficulty: Easy Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Application of knowledge 5) According to Archie Carroll, the responsibility that management of a business organization has to produce goods and services of value to society so that the firm may repay its creditors and stockholders is called A) legal responsibilities.

B) ethical responsibilities.

C) economic responsibilities.

D) financial responsibilities.

E) discretionary responsibilities.

Answer: C Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Application of knowledge 6) According to Archie Carroll, the responsibilities defined by government in laws for management to obey are A) legal responsibilities.

B) ethical responsibilities.

C) financial responsibilities.

D) economic responsibilities.

E) discretionary responsibilities.

Answer: A Difficulty: Easy Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Application of knowledge

2 .

7) According to Archie Carroll, the responsibilities that management of a business organization assumes which are purely voluntary obligations are A) legal responsibilities.

B) ethical responsibilities.

C) financial responsibilities.

D) economic responsibilities.

E) discretionary responsibilities.

Answer: E Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 8) The term "social responsibility," according to Archie Carroll, can be viewed as a combination of an A) organization's ethical and discretionary responsibilities.

B) organization's legal and ethical responsibilities.

C) organization's economic and ethical responsibilities.

D) organization's financial and economic responsibilities.

E) organization's legal and discretionary responsibilities.

Answer: A Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 9) Archie Carroll's four responsibilities listed in order of priority are A) legal, economic, ethical, and discretionary.

B) legal, ethical, discretionary, and economic.

C) economic, legal, ethical, and discretionary.

D) economic, ethical, discretionary, and legal.

E) ethical, economic, legal, and discretionary.

Answer: C Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning

3 .

10) Society generally expects firms to work with employees and the company to plan for layoffs.

This is an example of which of Archie Carroll's responsibilities?

A) economic B) legal C) justice D) ethical E) discretionary Answer: D Difficulty: Difficult Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Application of knowledge 11) Providing daycare centers to employees is an example of which of Archie Carroll's responsibilities?

A) economic B) legal C) justice D) ethical E) discretionary Answer: E Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Application of knowledge 12) Milton Friedman's position on social responsibility A) proposes that a lack of social responsibility results in increased government regulations.

B) appears to be losing traction with business executives.

C) suggests that a lack of social responsibility reduces a firm's efficiency.

D) explains why firms are using their socially responsible actions for competitive advantage.

E) mirrors Carroll's position.

Answer: B Difficulty: Difficult Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning

4 .

13) As societal values evolve, it is likely that the ________ responsibilities of today may become the ________ responsibilities to tomorrow.

A) economic; ethical B) legal; ethical C) discretionary; ethical D) discretionary; economic E) legal; discretionary Answer: C Difficulty: Difficult Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 14) Being socially responsible A) does not influence a company's overall reputation.

B) has opened doors in local communities.

C) cannot enhance consumers' perceptions of the firm.

D) has a negative effect on the firm's financial performance.

E) cannot be balanced with profit maximization.

Answer: B Difficulty: Difficult Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 15) Which of the following is not one of the examples provided as an organizational benefit received from being socially responsible?

A) They can attract outstanding employees who prefer working for a socially responsible firm.

B) They are more likely to be welcomed into a foreign country.

C) They are more likely to attract capital infusions from investors who view reputable companies as desirable long-term investments.

D) They are guaranteed to maximize resource productivity and reduce the average payback period of investment.

E) Their environmental concerns may enable them to charge premium prices and gain brand loyalty.

Answer: D Difficulty: Difficult Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning

5 .

16) A 2012 survey of 169 CFOs at publicly traded companies in the United States found what percent intentionally misrepresented their economic performance primarily to influence stock price?

A) 1% B) 20% C) 40% D) 60% E) 90% Answer: B Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 17) The concept of social responsibility proposes that a corporation has responsibilities to society that extend beyond making a profit.

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 18) Friedman referred to the social responsibility of business as a "fundamentally subversive doctrine."

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 19) Archie Carroll contends that the primary goal of business is profit maximization.

Answer: FALSE Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 20) Archie Carroll proposes that managers in companies have four responsibilities: economic, legal, ethical, and discretionary.

Answer: TRUE Difficulty: Difficult Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning

6 .

21) According to Carroll, legal responsibilities are defined by governments in laws that management is expected to obey.

Answer: TRUE Difficulty: Easy Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 22) The difference between ethical and discretionary responsibilities is that few people expect an organization to fulfill ethical responsibilities.

Answer: FALSE Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 23) Ethical responsibilities are voluntary obligations a corporation assumes.

Answer: FALSE Difficulty: Easy Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 24) Being known as a socially responsible firm may provide a company with social capital that can be used for competitive advantage.

Answer: TRUE Difficulty: Easy Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 25) A study concerning social responsibility indicates that socially responsible firms are more likely to be welcomed into another country.

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning

7 .

26) Explain the difference between Milton Friedman and Archie Carroll's approaches to the responsibilities of business.

Answer: Both Milton Friedman and Archie Carroll argue their positions based on the impact of socially responsible actions on a firm's profits. Friedman says that socially responsible actions hurt a firm's efficiency. Carroll proposes that a lack of social responsibility results in increased government regulations, which reduce a firm's efficiency. Friedman argues that profit maximization is the firm's primary responsibility. Carroll argues that firms have economic, legal, ethical, and discretionary responsibilities.

Difficulty: Moderate Learning Obj.: 3.1: Discuss the relationship between social responsibility and corporate performance AACSB: Ethical understanding and reasoning 27) An overarching strategy that explicitly communicates the firm's ethical relationship with its stakeholders is A) an enterprise strategy.

B) a corporate strategy.

C) a stockholders strategy.

D) a functional strategy.

E) a strategic audit.

Answer: A Difficulty: Moderate Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Ethical understanding and reasoning 28) Target's efforts to offer brands from companies with ethical track records and community involvement help the retailer attract socially concerned younger consumers. This is an example of A) social capital.

B) sustainability.

C) a legal responsibility.

D) environmental scanning.

E) industry analysis.

Answer: A Difficulty: Moderate Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Analytical thinking

8 .

29) The Dow Jones Sustainability Index includes A) environmental, economic, and quality sustainability.

B) industry, environmental, and economic factors.

C) environmental, economic, and social sustainability.

D) ethical, economic, and social sustainability.

E) environmental, ethical, and quality sustainability.

Answer: C Difficulty: Moderate Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Ethical understanding and reasoning 30) In order for a business to be sustainable, it must satisfy which of Carroll's responsibilities?

A) economic B) legal C) ethical D) discretionary E) all of the above Answer: E Difficulty: Moderate Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Analytical thinking 31) The broader concept of sustainability is closely aligned with Carroll's view of social responsibility.

Answer: TRUE Difficulty: Easy Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Ethical understanding and reasoning 32) Stakeholders are all constituencies that affect and are affected by the achievement of the firm's objectives.

Answer: TRUE Difficulty: Easy Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Application of knowledge 33) In any one strategic decision, the interests of one stakeholder group seldom conflict with another.

Answer: FALSE Difficulty: Easy Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Analytical thinking

9 .

34) Discuss Crane and Matten's concept of sustainability with regard to Carroll's view of ethics.

Answer: Crane and Matten suggest that the concept of sustainability should be broadened to include economic and social concerns (as well as environmental). This broader concept of sustainability has much in common with Carroll's list of business responsibilities. For a firm to be sustainable (successful over a long period) it must satisfy all of its economic, legal, ethical, and discretionary responsibilities.

Difficulty: Moderate Learning Obj.: 3.2: Explain the concept of sustainability AACSB: Ethical understanding and reasoning 35) The first step in stakeholder analysis is to A) identify primary stakeholders.

B) monitor what all the stakeholders want.

C) identify the stakeholders with an indirect stake in the corporation.

D) estimate the effect on each stakeholder group from any particular strategic decision.

E) identify the influence of each stakeholder group.

Answer: A Difficulty: Easy Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Application of knowledge 36) All of the following are considered primary stakeholders EXCEPT A) customers.

B) governments.

C) employees.

D) shareholders.

E) creditors.

Answer: B Difficulty: Moderate Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Application of knowledge 37) All of the following are considered secondary stakeholders EXCEPT A) governments.

B) suppliers.

C) competitors.

D) trade associations.

E) activists.

Answer: B Difficulty: Moderate Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Application of knowledge

10 .

38) Which of the following statements is not true concerning secondary stakeholders?

A) Secondary stakeholders are those who have only an indirect stake in the corporation, but who are affected by corporate activities.

B) Secondary stakeholders may include non-governmental organizations (like Greenpeace) and trade associations.

C) Because the corporation's relationship with each of these stakeholders is usually not covered by any written or verbal agreement, there is room for misunderstanding.

D) Aside from competitors, secondary stakeholders are not usually monitored by the corporation in any systematic fashion.

E) Secondary stakeholders have sufficient bargaining power to directly affect the corporation's activities.

Answer: E Difficulty: Moderate Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Analytical thinking 39) Which of the following companies was cited by the text as an example of a company which does its best to consider its responsibilities to its primary and secondary stakeholders when making strategic decisions?

A) McDonald's B) Maytag C) Johnson & Johnson D) Microsoft E) Enron Answer: C Difficulty: Moderate Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Ethical understanding and reasoning 40) The first step in stakeholder analysis is identifying those who have only an indirect stake in the corporation.

Answer: FALSE Difficulty: Easy Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Application of knowledge 41) Secondary stakeholders have a direct connection with the corporation and have sufficient bargaining to directly affect corporate activities.

Answer: FALSE Difficulty: Easy Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Application of knowledge

11 .

42) A company may have some stakeholders of which it is only marginally aware and in some cases does not seem interested in appeasing.

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Application of knowledge 43) What is stakeholder analysis? List the three-step process.

Answer: Stakeholder analysis is the identification and evaluation of corporate stakeholders. The first step of the process is to identify the primary stakeholders (those who have a direct connection with the corporation and who have sufficient bargaining power to affect corporate activities directly). The second step is to identify the secondary stakeholders (those who have only an indirect stake in the corporation, but who are also affected by corporate activities). The third step is to estimate the effect on each stakeholder group from any particular strategic decision.

Difficulty: Easy Learning Obj.: 3.3: Conduct a stakeholder analysis AACSB: Ethical understanding and reasoning 44) The ________ has been measuring the state of ethics in organizations since 2007.

A) The Annenberg Public Policy Center B) The Kauffman Foundation C) The Gates Foundation D) Ethics Resource Center E) U.S. Government Answer: D Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Application of knowledge 45) According to a 2013 survey by the Ethics Resource Center, which of the following was cited as a significant positive trend?

A) The percentage of firms providing ethical training rose to an all-time high of 81%.

B) Ethics codes are no longer needed.

C) Discipline for ethical violations is decreasing.

D) Fewer companies are reporting abusive behavior.

E) Ethics hotlines for reporting violations are no longer needed.

Answer: A Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Application of knowledge

12 .

46) As opposed to rule-based countries, relationship-based countries tend to A) be more transparent and have a higher degree of corruption.

B) be more transparent and have a lower degree of corruption.

C) be less transparent and have a lower degree of corruption.

D) be less transparent and have a higher degree of corruption.

E) have the same transparency and same degree of corruption.

Answer: D Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 47) Of the six values measured by the Allport-Vernon-Lindzey Study of Values test, both U.S. and British executives consistently score highest on ________ values and lowest on ________ values.

A) religious and theoretical; economic and social B) religious and economic; political and social C) economic and political; social and religious D) social and religious; aesthetic and political E) religious; economic Answer: C Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Application of knowledge 48) Rule-based governance A) is generally found in developing nations.

B) relies on publicly verifiable information.

C) relies on implicit agreement.

D) is inherently nontransparent.

E) requires an investment in time and money to build relationships.

Answer: B Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 49) Which of the following is the most common reason given by surveyed executives for bending the rules to attain their objectives?

A) organizational performance required it B) rules were too rigid C) no one will know D) no oversight E) rules are different for executives than staff Answer: A Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 13 .

50) Former Enron Vice-President Sherron Watkins used the ________ analogy to explain why executives at Enron engaged in unethical and illegal actions.

A) borrowing earnings B) Napoleon complex C) moral relativism D) frogs in boiling water E) distributive justice Answer: D Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 51) Some people claim that morality is relative to some personal, social, or cultural standard and that there is no method for deciding whether one decision is better than another. This is called A) ethical relativity.

B) moral philosophy.

C) comparative ethics.

D) cultural imperialism.

E) moral relativism.

Answer: E Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 52) All of the following reasons provide rationale for unethical behavior EXCEPT A) the impact of cultural norms and values.

B) differences in values between business people and key stakeholders.

C) ambiguous rules.

D) agreement among stakeholders and business people that unethical behavior is acceptable.

E) difficulty of one group to understand another's actions.

Answer: D Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 53) All of the following are one of the four types of moral relativism EXCEPT A) naive relativism.

B) role relativism.

C) principled relativism.

D) social group relativism.

E) cultural relativism.

Answer: C Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning

14 .

54) Role relativism is based on the belief that A) morality is relative to a particular culture.

B) all moral decisions are deeply personal and each person should be allowed to interpret situations and act on his own moral values.

C) social roles carry with them certain obligations.

D) morality is simply a matter of following the norms of an individual's peer group.

E) a decision is legitimate if it is common practice.

Answer: C Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 55) "When in Rome, do as the Romans do" reflects which type of moral relativism?

A) naive relativism B) role relativism C) principled relativism D) cultural relativism E) social group relativism Answer: D Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Analytical thinking 56) In 2011, the Ethics Resource Center found that ________ percent of employees surveyed had witnessed misconduct at work and ________ percent had reported it.

A) 65; 45 B) 65; 65 C) 60; 20 D) 45; 65 E) 45; 45 Answer: D Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 57) Blindly following orders reflects which type of moral relativism?

A) naive relativism B) role relativism C) principled relativism D) cultural relativism E) social group relativism Answer: B Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning

15 .

58) According to a 2011 survey by the Ethics Resource Center, which was not cited as one of the most common questionable behaviors that employees engage in?

A) cutting corners on quality B) misusing company time C) lying to employees D) engaging in abusive behavior E) violating Internet use policies Answer: A Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 59) According to Kohlberg, the first level of moral development, characterized by concern for self, is called A) principled.

B) conventional.

C) essential.

D) pre-conventional.

E) fundamental.

Answer: D Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 60) According to Kohlberg, the second level of moral development, characterized by considerations of society's laws and norms, is called A) principled.

B) essential.

C) conventional.

D) pre-conventional.

E) fundamental.

Answer: C Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 61) According to Kohlberg, the third level of moral development, characterized by a person's adherence to an internal moral code, is called A) principled.

B) conventional.

C) essential.

D) pre-conventional.

E) fundamental.

Answer: A Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 16 .

62) According to Kohlberg, what stage of moral development do the vast majority of people in the United States occupy?

A) principled stage B) conventional stage C) essential stage D) pre-conventional stage E) fundamental stage Answer: B Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 63) A code of ethics is important to clarify company expectations of employee conduct in various situations and to A) reduce the burden on the judicial system.

B) make it clear that the company expects its people to recognize the ethical dimensions in decision and actions.

C) promote a high level of societal norms.

D) encourage individuals to strive for good citizenship and corporations to contribute positively to society.

E) minimize the possibility of mandatory regulations.

Answer: B Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 64) In support of whistle-blowers, the U.S. False Claims Act gives whistle-blowers what percentage of any damages recovered in cases where the government is defrauded?

A) 1-3% B) 15-30% C) 25-45% D) 50-60% E) 60-75% Answer: B Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Application of knowledge

17 .

65) According to a 2011 National Business Ethics survey, what percent of respondents who observed corporate misconduct rated their cultures as weak?

A) 90 B) 70 C) 50 D) 30 E) 10 Answer: A Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Application of knowledge 66) Managers who want to improve ethical behavior should take actions such as A) communicate the code of ethics in training programs.

B) emphasize the code of ethics in performance appraisal systems.

C) follow a code of ethical behavior themselves.

D) communicate the code of ethics in policies and procedures.

E) all of the above Answer: E Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 67) There is no truth to the comment that "business ethics" is an oxymoron.

Answer: FALSE Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 68) Cultural norms and values seldom guide ethical behavior in business.

Answer: FALSE Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 69) "Let the buyer beware" is a traditional saying by free-market proponents who argue that customers in a free market democracy have the right to choose how they spend their money and live their lives.

Answer: TRUE Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Application of knowledge

18 .

70) Relationship-based countries tend to be less transparent and have a higher degree of corruption than do rule-based countries.

Answer: TRUE Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 71) The statement, "When in Rome, do as the Romans do," reflects the essence of cultural relativism.

Answer: TRUE Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Analytical thinking 72) Kohlberg's pre-conventional level is characterized by a person's adherence to an internal moral code.

Answer: FALSE Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 73) Moral relativism could enable a person to justify almost any sort of decision or action, so long as it is not declared illegal.

Answer: TRUE Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 74) According to Kohlberg's levels of moral development, the conventional level is characterized by considerations of society's laws and norms.

Answer: TRUE Difficulty: Easy Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 75) Kohlberg places 80 percent of U.S. adults in the principled level of development.

Answer: FALSE Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 76) A code of ethics is a useful way to promote ethical behavior.

Answer: TRUE Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 19 .

77) Research indicates that when faced with a question of ethics, managers tend to ignore codes of ethics and try to solve their dilemma on their own.

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 78) Law refers to formal codes that permit or forbid certain behaviors and may or may not enforce ethics or morality.

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 79) Discuss some reasons for unethical behavior by business people.

Answer: There are a number of reasons proposed for the unethical behavior by business people.

It may be that the involved people are not even aware that they are doing something questionable. There is no worldwide standard of conduct for business people. Cultural norms and values vary between countries and even between different geographic regions and ethnic groups within a country.

Another possible reason for what is often perceived to be unethical behavior lies in differences in values between business people and key stakeholders. Some business people may believe profit maximization is the key goal of their firm, whereas concerned interest groups may have other priorities. This difference in values can make it difficult for one group of people to understand another's actions.

Difficulty: Moderate Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 80) What is moral relativism? What are the four types of moral relativism?

Answer: Moral relativism claims that morality is relative to some personal, social, or cultural standard and that there is no method for deciding whether one decision is better than another.

Moral relativism could enable a person to justify almost any sort of decision or action, so long as it is not declared illegal. The four types of moral relativism are naïve relativism, role relativism, social group relativism, and cultural relativism.

Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning

20 .

81) Discuss Kohlberg's levels of moral development.

Answer: Kohlberg proposes that a person progresses through three levels of moral development.

The first level is pre-conventional. This level is characterized by a concern for self. The second level is conventional, which is characterized by consideration of society's laws and norms. The principled level is the third. This level is characterized by a person's adherence to an internal moral code. The individual at this level looks beyond norms or laws to find universal values or principles.

Difficulty: Difficult Learning Obj.: 3.4: Explain why people may act unethically AACSB: Ethical understanding and reasoning 82) Ethics is defined as A) formal codes that permit or forbid certain behaviors.

B) a general rule of conduct of personal behavior, based on religious or philosophical grounds.

C) consensually accepted standards of behavior for an occupation, trade, or profession.

D) imposing one's morality upon another.

E) voluntary obligations assumed by an individual or organization.

Answer: C Difficulty: Easy Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 83) Employees who report illegal or unethical behavior on the part of others are known as A) stakeholders.

B) whistleblowers.

C) moral relativists.

D) retaliators.

E) outside directors.

Answer: B Difficulty: Easy Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 84) A code of conduct that regulates supplier conduct A) is never enforced.

B) almost always protects a corporation's reputation if an offshore supplier conceals abuses.

C) is recommended if the company outsources manufacturing to a company in another country.

D) is rarely used.

E) has always been found to be legally enforceable.

Answer: C Difficulty: Difficult Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 21 .

85) Morality is defined as A) formal codes that permit or forbid certain behaviors.

B) a general rule of conduct of personal behavior, based on religious or philosophical grounds.

C) consensually accepted standards of behavior for an occupation, trade, or profession.

D) imposing one's morality upon another.

E) voluntary obligations assumed by an individual or organization.

Answer: B Difficulty: Easy Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 86) Law is defined as A) formal codes that permit or forbid certain behaviors and may or may not enforce ethics or morality.

B) a general rule of conduct of personal behavior, based on religious or philosophical grounds.

C) consensually accepted standards of behavior for an occupation, trade, or profession.

D) imposing one's morality upon another.

E) voluntary obligations assumed by an individual or organization.

Answer: A Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 87) The approach to ethical behavior which proposes that actions and plans should be judged by their consequences, thus producing the greatest benefit to society with the least harm or the lowest cost is called A) individual rights approach.

B) mercantilism approach.

C) utilitarian approach.

D) justice approach.

E) moral imperialism approach.

Answer: C Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning

22 .

88) The approach to ethical behavior which proposes that human beings have certain fundamental rights that should be respected in all decisions, thus avoiding interfering with the rights of others is called A) individual rights approach.

B) mercantilism approach.

C) utilitarian approach.

D) justice approach.

E) moral imperialism approach.

Answer: A Difficulty: Easy Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 89) According to the utilitarian approach, CEOs give priority to the stakeholders who have the most A) money and largest holdings.

B) legitimacy and the best PR. C) power, legitimacy, and urgency.

D) stability and legitimacy.

E) utility and power.

Answer: C Difficulty: Difficult Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 90) According to the utilitarian approach, stakeholders who have a legal or moral claim on company resources have A) power.

B) legitimacy.

C) urgency.

D) utility.

E) stability.

Answer: B Difficulty: Easy Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning

23 .

91) The approach to ethical behavior, which proposes that decision makers be equitable, fair, and impartial in the distribution of costs and benefits to individuals and groups is called A) individual rights approach.

B) mercantilism approach.

C) utilitarian approach.

D) justice approach.

E) moral imperialism approach.

Answer: D Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 92) A problem with the utilitarian approach is A) that it assumes all countries subscribe to the same definition of "fundamental rights."

B) that it imposes a set of mandatory values and behaviors on all entities in society.

C) that it encourages selfish behavior.

D) that it imposes one's morality upon others and judges them by standards they may or may not accept.

E) that it is difficult to recognize all the benefits and costs of any particular decision.

Answer: E Difficulty: Difficult Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 93) Which approach to ethical behavior can encourage selfish behavior when a person defines a personal need or want as a "right"?

A) utilitarian B) individual rights C) justice approach D) categorical imperative E) moral relativism Answer: B Difficulty: Difficult Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning

24 .

94) Treating people in the same way who are similar on relevant dimensions such as job seniority, is an example of A) compensatory justice.

B) retributive justice.

C) relevant justice.

D) distributive justice.

E) punitive justice.

Answer: D Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 95) The principle, which proposes that punishment should be determined on a proportional basis to the "crime" is called A) compensatory justice.

B) retributive justice.

C) relevant justice.

D) distributive justice.

E) punitive justice.

Answer: B Difficulty: Easy Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 96) The principle, which argues that wrongs should be compensated in proportion to the offense suffered is called A) compensatory justice.

B) retributive justice.

C) relevant justice.

D) distributive justice.

E) punitive justice.

Answer: A Difficulty: Easy Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning

25 .

97) Issues in affirmative action such as reverse discrimination are examples of conflicts between A) compensatory and punitive justice.

B) retributive and distributive justice.

C) distributive and compensatory justice.

D) retributive and compensatory justice.

E) punitive and retributive justice.

Answer: C Difficulty: Difficult Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Analytical thinking 98) According to Cavanagh, using the ________ criterion, to determine if padding an expense account is ethical or not, one would ask if it optimizes the satisfactions of all stakeholders.

A) morality B) utility C) rights D) justice E) relativism Answer: B Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 99) Using the Golden Rule and never treating another human being simply as a means but always as an end are the categorical imperatives of A) Archie Carroll.

B) L. Kohlberg.

C) Joseph Badaracco.

D) Immanuel Kant.

E) Milton Friedman.

Answer: D Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 100) The justice approach to ethics proposes that actions and plans should be judged by their consequences.

Answer: FALSE Difficulty: Difficult Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning

26 .

101) A problem with the individual rights approach to ethics is the difficulty in defining fundamental rights.

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Analytical thinking 102) The Golden Rule is the same as one of Immanuel Kant's categorical imperatives to resolve ethical dilemmas.

Answer: TRUE Difficulty: Moderate Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning 103) Discuss the three basic approaches to ethical behavior.

Answer: The three basic approaches to ethical behavior are the utilitarian approach, the individual rights approach, and the justice approach. The utilitarian approach proposes that actions and plans should be judged by their consequences. People should, therefore, behave in such a way that will produce the greatest benefit to society and produce the least harm or the lowest cost. The individual rights approach proposes that human beings have certain fundamental rights that should be respected in all decisions. The justice approach proposes that decision makers be equitable, fair, and impartial in the distribution of costs and benefits to individuals and groups.

Difficulty: Difficult Learning Obj.: 3.5: Describe different views of ethics according to the utilitarian, individual rights, and justice approaches AACSB: Ethical understanding and reasoning

27 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 4 Environmental Scanning and Industry Analysis 1) The combination of the degree of complexity and the degree of change existing in an organization's external environment is/are called A) strategic factors.

B) strategic issues.

C) environmental uncertainty.

D) strategic fit.

E) scenarios.

Answer: C Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 2) According to the text, one reason environmental uncertainty is a threat to strategic managers is because A) it is a costly and time-consuming process.

B) it creates a new playing field in which creativity and innovation can play a major part in strategic decisions.

C) it forces the strategic manager to be more stable.

D) it hampers their ability to develop long-range plans and make strategic decisions.

E) there are too many uncontrollable variables.

Answer: D Difficulty: Moderate Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Analytical thinking 3) Which of the following is not descriptive of external environmental scanning?

A) used as a tool to ensure a corporation's long-term health B) used to monitor, evaluate, and disseminate information relevant to the organizational development of strategy C) used to identify major stockholders D) used as a tool for corporations to avoid strategic surprise E) used to determine a firm's competitive advantage Answer: C Difficulty: Moderate Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge

1 .

4) The corporation's task environment A) encompasses the physical working areas of the organization.

B) includes those elements or groups within an organization's industry.

C) is an advisory committee to top management.

D) is an accounting of the many jobs within an organization.

E) is the job requirement specification listing necessary skills and abilities.

Answer: B Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 5) Which of the following is not an element of the organization's task environment?

A) local communities B) trade associations C) governments D) technological developments E) special interest groups Answer: D Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Analytical thinking 6) Which environment was generally perceived by business people to be something to exploit, not conserve, until the twentieth century?

A) the task environment B) the natural environment C) the internal environment D) the societal environment E) the external environment Answer: B Difficulty: Moderate Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge

2 .

7) Which of the following is not a major force in the societal environment?

A) political-legal forces B) labor forces C) economic forces D) technological forces E) sociocultural forces Answer: B Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 8) Industry analysis was popularized by Michael Porter.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions 9) In dynamic environments, the CEO's focus is on forces in the societal environment.

Answer: FALSE Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Reflective thinking 10) Environmental scanning is an overarching term encompassing the monitoring, evaluation, and dissemination of information relevant to the organizational development of strategy.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 11) A corporation uses environmental scanning to avoid strategic surprises and ensure long-term health.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 12) Political-legal forces regulate the values, mores, and customs of society.

Answer: FALSE Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 3 .

13) The societal environment includes the economic, technological, political-legal, and sociocultural forces.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 14) A corporation's task environment is typically focused on the industry within which the firm operates.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge 15) Externalities have been identified by governments but firms have not been forced to deal with the side effects of their activities.

Answer: FALSE Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Analytical thinking 16) Today's organizations must scan the natural environment for factors that might previously have been taken for granted.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Analytical thinking 17) Describe the four general forces in the societal environment.

Answer: The four general forces in the societal environment are economic, technological, political-legal, and sociocultural. Economic forces regulate the exchange of materials, money, energy, and information. Technological forces generate problem-solving inventions. Politicallegal forces allocate power and provide constraining and protecting laws and regulations.

Sociocultural forces regulate the values, mores, and customs of society.

Difficulty: Easy Learning Obj.: 4.1: List the aspects of an organization's environment that can influence its longterm decisions AACSB: Application of knowledge

4 .

18) All of the following are technological breakthroughs already having a significant impact on many industries EXCEPT A) growing health consciousness.

B) alternative energy sources.

C) genetically altered organisms.

D) smart, mobile robots.

E) virtual personal assistants.

Answer: A Difficulty: Easy Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Analytical thinking 19) Which societal force includes demographic trends?

A) political-legal forces B) labor forces C) economic forces D) technological forces E) sociocultural forces Answer: E Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 20) Which of the following is not one of the eight current sociocultural trends mentioned in the text?

A) increasing environmental awareness B) growth of the seniors market C) decline of the mass market D) wage/price controls E) impact of Generation Y boomlet Answer: D Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge

5 .

21) Which is the largest age group of the current generations in all developed countries?

A) Baby Boomers B) Woofies C) Silent Generation D) Gen X E) Gen Y Answer: A Difficulty: Easy Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 22) A company with significant assets and activities in multiple countries is known as a(n) A) multi-national corporation.

B) repatriated corporation.

C) transferable corporation.

D) duplicate corporation.

E) emancipated corporation.

Answer: A Difficulty: Easy Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 23) When strategic managers have a willingness to reject unfamiliar as well as negative information it is referred to as A) strategic paralysis.

B) corporate inertia.

C) management indifference.

D) strategic myopia.

E) corporate apathy.

Answer: D Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge

6 .

24) The origin of competitive advantage lies in the ability to A) gain major stockholders.

B) identify and respond to environmental change well in advance of competition.

C) launch products quickly.

D) serve customers faster.

E) create surprise for others.

Answer: B Difficulty: Difficult Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 25) The transferring of profits from a foreign subsidiary to a corporation's headquarters is known as repatriation of profits.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 26) An example of an economic variable in the societal environment is interest rates.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Analytical thinking 27) The growing health consciousness is an example of a political-legal force.

Answer: FALSE Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Analytical thinking 28) One of the sociocultural variables in the societal environment is the changing household composition.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Analytical thinking

7 .

29) One of the breakthrough developments in technology is the portable information device and electronic networking.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 30) A multi-national corporation is a company with significant assets and activities in multiple countries.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 31) The origin of competitive advantage lies in the ability to identify and respond to environmental change well in advance of competition.

Answer: TRUE Difficulty: Difficult Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 32) Strategic myopia is the willingness to reject unfamiliar as well as negative information.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 33) Booz & Company found that companies that are most successful at avoiding surprises had a well-defined system that integrated planning, budgeting, and business reviews.

Answer: TRUE Difficulty: Difficult Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge

8 .

34) List eight current sociocultural trends in the United States that are transforming North America and the world.

Answer: Eight current sociocultural trends in the United States that are transforming North America and the world are as follows: 1. Increasing environmental awareness 2. Growing health consciousness 3. Expanding seniors market 4. Impact of Millennials 5. Decline of the mass market 6. Changing pace and location of life 7. Changing household composition 8. Increasing diversity of workforce and markets Difficulty: Moderate Learning Obj.: 4.2: Identify the aspects of an organization's environment that are most strategically important AACSB: Application of knowledge 35) According to Porter, seeing clothing firms such as Under Armour enter the athletic shoe industry would reflect a A) medium bargaining power of suppliers.

B) low threat of substitutes.

C) medium bargaining power of buyers.

D) high threat of potential entrants.

E) low competitive intensity.

Answer: C Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 36) Industry analysis is primarily concerned with a corporation's A) societal environment.

B) task environment.

C) sociocultural environment.

D) economic environment.

E) internal environment.

Answer: B Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge

9 .

37) According to Porter, the corporation is most concerned with A) the intensity of competition within its industry.

B) the aggregate level of demand for a product line.

C) a market's position on its life cycle.

D) the amount of pressure from the societal environment.

E) the level of government action in an industry.

Answer: A Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 38) In addition to Porter's Five Forces, another force added in the text is A) bargaining power of unions.

B) other stakeholders.

C) threat of prospects.

D) threat of shareholders.

E) bargaining strength of employees.

Answer: B Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge 39) According to Porter, the collective strength of the interaction of potential entrants, buyers, substitutes, suppliers, firm rivalry, and other stakeholders determine A) the level of government action in an industry.

B) the probable industry attractiveness and business strength position.

C) the ultimate profit potential in the industry measured in terms of long-run return on invested capital.

D) the aggregate level of demand for a product line.

E) the amount of pressure from the societal environment.

Answer: C Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking

10 .

40) According to Porter's model, a strong or high force is likely to reduce profits and can be regarded as a(n) A) benefit.

B) opportunity.

C) advantage.

D) threat.

E) risk.

Answer: D Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 41) According to Porter's model, a low force can enable the company to earn greater profits and can be regarded as a(n) A) benefit.

B) opportunity.

C) advantage.

D) threat.

E) risk.

Answer: B Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 42) Porter describes the threat of new entrants. Which of the following is not descriptive of the "threat of new entrants"?

A) depends on the presence of entry barriers B) has a desire to gain market share C) depends on the reaction of existing competitors D) does not impact industry attractiveness E) brings new capacity and substantial resources Answer: D Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking

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43) Which barrier to entry do corporations such as P&G use to force new entrants to spend heavily to overcome existing customer loyalty?

A) rivalry among existing firms B) switching costs C) capital requirements D) product differentiation E) access to distribution channels Answer: D Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 44) Which barrier to entry uses cost advantages associated with large size?

A) rivalry among existing firms B) switching costs C) cost disadvantages independent of size D) capital requirements E) economies of scale Answer: E Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 45) Which barrier to entry was demonstrated by Microsoft's development of the first widely adopted operating system (MS-DOS) for the IBM-type personal computer that gave it a significant competitive advantage over potential competitors?

A) government policy B) access to distribution channels C) cost disadvantages independent of size D) capital requirements E) economies of scale Answer: C Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking

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46) Intel was able to gain a significant cost advantage over its competitors in the production and sale of microprocessors because of A) capital requirements.

B) product differentiation.

C) switching costs.

D) economies of scale.

E) access to distribution.

Answer: D Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 47) Which of the following is not descriptive of intense rivalry among firms?

A) slow industry growth B) high fixed costs C) high exit barriers D) few competitors or competitors that are roughly equal in size and power E) product offerings that are highly differentiated Answer: E Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 48) Which of the following is not descriptive of the threat of substitute products or services?

A) Substitute products appear to be different, but satisfy the same need as another product.

B) If the cost of switching is low, substitutes may have a strong effect on an industry.

C) Identifying substitutes is relatively easy since they look similar.

D) Possible substitute products or services may not appear to be easily substitutable.

E) Substitutes limit the potential returns of an industry.

Answer: C Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking

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49) A sugar company that is worried that consumers may buy artificial sweetener instead of sugar is concerned about the A) threat of new entrants.

B) rivalry among existing firms.

C) threat of substitute products.

D) bargaining power of suppliers.

E) bargaining power of buyers.

Answer: C Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 50) Which of the following is not descriptive of a high level of bargaining powers of buyers?

A) Changing suppliers costs very little.

B) Alternative suppliers are plentiful because of standardization of the product.

C) The purchased product represents a high percentage of buyer's costs.

D) The buyer buys a large proportion of the seller's product or service.

E) A buyer earns high profits and is very insensitive to costs and service differences.

Answer: E Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 51) When General Motors considers making its own automotive parts, Delphi Automotive Supply Company would be concerned with the A) bargaining power of suppliers.

B) bargaining power of buyers.

C) rivalry among existing competitors.

D) threat of substitutes.

E) threat of new entrants.

Answer: B Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking

14 .

52) Which of the following is not descriptive of a high level of bargaining power of suppliers?

A) Substitutes are readily available.

B) The product or service is unique.

C) The supplier industry is dominated by a few companies, but sells too many.

D) The purchasing industry buys only a small portion of the supplier group's goods and services.

E) Suppliers are able to integrate forward and compete directly with their present customers.

Answer: A Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 53) Other software companies would not compete with Microsoft based on the perceived hesitation of consumers to try new software. Which of Porter's forces does this reflect?

A) exit barriers B) bargaining power of buyers C) threat of substitutes D) bargaining power of suppliers E) rivalry among existing firms Answer: D Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 54) A company or an industry whose product works well with a firm's product and without which the product would lose much of its value is considered to be a(n) A) complementor.

B) oligopoly.

C) strategic group.

D) industry leader.

E) staggered company.

Answer: A Difficulty: Easy Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge

15 .

55) A relationship that illustrates the term "complementor" is A) Microsoft and Intel.

B) General Motors and Ford.

C) Hewlett Packard and Compaq.

D) Gateway and Dell.

E) America Online and CompuServe.

Answer: A Difficulty: Easy Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 56) An industry is a group of firms producing a similar product or service.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge 57) According to Michael Porter, the weaker each of the competitive forces, the more limited companies are in their ability to raise prices and earn greater profits.

Answer: FALSE Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 58) According to Michael Porter, a high force can be regarded as a threat because it is likely to reduce profits.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 59) An entry barrier is an obstruction that makes it difficult for a company to enter an industry.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge

16 .

60) One of the possible barriers to entry is product differentiation.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 61) The need to invest huge financial resources in manufacturing facilities in order to produce large commercial airplanes creates a significant barrier to entry to any competitor for Boeing and Airbus.

Answer: TRUE Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking 62) Governments can do little to erect barriers to entry in an industry.

Answer: FALSE Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge 63) NutraSweet can serve as a product substitute for sugar satisfying the same need.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge 64) A buyer may be powerful when changing suppliers costs a great deal.

Answer: FALSE Difficulty: Moderate Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Analytical thinking

17 .

65) Describe Porter's approach to industry analysis.

Answer: Michael Porter contends that a corporation is most concerned with the intensity of competition within its industry. Basic competitive forces determine the level of this intensity.

These are the threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and relative power of other stakeholders (added later by the authors).

New entrants to an industry typically bring to it new capacity, a desire to gain market share, and substantial resources. The threat of entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors.

A competitive move by one firm can be expected to have noticeable effect on its competitors and thus may cause retaliation or counter efforts. Intense rivalry is related to the presence of the number of competitors, rate of industry growth, product or service characteristics, the amount of fixed costs, capacity, the height of exit barriers, and the diversity of rivals.

Substitute products are those products that appear to be different but can satisfy the same need as another product.

Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other.

Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services.

The sixth force includes a variety of stakeholder groups from the task environment. The importance of these stakeholder groups varies by industry. Some of these groups are governments, local communities, creditors, trade associations, special interest groups, unions, shareholders, and complementors.

Difficulty: Difficult Learning Obj.: 4.3: Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry AACSB: Application of knowledge 66) The strength of each of the six driving forces of industry competition varies according to the A) effectiveness of the strategic planning.

B) stage of industry evolution.

C) capital requirements.

D) changes in the political environment.

E) amount of government regulation.

Answer: B Difficulty: Difficult Learning Obj.: 4.4: Discuss how industry maturity affects industry competitive forces AACSB: Analytical thinking

18 .

67) In a fragmented industry A) no firm has large market share.

B) prices increase as new competitors enter the market.

C) economies of scale are rarely used to reduce costs.

D) companies avoid integration to further reduce costs.

E) the experience curve is ineffective in reducing costs.

Answer: A Difficulty: Difficult Learning Obj.: 4.4: Discuss how industry maturity affects industry competitive forces AACSB: Analytical thinking 68) The U.S. major home appliance industry is an example of an industry A) that has evolved from an oligopoly to a monopoly.

B) in which each company maintained a distinct product line.

C) that was once fragmented, but now is consolidated.

D) that has experienced consistent, increasing sales.

E) experiencing a successful strategy of product specialization because of product differentiation.

Answer: C Difficulty: Difficult Learning Obj.: 4.4: Discuss how industry maturity affects industry competitive forces AACSB: Analytical thinking 69) An industry dominated by a few large firms, all of which struggle with product differentiation, is known as A) multi-domestic.

B) consolidated.

C) global.

D) indigenous.

E) worldwide.

Answer: B Difficulty: Moderate Learning Obj.: 4.4: Discuss how industry maturity affects industry competitive forces AACSB: Application of knowledge 70) A fragmented industry is dominated by a few large firms, each of which struggles to differentiate its products from the competition.

Answer: FALSE Difficulty: Easy Learning Obj.: 4.4: Discuss how industry maturity affects industry competitive forces AACSB: Analytical thinking

19 .

71) Distinguish between a fragmented and consolidated industry.

Answer: A fragmented industry has no firm with a large market share and each firm serves only a small piece of the total market in competition with others. As new competitors enter the industry, prices drop as a result of competition.

A consolidated industry is dominated by a few large firms, each of which struggles to differentiate its products from the competition. The automobile, petroleum, and major home appliance industries are examples of mature, consolidated industries each controlled by a few large competitors.

Difficulty: Moderate Learning Obj.: 4.4: Discuss how industry maturity affects industry competitive forces AACSB: Application of knowledge 72) In which type of international industry do corporations tailor products to the specific needs of consumers in a particular country?

A) consortium industry B) global industry C) indigenous industry D) multi-domestic industry E) worldwide industry Answer: D Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge 73) Which type of international industry manufactures and sells the same products with only minor adjustments made for individual countries around the world?

A) consortium industry B) global industry C) indigenous industry D) multi-domestic industry E) worldwide industry Answer: B Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge

20 .

74) Which of the following is an example of an industry in which companies manufacture and sell the same products, with only minor adjustments made for individual countries around the world?

A) retailing B) banking C) tires D) insurance E) health care Answer: C Difficulty: Difficult Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 75) Two factors tend to determine whether an industry will be primarily multi-domestic or primarily global. One of the factors is pressure for coordination within the MNCs operating in that industry. The other factor is A) the pressure for local responsiveness on the part of individual country markets.

B) the power of the local country governments to restrict MNC actions.

C) the need for brand management in the various MNCs operating within that industry.

D) the importance of differentiating with integrating mechanisms in regional cooperatives.

E) the likelihood of terrorist activity impacting that industry.

Answer: A Difficulty: Difficult Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge 76) When the pressure for coordination is strong and the pressure for local responsiveness is weak for multi-national corporations within a particular industry, the industry will tend to become A) global.

B) consolidated.

C) multi-domestic.

D) risky.

E) indigenous.

Answer: A Difficulty: Difficult Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking

21 .

77) When the pressure for local responsiveness is strong and the pressure for coordination is weak for multi-national corporations in an industry, the industry will tend to become A) global.

B) consolidated.

C) multi-domestic.

D) risky.

E) indigenous.

Answer: C Difficulty: Difficult Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 78) What is a set of business units or firms that "pursue similar strategies with similar resources"?

A) strategic group B) collective collaboration C) cooperative D) integral association E) strategic assembly Answer: A Difficulty: Easy Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge 79) Which of the following is not one of the general strategic types according to Miles and Snow?

A) initiators B) reactors C) analyzers D) prospectors E) defenders Answer: A Difficulty: Easy Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge

22 .

80) According to Miles and Snow, which strategic orientation is demonstrated by companies that have a limited product line and focuses on improving the efficiency of their existing operations?

A) initiators B) reactors C) analyzers D) prospectors E) defenders Answer: E Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 81) According to Miles and Snow, a company that operates in at least two different productmarket areas in which one product is stable and the other one is variable, reflects which strategic orientation?

A) initiators B) reactors C) analyzers D) prospectors E) defenders Answer: C Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 82) According to Miles and Snow, companies with fairly broad product lines that focus on product innovations and market opportunities, such as Frito-Lay, reflect which strategic orientation?

A) initiators B) reactors C) analyzers D) prospectors E) defenders Answer: D Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking

23 .

83) According to Miles and Snow, most major U.S. airlines have reflected which strategic orientation?

A) initiators B) reactors C) analyzers D) prospectors E) defenders Answer: B Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge 84) To succeed in a hypercompetitive industry, companies must be willing to A) cut prices below marginal costs.

B) pursue market share instead of profits.

C) operate in the ethical gray zone.

D) cannibalize their successful product lines.

E) reduce spending on research and development.

Answer: D Difficulty: Difficult Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 85) Multi-domestic industries are specific to each country or group of countries.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge 86) The only factor used to determine whether an industry will be primarily multi-domestic or primarily global is the pressure for local responsiveness.

Answer: FALSE Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 87) McDonald's and Olive Garden are in the same strategic group.

Answer: FALSE Difficulty: Difficult Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 24 .

88) According to Miles and Snow, reactors are companies with a limited product line that focus on improving the efficiency of their existing operations.

Answer: FALSE Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 89) In hypercompetitive industries, competitive advantage comes from an up-to-date knowledge of environmental trends and competitive activity coupled with a willingness to risk a current advantage for a possible new advantage.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Analytical thinking 90) What are the two factors that tend to determine whether an industry will be primarily multidomestic or primarily global?

Answer: The factors that tend to determine whether an industry will be primarily multi-domestic or primarily global are pressure for coordination within the multi-national operations operating in that industry and pressure for local responsiveness on the part of individual country markets. A multi-domestic industry is one in which companies tailor their products to the specific needs of consumers in a particular country. A global industry is one in which companies manufacture and sell the same products, with only minor adjustments made for individual countries around the world.

Difficulty: Difficult Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge 91) Describe the four strategic types of the Miles and Snow typology.

Answer: According to Miles and Snow, there are four general types of firms based on their general strategic orientation. Defenders are companies with a limited product line that focus on improving the efficiency of their existing operations. Prospectors are companies with fairly broad product lines that focus on product innovation and market opportunities. Analyzers are corporations that operate in at least two different product-market areas, one stable and one variable. Reactors are corporations that lack a consistent strategy-structure-culture relationship.

Difficulty: Moderate Learning Obj.: 4.5: Categorize international industries based on their pressures for coordination and local responsiveness AACSB: Application of knowledge

25 .

92) A table which summarizes the key success factors within a particular industry is called a(n) A) EFAS Table.

B) IFAS Table.

C) SFAS Table.

D) TOWS Matrix.

E) industry matrix.

Answer: E Difficulty: Easy Learning Obj.: 4.6: Identify key success factors and develop an industry matrix AACSB: Application of knowledge 93) Those variables that can affect significantly the overall competitive positions of companies within any particular industry are known as A) external strategic factors.

B) internal strategic factors.

C) matrix factors.

D) key success factors.

E) industry scenario.

Answer: D Difficulty: Easy Learning Obj.: 4.6: Identify key success factors and develop an industry matrix AACSB: Application of knowledge 94) Key success factors seldom vary from industry to industry.

Answer: FALSE Difficulty: Moderate Learning Obj.: 4.6: Identify key success factors and develop an industry matrix AACSB: Analytical thinking 95) An industry matrix summarizes the key success factors within a particular industry.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.6: Identify key success factors and develop an industry matrix AACSB: Application of knowledge 96) A formal program of gathering information on a company's competitors is referred to as A) statistical modeling.

B) competitive intelligence.

C) competitive strategy.

D) quantitative forecasting.

E) qualitative matrix.

Answer: B Difficulty: Easy Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Application of knowledge 26 .

97) Which of the following is true in regards to competitive intelligence?

A) The Economic Espionage Act makes it illegal to steal any material that a business has taken "reasonable efforts" to keep secret.

B) The Society of Competitive Intelligence Professionals urges strategists to stay within the law and to act ethically when searching for information.

C) The Society of Competitive Intelligence Professionals states that illegal activities are foolish because the vast majority of worthwhile competitive intelligence is available publicly via annual reports, websites, and libraries.

D) A number of firms hire consultants with questionable reputations who do what is necessary to get information when the selected methods do not meet SPIC ethical standards or are illegal.

E) The competitive intelligence function is always housed in its own unit within organizations.

Answer: E Difficulty: Difficult Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Analytical thinking 98) The primary activity of a competitive intelligence unit is to A) monitor competitors.

B) engage in corporate espionage.

C) survey stakeholders.

D) determine industry R&D statistics.

E) reverse engineer competitors' products.

Answer: A Difficulty: Easy Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Application of knowledge 99) Competitive intelligence is a formal program of gathering information on a company's competitors.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Application of knowledge 100) Business intelligence is one of the fastest growing fields within strategic management.

Answer: TRUE Difficulty: Easy Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Application of knowledge

27 .

101) A.C. Nielsen is an example of an outside organization providing a firm with competitive intelligence.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Analytical thinking 102) To combat the increasing theft of company secrets, the U.S. government passed the Economic Espionage Act in 1996.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Application of knowledge 103) Define competitive intelligence.

Answer: Competitive intelligence is a formal program of gathering information on a company's competitors. Often called business intelligence, it is one of the fastest growing fields within strategic management. Most companies use outside organizations (such as A.C. Nielsen Co.) to provide them with environmental data. The Internet provides the quickest means to obtain data.

Some companies choose to use industrial espionage or other intelligence-gathering techniques to get their information straight from their competitors.

Difficulty: Moderate Learning Obj.: 4.7: Construct strategic group maps to assess the competitive positions of firms in an industry AACSB: Application of knowledge 104) Over ________ of large companies use trend extrapolation for forecasting.

A) 20% B) 30% C) 40% D) 50% E) 70% Answer: E Difficulty: Easy Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique

28 .

105) A study of nearly 500 of the world's largest corporations indicated which of the following to be the most widely practiced form of forecasting?

A) statistical modeling B) scenario-writing C) Delphi technique D) brainstorming E) trend extrapolation Answer: E Difficulty: Easy Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 106) ________ rests on the assumption that the world is reasonably consistent and changes slowly in the short run.

A) Statistical modeling B) Scenario-writing C) The Delphi technique D) Brainstorming E) Extrapolation Answer: E Difficulty: Easy Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 107) Trend extrapolation is A) the process of converting intuition and hunches into reality.

B) the extension of present trends into the future.

C) the process of asking some authorities in the area to make an "informed guess" about the future.

D) given a large amount of historical data on certain interrelated factors, one attempts to conceptualize alternative futures.

E) detecting faulty underlying assumptions before forecasting errors can occur.

Answer: B Difficulty: Moderate Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge

29 .

108) A non-quantitative approach to forecasting that requires simply the presence of people with some knowledge of the situation to be predicted to propose ideas without first mentally screening them is called A) simulations.

B) the Delphi technique.

C) brainstorming.

D) signal monitoring.

E) scenarios.

Answer: C Difficulty: Moderate Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 109) One ground rule necessary for effective brainstorming is A) scrutinize each idea generated.

B) propose ideas without mentally screening them.

C) calculating future earnings of each idea.

D) critique each idea for rationality.

E) forecast the success of each idea.

Answer: B Difficulty: Moderate Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Analytical thinking 110) Regression analysis is an example of which quantitative forecasting technique?

A) the Delphi technique B) statistical modeling C) brainstorming D) trend-impact analysis E) morphological analysis Answer: B Difficulty: Easy Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 111) The most widely used forecasting technique used after trend extrapolation is A) statistical modeling.

B) simulations.

C) scenario-writing.

D) expert opinion.

E) brainstorming.

Answer: C Difficulty: Easy Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge

30 .

112) Which one of the following is not part of the process of developing industry scenarios?

A) Examine possible shifts in societal variables.

B) Identify uncertainties in each of the six forces in the task environment.

C) Generate at least 15 scenarios.

D) Make a range of plausible assumptions about future trends.

E) Analyze the industry situation that would prevail under each scenario.

Answer: C Difficulty: Easy Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 113) Faulty underlying assumptions are the most frequent cause of forecasting errors.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Analytical thinking 114) Extrapolation rests on the assumption that the world is relatively dynamic and changes quickly in the short run.

Answer: FALSE Difficulty: Moderate Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 115) Statistical modeling is a quantitative forecasting technique that attempts to discover causal or at least explanatory factors that link two or more time series together.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 116) An industry scenario is a forecasted description of a particular industry's likely future. It is developed by analyzing the probable impact of future societal forces on key groups in a particular industry.

Answer: TRUE Difficulty: Moderate Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge

31 .

117) Discuss the most commonly practiced form of forecasting.

Answer: Trend extrapolation is the most widely practiced form of forecasting with over 70% of the world's largest firms using this technique either occasionally or frequently. Extrapolation is the extension of present trends into the future. It rests on the assumption that the world is reasonably consistent and changes slowly in the short run. Time-series methods are approaches of this type: they attempt to carry a series of historical events forward into the future. The basic problem with extrapolation is that a historical trend is based on a series of patterns or relationships among so many different variables that a change in any one can drastically alter the future direction of the trend. As a rule of thumb, the further back into the past you can find relevant data supporting the trend, the more confidence you can have in the prediction.

Difficulty: Difficult Learning Obj.: 4.8: Develop an industry scenario as a forecasting technique AACSB: Application of knowledge 118) The technique recommended by the text to organize an analysis of external strategic factors is called A) IFAS. B) EFAS. C) SFAS. D) SWOT. E) the issues priority matrix.

Answer: B Difficulty: Easy Learning Obj.: 4.10: Construct an EFAS Table that summarizes external environmental factors AACSB: Application of knowledge 119) In the EFAS Table, the indicator of how well a particular company is responding to current and expected factors in its external environment is characterized by the A) IFAS score.

B) industry matrix.

C) total weighted score.

D) SWOT score.

E) SFAS score.

Answer: C Difficulty: Difficult Learning Obj.: 4.10: Construct an EFAS Table that summarizes external environmental factors AACSB: Application of knowledge

32 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 5 Organizational Analysis and Competitive Advantage 1) Those critical strengths and weaknesses that are likely to determine if a firm will be able to take advantage of opportunities while avoiding threats are called A) SWOT. B) competitive forces.

C) internal strategic factors.

D) quality accounting.

E) factor analysis.

Answer: C Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 2) Which of the following is not one of the four question areas Barney proposes in his VRIO framework used to evaluate a firm's key resources?

A) organization B) durability C) rareness D) valuable E) imitability Answer: B Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 3) When a company determines that a competency provides a competitive advantage, Barney refers to this issue as A) value.

B) rareness.

C) imitability.

D) organization.

E) durability.

Answer: A Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking

1 .

4) According to Barney's VRIO framework, the firm's exploitation of a competency pertains to A) value.

B) rareness.

C) imitability.

D) organization.

E) durability.

Answer: D Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 5) A corporation's ability to exploit its resources is referred to as its A) business expertise.

B) capabilities.

C) core competencies.

D) critical success factors.

E) key performance factors.

Answer: B Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 6) FedEx's application of information technology to all its operations is an example of A) resources.

B) distinctive competencies.

C) core competencies.

D) critical success factors.

E) key performance factors.

Answer: C Difficulty: Difficult Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking 7) When a company's core competencies are superior to those of competitors, these are known as A) resources.

B) distinctive competencies.

C) core competencies.

D) critical success factors.

E) key performance factors.

Answer: B Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 2 .

8) Which of the following statements is true concerning clusters?

A) The desire to build or upgrade a core competency is one reason why entrepreneurial and other fast-growing firms often tend to locate close to their competitors.

B) Clusters are geographically dispersed companies operating within the same industry.

C) The United States does not have any clusters; they are all located in Europe.

D) According to Porter, clusters provide barriers to the access of employees, suppliers, and specialized information.

E) Employees from competitive firms in a cluster are not permitted to socialize with one another.

Answer: A Difficulty: Difficult Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking 9) A winemaker in California finds it difficult to duplicate a French winery's key resources of land and climate. This is an example of A) transferability.

B) transparency.

C) replicability.

D) tacit knowledge.

E) explicit knowledge.

Answer: A Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking 10) The rate at which others can duplicate a firm's underlying resources, capabilities, or core competencies is called A) replicability.

B) transparency.

C) imitability.

D) durability.

E) transferability.

Answer: C Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge

3 .

11) When a company takes apart a competitor's product in order to find out how it works, this process is known as A) durability.

B) replicability.

C) reverse engineering.

D) transparency.

E) transferability.

Answer: C Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 12) The speed with which other firms can understand the relationship of resources and capabilities supporting a successful firm's strategy is called A) imitability.

B) reverse engineering.

C) transferability.

D) transparency.

E) durability.

Answer: D Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 13) The ability of competitors to use duplicated resources and capabilities to imitate the other firm's success is called A) imitability.

B) durability.

C) transferability.

D) transparency.

E) replicability.

Answer: E Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge

4 .

14) Knowledge that can be easily articulated and communicated is known as A) tacit knowledge.

B) explicit knowledge.

C) imitable knowledge.

D) transferable knowledge.

E) durable knowledge.

Answer: B Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 15) ________ is more valuable because it can provide companies with a sustainable competitive advantage that is harder for competitors to imitate.

A) Tacit knowledge B) Explicit knowledge C) Imitable knowledge D) Transferable knowledge E) Durable knowledge Answer: A Difficulty: Difficult Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking 16) Knowledge that is not easily communicated because it is deeply rooted in employee experience or in a corporation's culture is called A) tacit knowledge.

B) explicit knowledge.

C) imitable knowledge.

D) transferable knowledge.

E) durable knowledge.

Answer: A Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 17) Competencies are the organization's assets and are the basic building blocks of the organization.

Answer: FALSE Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge

5 .

18) The resources of an organization include tangible assets, human assets, and intangible assets.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 19) Capabilities refer to a corporation's ability to exploit its resources.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 20) New product development would be a core competency if it goes beyond one division.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 21) General Electric is well known for its distinctive competency in management development.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 22) Core competencies may mature and become core deficiencies.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking 23) An example of a cluster in the United States is computer technology found in the Silicon Valley.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking

6 .

24) The attempt to hire brand managers away from P&G to learn how to duplicate the firm's brand management success is a competitor's attempt to address replicability.

Answer: TRUE Difficulty: Difficult Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking 25) Durability is the rate at which others can duplicate a firm's underlying resources, capabilities, or core competencies.

Answer: FALSE Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 26) A core competency can be easily imitated to the extent that it is transparent, transferable, and replicable.

Answer: TRUE Difficulty: Difficult Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 27) Since competitors were not able to understand how Gillette's Fusion razor was produced, it was considered transparent.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 28) Transferability is the ability of competitors to use duplicated resources and capabilities to imitate the other firm's success.

Answer: FALSE Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 29) Tacit knowledge is harder than explicit knowledge for competitors to imitate.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Analytical thinking 7 .

30) Describe Barney's VRIO framework.

Answer: Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firm's competencies: 1. Valuable: Does it provide customer value and competitive advantage?

2. Rareness: Do other competitors possess it?

3. Imitability: Is it costly for others to imitate?

4. Organization: Is the firm organized to exploit the resource?

If the answer to each of these questions is yes for a particular competency, it is considered to be a strength and thus a distinctive competence. This should provide the company with a possible competitive advantage and lead to higher performance.

Difficulty: Difficult Learning Obj.: 5.1: Apply the resource-based view of the firm and the VRIO framework to determine core and distinctive competencies AACSB: Application of knowledge 31) The business model used by Spirit Airlines in offering a low-priced fare to the mass market is the A) efficiency model.

B) advertising model.

C) customer solutions model.

D) entrepreneurial model.

E) profit pyramid model.

Answer: A Difficulty: Difficult Learning Obj.: 5.2: Explain company business models and how they can be imitated AACSB: Analytical thinking 32) The business model used by IBM to make money not selling IBM products, but by selling its expertise to improve their customers operations is the A) profit pyramid model.

B) advertising model.

C) customer solutions model.

D) efficiency model.

E) entrepreneurial model.

Answer: C Difficulty: Difficult Learning Obj.: 5.2: Explain company business models and how they can be imitated AACSB: Analytical thinking

8 .

33) The business model used by HP in selling printers and printer cartridges is the A) profit pyramid model.

B) advertising model.

C) customer solutions model.

D) efficiency model.

E) multi-component system/installed base model.

Answer: E Difficulty: Difficult Learning Obj.: 5.2: Explain company business models and how they can be imitated AACSB: Analytical thinking 34) On the continuum of resource sustainability, where would streaming movies be placed?

A) slow-cycle resources B) sustainable resources C) standard-cycle resources D) fast-cycle resources E) down-cycle resources Answer: D Difficulty: Difficult Learning Obj.: 5.2: Explain company business models and how they can be imitated 35) eBay and Amazon.com have successfully used the efficiency model by acting as an intermediary to connect multiple sellers to multiple buyers.

Answer: FALSE Difficulty: Difficult Learning Obj.: 5.2: Explain company business models and how they can be imitated AACSB: Analytical thinking 36) A linked set of value-creating activities beginning with basic materials provided by suppliers and ending with distributors getting the final product into the hands of the ultimate consumer is called a A) value chain.

B) continuum of sustainability.

C) strategic capability.

D) fully integrated activity set.

E) strategic group.

Answer: A Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge

9 .

37) The part of an industry's value chain that is most important to a company and the point where its greatest expertise and capabilities lie is called the company's A) functional crossroads.

B) center of gravity.

C) dynamic equilibrium.

D) R&D intensity.

E) economy of scope.

Answer: B Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge 38) Which of the following is not a primary activity of the value chain?

A) raw materials handling B) installation C) repair D) purchasing E) warehousing Answer: D Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Analytical thinking 39) Which of the following is not a support activity of the value chain?

A) procurement B) technology development C) human resource management D) marketing and sales E) strategic planning Answer: D Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Analytical thinking 40) When examining the corporate value chain of a particular product or service, which one of the following is not one of the primary activities that usually occur?

A) operations B) inbound and outbound logistics C) auditing and accounting D) marketing and sales E) customer service Answer: C Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Analytical thinking

10 .

41) The second step in value chain analysis is to A) identify the legal ramifications and responsibilities of their product or service.

B) examine the linkages within each product's value chain.

C) confirm that all variables have been included and taken into consideration.

D) ensure that quality management is adequately addressed.

E) examine the potential synergies among the corporation's product or business units.

Answer: B Difficulty: Difficult Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge 42) When the value chains of two separate products or services share activities, such as the same marketing channels, in order to reduce costs, this is an example of A) economies of scope.

B) economies of scale.

C) economies of integration.

D) economies of learning.

E) outsourcing.

Answer: A Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Analytical thinking 43) A value chain is a linked set of value-creating activities.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge 44) A company's center of gravity is the part of the value chain that is most important to the company and the point where its greatest expertise and core competencies lie.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge 45) A company's center of gravity is usually the point at which the company started.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge

11 .

46) According to Porter, a manufacturing firm's support activities usually begin with inbound logistics, go through an operations process in which a product is manufactured, and continue on to outbound logistics, and finally to service.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Analytical thinking 47) When a company uses the same marketing channel for two separate products, this is an example of an economy of scope.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge 48) Discuss primary and support activities in a value chain.

Answer: Porter proposed that a corporation's value chain is comprised of primary and support activities. Primary activities include inbound logistics (raw material handling and warehousing), operations (machining, assembling, and testing), outbound logistics (warehousing and distribution of finished goods), marketing and sales (advertising, promotion, pricing and channel relations) and service (installation, repair and parts). The support activities include firm infrastructure (general management, accounting, finance, and strategic planning), human resource management (recruiting, training and development), technology development (R&D), product and process improvement, and procurement (purchasing of raw materials, machines, and supplies). The systematic examination of individual value activities can lead to a better understanding of a corporation's strengths and weaknesses. According to Porter, "Differences among competitor value chains are a key source of competitive advantage."

Difficulty: Difficult Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge 49) Define a value chain and the significance of the center of gravity.

Answer: A value chain is a linked set of value-creating activities beginning with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or service, and ending with distributors getting the final goods into the hands of the ultimate consumer. A company's center of gravity is the part of the chain that is most important to the company and the point where its greatest expertise and capabilities lie – its core competencies. This is usually the point at which the company started.

Difficulty: Difficult Learning Obj.: 5.3: Use value chain to assess the activities of an industry and of an organization AACSB: Application of knowledge

12 .

50) Which of the following describes a typical functional structure?

A) Employees tend to be specialists in the business functions important to that industry such as manufacturing, marketing, finance, and human resources.

B) This is most appropriate for large corporations with many product lines in several related industries, with employees acting as specialists attempting to gain synergy among divisional activities.

C) This is most appropriate for small, entrepreneur-dominated companies with one or two product lines that operate in a small niche market, with employees acting as jack-of-all trades.

D) Employees have two or more superiors, a project manager and a functional manager.

E) This is most appropriate for large corporations with many product lines in several unrelated industries, with employees acting as specialists but with no attempt at gaining synergy among the divisions.

Answer: A Difficulty: Difficult Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Analytical thinking 51) Which of the following best describes a simple structure?

A) Work is divided into subunits on the basis of such functions as manufacturing, marketing, finance, and human resources.

B) This is most appropriate for large corporations with many product lines in several related industries, with employees acting as functional specialists attempting to gain synergy among divisional activities.

C) This is most appropriate for small, entrepreneur-dominated companies with one or two product lines that operate in a small niche market, with employees acting as jack-of-all trades.

D) Employees have two or more superiors, a project manager and a functional manager.

E) This is most appropriate for large corporations with many product lines in several unrelated industries, with employees acting as functional specialists but with no attempt at gaining synergy among the divisions.

Answer: C Difficulty: Moderate Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Application of knowledge

13 .

52) Which one of the following best describes a divisional structure?

A) Work is divided into subunits on the basis of such functions as manufacturing, marketing, finance, and human resources.

B) This is most appropriate for large corporations with many product lines in several related industries, with employees acting as functional specialists attempting to gain synergy among divisional activities.

C) This is most appropriate for small, entrepreneur-dominated companies with one or two product lines that operate in a small niche market, with employees acting as jack-of-all trades.

D) Employees have two or more superiors, a project manager and a functional manager.

E) This is most appropriate for large corporations with many product lines in several unrelated industries, with employees acting as functional specialists but with no attempt at gaining synergy among the divisions.

Answer: B Difficulty: Difficult Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Analytical thinking 53) Which one of the following best describes a conglomerate structure?

A) Work is divided into subunits on the basis of such functions as manufacturing, marketing, finance, and human resources.

B) This is most appropriate for large corporations with many product lines in several related industries, with employees acting as functional specialists attempting to gain synergy among divisional activities.

C) This is most appropriate for small, entrepreneur-dominated companies with one or two product lines that operate in a small niche market, with employees acting as jack-of-all trades.

D) Employees have two or more superiors, a project manager and a functional manager.

E) This is appropriate for a large corporation with many product lines in several unrelated industries.

Answer: E Difficulty: Moderate Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Analytical thinking 54) A functional structure is appropriate for a medium-sized firm with several product lines in one industry.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Application of knowledge

14 .

55) A divisional structure has no functional or product categories and is appropriate for a small, entrepreneur-dominated company with one or two product lines that operates in a reasonably small, easily identifiable market niche.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Application of knowledge 56) Discuss the three basic organizational structures.

Answer: The three basic organizational structures are the simple, functional, and divisional. The simple structure has no functional or product categories and is appropriate for a small, entrepreneur-dominated company with one or two product lines that operates in a reasonably small, easily identifiable market niche. Employees tend to be generalists and jacks-of-all-trades.

The functional structure is appropriate for a medium-sized firm with several product lines in one industry. Employees tend to be specialists in the business functions important to that industry.

The divisional structure is appropriate for a large corporation with many product lines in several related industries. Employees tend to be functional specialists organized according to productmarket distinctions.

Difficulty: Moderate Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Application of knowledge 57) What is R&D intensity?

Answer: A company's R&D intensity is the firm's spending on R&D as a percentage of sales revenue. This is a principal means of gaining market share in global competition. This amount often varies by industry.

Difficulty: Easy Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Application of knowledge 58) Distinguish between continuous and intermittent manufacturing systems, providing examples of each.

Answer: Manufacturing can be intermittent or continuous. In intermittent systems (job shops), the item is normally processed sequentially, but the work and sequence of the process vary. An example is an auto body repair shop. Continuous systems are those laid out as lines on which products can be continuously assembled or processed. A firm using continuous systems invests heavily in fixed investments such as automated processes and highly sophisticated machinery.

Continuous systems reap benefits from economies of scale. An example is an automobile assembly line.

Difficulty: Difficult Learning Obj.: 5.4: Explain why different organizational structures are utilized in business AACSB: Application of knowledge

15 .

59) According to the text, which one of the following is not descriptive of a corporation's culture?

A) A corporation's culture is a collection of beliefs, expectations, and values learned and shared by the corporation's members and transmitted from one generation of employees to another.

B) Corporate cultures are only temporary and can be easily changed.

C) Culture gives a company a sense of identity.

D) The culture reflects the company's values.

E) Cultures have a powerful influence on the behavior of managers and can strongly affect a corporation's ability to shift its strategic direction.

Answer: B Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 60) What are the two distinct attributes of corporate culture?

A) differentiation and integration B) durability and imitability C) concern for people and concern for task D) intensity and integration E) amount of complexity and tolerance of change Answer: D Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 61) What is the attribute of corporate culture that is the degree to which members of a unit accept the norms, values, or other culture content associated with the unit?

A) integration B) strength C) intensity D) coordination E) unity Answer: C Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

16 .

62) Which of the following is a function of corporate culture?

A) It encourages a laissez faire set of attitudes.

B) It encourages flexibility and thus constant change.

C) It conveys a sense of identity for employees.

D) It generates creative approaches to new situations.

E) It focuses employee commitment on their careers.

Answer: C Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 63) Which of the following is not a function of corporate culture?

A) conveys a sense of identity for employees B) adds to the stability of the organization as a social system C) helps generate employee commitment to something greater than themselves D) keeps people guessing about what to do next E) serves as a frame of reference for employees to use as a guide for appropriate behavior Answer: D Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 64) The breadth of an organization's culture or the extent to which units throughout an organization share a common culture is also known as A) cultural intensity.

B) cultural diversification.

C) cultural integration.

D) cultural strategy.

E) cultural prerogative.

Answer: C Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

17 .

65) Through market research, corporations are able to practice ________ with various products or services so that managers can discover what niches to seek, which new types of products to develop, and how to ensure that a company's many products do not directly compete with one another.

A) marketing position.

B) product life cycle.

C) market segmentation.

D) marketing mix.

E) marketing leverage.

Answer: C Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 66) The particular combination of product, place, promotion, and price is called A) marketing position.

B) product life cycle.

C) market segmentation.

D) marketing mix.

E) marketing leverage.

Answer: D Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 67) An example of the promotion variable of the marketing mix is A) advertising.

B) discounts.

C) location.

D) services.

E) quality.

Answer: A Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

18 .

68) A graph showing time plotted against the dollar sales of a product as it moves from introduction through growth and maturity to decline is called the A) marketing position.

B) product life cycle.

C) market segmentation.

D) marketing mix.

E) marketing leverage.

Answer: B Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 69) Which of the following statements is not true concerning a corporate reputation?

A) It is a widely held perception of a company by the general public.

B) A good corporate reputation can be a strategic resource.

C) There is a positive relationship between corporate reputation and financial performance.

D) Reputation tends to be long lasting and hard for others to duplicate.

E) Research shows no positive relationship between corporate reputation and financial performance.

Answer: E Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 70) As compared to a firm with low financial leverage, a firm with a high amount of financial leverage in an expanding market should have A) lower profits.

B) higher profits.

C) higher earnings per share.

D) lower earnings per share.

E) higher sales revenue.

Answer: C Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking

19 .

71) The ratio of total debt to total assets is known as A) budgeting leverage.

B) capital finance.

C) capital budgeting.

D) financial leverage.

E) financial budgeting.

Answer: D Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 72) Which of the following is not a responsibility of a research and development manager?

A) choosing among alternative new technologies to use within the corporation B) developing methods of embodying the new technology in new products and processes C) deploying resources so that the new technology can be successfully implemented D) taking the design and operationalizing the plan into mass production E) suggesting and implementing a corporation's technological strategy in light of its corporate objectives and policies Answer: D Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 73) The process of taking a new technology from the laboratory to the marketplace is called A) economies of scope versus operating leverage.

B) the R&D mix.

C) technological competence.

D) technology transfer.

E) technology discontinuity.

Answer: D Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

20 .

74) When scientists concentrate on quality control and the development of design specifications and improved production equipment, it is referred to as A) basic R&D. B) product R&D. C) engineering R&D. D) life cycle R&D. E) R&D mix.

Answer: C Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 75) The displacement of one technology by another, as shown by two S-shaped curves on a graph, is referred to as A) economies of scope versus operating leverage.

B) technology transfer.

C) the R&D mix.

D) technological discontinuity.

E) a disjunctive learning or experience curve.

Answer: D Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 76) The proposition that silicon chips double in complexity every 18 months is referred to as A) Ohm's Law. B) Moore's Law. C) Porter's Five Forces Model.

D) Mintzberg's Rule.

E) Keynesian's Theory.

Answer: B Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

21 .

77) In Christensen's book, The Innovator's Dilemma, he explains that established market leaders are typically reluctant to move in a timely manner to a new technology. This reluctance to switch technologies is because the resource allocation process in most companies gives priority to those projects with the greatest likelihood of generating a A) good return of investment.

B) high net present value.

C) significant cost reduction.

D) reduction in total operating expenses.

E) lowered time spent during technology implementation.

Answer: A Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 78) According to the text, the primary task of the operations manager is to A) make sure all the products or services are producing maximum revenue.

B) develop and operate a system that will produce the required number of products or services with a certain quality, at a given cost, within an allotted time.

C) make sure the process has a high quality control.

D) ensure that the process is manufactured or delivered as efficiently as possible.

E) interface with the other functional departments to coordinate their operations in avoiding duplication of effort.

Answer: B Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 79) Which of the following terms best describes a system in which items are normally processed sequentially, but the work and sequence of the process vary?

A) continuous system B) debt capacity C) chronological processing D) operating leverage E) intermittent system Answer: E Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

22 .

80) An automobile assembly line is an example of which approach to manufacturing?

A) continuous system B) debt capacity C) sequential processing D) job shop E) intermittent system Answer: A Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 81) ________ is the impact of a specific change in sales volume on net operating income.

A) Continuous system B) Chronological processing C) Debt capacity D) Operating leverage E) Intermittent system Answer: D Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 82) ________ suggests that unit production costs decline by some fixed percent each time the total accumulated volume of production in units doubles.

A) The experience curve B) The R&D mix C) Technological competence D) Economy of scale E) Economy of scope Answer: A Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking

23 .

83) Which one of the following is not descriptive of the experience curve?

A) It is very useful because it is consistent for all organizations within a particular industry.

B) It is used to estimate the production cost of a product produced by newly introduced techniques or processes.

C) The experience curve varies by industry and is based on many variables.

D) The concept was first applied in the airframe industry.

E) It shows that production costs decline by some fixed percentage as production in units doubles.

Answer: A Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 84) Flexible manufacturing emphasizes A) high-volume output of mass-produced products.

B) the cost advantages of an intermittent system with the customer-oriented advantages of a continuous system.

C) the learning curve is longer since technology is automated.

D) economies of scope over economies of scale.

E) economies of scale over economies of scope.

Answer: D Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 85) Strategic managers must be concerned with human resource management because A) dealing with people is their primary job.

B) quality of work life is more important than strategic management.

C) the best strategies are meaningless if employees do not have the skills to carry them out or if jobs cannot be designed to accommodate the available workers.

D) workers are more likely to go on strike if management attempts to cross them.

E) they must be aware of the possibility and potential of unionism.

Answer: C Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

24 .

86) In order to move more quickly through a product's development stage and have people from each discipline get involved in projects early on, companies are using A) virtual work teams.

B) cross-functional work teams.

C) advisory committees.

D) task forces.

E) continuous engineering.

Answer: B Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 87) In a process called ________, the once-isolated specialists now work side-by-side and compare notes constantly in an effort to design cost-effective products with features customers want.

A) simultaneous strategy B) participatory planning C) jointly designed objectives D) concurrent engineering E) cooperative design Answer: D Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 88) Human resource departments have found that to reduce employee dissatisfaction and unionization efforts, they must A) significantly increase their wage rates.

B) shorten the workweek to allow for more leisure time.

C) offer a wider variety of benefits and attractive enticements.

D) guarantee their workers lifetime jobs.

E) consider the quality of work life in the design of jobs.

Answer: E Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

25 .

89) Which of the following is not one of the four methods to improve the corporation's quality of work life?

A) improve the work environment B) introduce participative problem solving C) improve the responsiveness of management D) introduce innovative reward systems E) restructuring work Answer: C Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 90) The mix in the workplace of people from different races, cultures, and backgrounds is referred to as A) demographics.

B) diversity.

C) quality of work life.

D) globalization.

E) internationalization.

Answer: B Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 91) The PRIMARY task of the manager of information systems is to A) prevent unlawful usage of the information from the system.

B) make sure the information contained in the system is up-to-date and accurate.

C) monitor the input of information into the information system.

D) design and manage the flow of information in a corporation to improve productivity and decision-making.

E) ensure that only those who have authorized permission have access to the information system.

Answer: D Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 92) Cultural integration is the degree to which members of a unit accept the norms, values, or other cultural content associated with the unit—showing the culture's depth.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 26 .

93) When employees across the organization hold the same cultural values and norms, this demonstrates a high level of cultural integration.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 94) The corporate culture generally reflects the values of the founder(s) and the mission of the firm.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 95) The marketing mix refers to product, place, packaging, and price.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 96) The product life cycle enables a marketing manager to examine the marketing mix of a particular product or group of products in terms of its position in its life cycle.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 97) Research reveals a positive relationship between corporate reputation and financial performance.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 98) Research indicates that greater leverage has a positive impact on performance for firms in stable environments, but a negative impact for firms in dynamic environments.

Answer: TRUE Difficulty: Difficult Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 27 .

99) A good rule of thumb for R&D spending is that a corporation should spend at a "normal" rate for that particular industry unless its strategic plan calls for unusual expenditures.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 100) A company's capability in product R&D can be measured by consistent reductions in unit manufacturing costs and by the number of product defects.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 101) It is generally accepted that process R&D normally dominates the early stages of a product's life cycle, whereas product R&D becomes especially important in the later stages.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 102) Historically, competitive leadership in a market changes hands as one technology nears the end of its S-curve.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 103) An example of an intermittent manufacturing system is an auto body repair shop.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 104) Continuous manufacturing systems reap benefits from economies of scale.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 28 .

105) Flexible manufacturing permits the low-volume output of custom-tailored products at relatively low unit costs through economies of scope.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 106) Using concurrent engineering, Chrysler Corporation was able to reduce its product development cycle from 60 to 36 months.

Answer: TRUE Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Analytical thinking 107) To increase flexibility, avoid layoffs, and reduce labor costs, corporations are using more contingent workers.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 108) A current trend in corporate information systems is the increasing use of the Internet for marketing, intranets for internal communication, and extranets for logistics and distribution.

Answer: TRUE Difficulty: Easy Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge 109) What is corporate culture and what are the two distinct attributes of culture?

Answer: Corporate culture is the collection of beliefs, expectations, and values learned and shared by a corporation's members and transmitted from one generation of employees to another.

Corporate culture has two distinct attributes – intensity and integration. Cultural intensity is the degree to which members of a unit accept the norms, values, or other culture content associated with the unit. This shows the culture's depth. Cultural integration is the extent to which units throughout an organization share a common culture. This is the culture's breadth.

Difficulty: Moderate Learning Obj.: 5.5: Assess a company's corporate culture and how it might affect a proposed strategy AACSB: Application of knowledge

29 .

110) The EFAS Table is one way to organize the internal factors into generally accepted categories of strengths and weaknesses as well as to analyze how well a particular company's management is responding to these specific factors in light of the perceived importance of these factors to the company.

Answer: FALSE Difficulty: Moderate Learning Obj.: 5.6: Construct an IFAS Table that summarizes internal factors AACSB: Analytical thinking

30 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 6 Strategy Formulation: Business Strategy 1) Strategy formulation or strategic planning begins with a(n) ________, which is the process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses.

A) environmental analysis.

B) position analysis.

C) strategic evaluation.

D) objective analysis.

E) situation analysis.

Answer: E Difficulty: Easy Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 2) One desired outcome of analyzing strategic factors is identifying niches where an organization can use its ________ to take advantage of a particular market opportunity.

A) differentiating capabilities.

B) distinctive competencies.

C) situational proficiency.

D) core competencies.

E) distinctive characteristics.

Answer: D Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 3) An acronym for the assessment of the external and internal environments of the business corporation in the process of strategy formulation/strategic planning is A) PET. B) MBO. C) SWOT. D) SBU. E) ROI. Answer: C Difficulty: Easy Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge

1 .

4) The T in SWOT represents A) threat.

B) tactic.

C) technique.

D) task.

E) time.

Answer: A Difficulty: Easy Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 5) The text authors note that the essence of strategy is A) opportunity divided by capacity.

B) strength divided by opportunity.

C) threat divided by capacity.

D) threat divided by opportunity.

E) opportunity divided by threat.

Answer: A Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 6) All of the following reflect criticisms of the SWOT analysis EXCEPT A) it is simply the opinions of those filling out the boxes.

B) virtually everything that is a strength is also a weakness.

C) it provides a rational link to strategy implementation.

D) virtually everything that is an opportunity is also a threat.

E) there is no tie to the view from the customer.

Answer: C Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 7) In the development of an SFAS matrix, the first step is to A) enter the ratings of how the company's management is responding to each of the strategic factors.

B) calculate the weighted scores.

C) list the most important EFAS and IFAS items.

D) indicate short-term goals for the duration.

E) enter the weights for all of the internal factors.

Answer: C Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge

2 .

8) The goal of strategy is to find a(n) ________ that is so well suited to the firm's competitive advantages that other organizations are not likely to challenge or dislodge it.

A) strategic fit.

B) propitious niche.

C) common thread.

D) business screen.

E) implicit strategy.

Answer: B Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 9) According to the text, unique market opportunities that are available for only a particular time are called A) situational occasions.

B) critical openings.

C) strategy implementation.

D) strategic windows.

E) trigger points.

Answer: D Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 10) One company that has successfully found a propitious niche is A) Coca-Cola.

B) PepsiCo. C) Frank J. Zamboni & Company.

D) Walmart.

E) Disney.

Answer: C Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 11) The matrix that summarizes an organization's strategic factors by combining the external factors from the EFAS Table with the internal factors from the IFAS Table is called a(n) A) Total Weighted Score.

B) SWOT Matrix.

C) SFAS Matrix.

D) TOWS Matrix.

E) Issues Priority Matrix.

Answer: C Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 3 .

12) In a SFAS Matrix, A) all strategic factors are weighted equally.

B) the number of strategic factors can become unmanageable.

C) the same criticisms found in the SWOT Matrix are replicated.

D) a factor may be listed as both a strength and a weakness.

E) only internal strategic factors are included.

Answer: D Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 13) If a mission does not provide a common thread for a corporation's businesses, managers might be unclear about where the company is heading.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 14) SO strategies attempt to take advantage of opportunities by overcoming weaknesses.

Answer: FALSE Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy 15) SWOT is an acronym that stands for Strategy, Weaknesses, Opportunities, and Threats.

Answer: FALSE Difficulty: Easy Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 16) Populating a SWOT chart, by itself, is just the start of a strategic analysis.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 17) The goal of strategy is to find an extremely favorable niche so well suited to the firm's internal and external environment that other corporations are not likely to challenge or dislodge it.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking

4 .

18) The first firm through a strategic window can occupy an extremely favorable niche and discourage competition (if the firm has the required internal strengths).

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 19) One company that has successfully found a propitious niche (extremely favorable niche) is Frank J. Zamboni & Company, the manufacturer of the machines that smooth the ice at ice skating rinks.

Answer: TRUE Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 20) Niches can grow and change over time.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Analytical thinking 21) The SFAS Matrix summarizes an organization's strategic factors by combining the external factors from the IFAS Table with the internal factors from the EFAS Table.

Answer: TRUE Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge 22) What is a propitious niche? Provide an example of a firm that has been able to occupy a propitious niche successfully.

Answer: A propitious niche is an extremely favorable niche that is so well suited to the firm's competitive advantages that other corporations are not likely to challenge or dislodge it. A niche is propitious to the extent that it currently is just large enough for one firm to satisfy demand.

After a firm has found and filled that niche, it is not worth a potential competitor's time or money to also go after the same niche.

One company that has successfully found a propitious niche is Frank J. Zamboni & Company, the manufacturer of the machines that smooth the ice at ice skating rinks. Zamboni was the first company through this strategic window. Before the machine was invented, people had to clean and scrape the ice by hand to prepare the surface for skating. So long as Zamboni's company can produce the machines in the quantity and quality desired at a reasonable price, it's not worth another company's effort to go after Frank J. Zamboni's propitious niche.

Difficulty: Difficult Learning Obj.: 6.1: Utilize the SFAS matrix and a SWOT diagram to examine business strategy AACSB: Application of knowledge

5 .

23) Which of the following is true of an organization's mission statement?

A) should be crafted late in the strategic implementation stage B) articulates how the organization will take advantage of opportunities by overcoming weaknesses C) does not have to be unique to the organization D) should be short so every employee can remember it E) does not provide direction for employees, but rather informs outsiders of what the organization does Answer: D Difficulty: Difficult Learning Obj.: 6.2: Develop a mission statement that addresses the five elements of good design AACSB: Analytical thinking 24) An effective mission statement not only needs to be specific to that organization; it must enable a common thread to highlight and focus the energy of everyone in the organization in the direction that the top management team believes is best for the business.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.2: Develop a mission statement that addresses the five elements of good design AACSB: Application of knowledge 25) One of the first steps in good strategy design should include crafting the mission statement for the organization.

Answer: TRUE Difficulty: Easy Learning Obj.: 6.2: Develop a mission statement that addresses the five elements of good design AACSB: Application of knowledge 26) What are the common elements of a well-crafted mission statement?

Answer: A well-crafted mission statement has five common elements. It must be short so that every employee can remember the statement. The design must be simple so that everyone in the company can understand what the senior leadership team desires. It has to provide direction to the activities of company employees. The statement should enable employees to knowing what the company does and what it does not do in an exact way. Finally, the statement should be measurable so that the company can visibly see progress.

Difficulty: Moderate Learning Obj.: 6.2: Develop a mission statement that addresses the five elements of good design AACSB: Application of knowledge

6 .

27) Which strategy raises the questions of whether to compete on the basis of lower cost or differentiation and whether to compete for the biggest market or a niche market?

A) business B) corporate C) competitive D) functional E) focus Answer: C Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 28) Business strategy focuses on A) ensuring that the company maintains the existing market share that it has historically enjoyed.

B) improving the competitive position of a corporation's products or services within the industry or market segment served.

C) providing adequate shareholders' return on investment.

D) preventing the competition from gaining a competitive edge by undermining their marketing plan.

E) recovering the competitive lead by using all available resources that the company can provide.

Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 29) Business strategy is composed of A) corporate and competitive strategy.

B) functional and divisional strategy.

C) competitive and cooperative strategy.

D) corporate and cooperative strategy.

E) divisional and competitive strategy.

Answer: C Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge

7 .

30) Which of the following is not cited as one of the questions that development of a competitive strategy should raise?

A) Should we compete on the basis of lower cost?

B) Should we compete head-to-head with major competitors?

C) Should we differentiate our products or services on some basis other than cost?

D) Should we compete by garnering political support of influential leaders?

E) Should we compete in a niche market that we can satisfy which is superior to that of the competition?

Answer: D Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 31) According to Porter, the generic competitive strategy that reflects the ability of the corporation or its business unit to design, produce, and market a comparable product more efficiently than its competitors is called A) competitive scope.

B) differentiation.

C) cost leadership.

D) diversification.

E) focus.

Answer: C Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 32) What are the three generic competitive strategies that Porter promotes as the means for outperforming other corporations in a particular industry?

A) competitive scope, differentiation, and focus B) diversification, concentration, and competitive scope C) cost, competitive scope, and focus D) concentration, cost leadership, and differentiation E) cost leadership, differentiation, and focus Answer: E Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge

8 .

33) According to Porter, the generic competitive strategy that reflects the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service is called A) competitive scope.

B) differentiation.

C) focus.

D) diversification.

E) cost leadership.

Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 34) According to Porter, the term that applies to the breadth of a company's or business unit's target market is called A) competitive scope.

B) differentiation.

C) focus.

D) diversification.

E) cost leadership.

Answer: A Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 35) Walmart, as a discount retailer, is an example of a company following which of Porter's competitive strategies?

A) differentiation B) cost leadership C) differentiation focus D) competitive advantage E) cost focus Answer: B Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking

9 .

36) Apple is an example of a company following which of Porter's generic competitive strategies?

A) cost leadership B) differentiation C) cost focus D) competitive scope E) diversification Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 37) Which of Porter's competitive strategies recommends that a company emphasize a particular buyer group or geographic market and attempts to seek a cost advantage in its targeted segment?

A) differentiation B) cost leadership C) differentiation focus D) competitive advantage E) cost focus Answer: E Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 38) In manufacturing toilet paper for grocery store chains (and avoiding competing directly against Charmin), Potlach has followed which of Porter's generic competitive strategies?

A) differentiation B) cost leadership C) differentiation focus D) competitive advantage E) cost focus Answer: E Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking

10 .

39) Orphagenix, a small biotech firm, avoids head-to-head competition with large pharmaceutical companies by developing orphan drugs to target diseases that affect fewer than 200,000 people. This is an example of which of Porter's generic strategies?

A) differentiation B) cost leadership C) differentiation focus D) competitive advantage E) cost focus Answer: C Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 40) Which of Porter's competitive strategies concentrates on seeking differentiation in a particular buyer group, product line segment, or geographic market?

A) segmentation focus B) cost leadership C) differentiation focus D) competitive advantage E) cost focus Answer: C Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 41) When a company is concerned that the higher price it charges for its higher quality is too far above the price of the competition, the company is likely addressing a risk of following which competitive strategy?

A) cost leadership B) focus C) stuck-in-the-middle D) differentiation E) competitive scope Answer: D Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking

11 .

42) Which of the following is not one of the risks of a cost leadership strategy?

A) The technology that the organization has been using changes.

B) Pricing for higher quality that is too far above the price of the competition.

C) Competitors can achieve viable imitations.

D) Other bases for cost leadership erode.

E) Proximity in differentiation is lost.

Answer: B Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 43) Which strategy is a firm following if it provides a unique and superior value in a narrow market?

A) differentiation focus B) cost leadership C) differentiation D) cost focus E) stuck in the middle Answer: A Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 44) According to Porter, a business unit in a competitive marketplace with no generic competitive strategy is A) achieving synergy.

B) practicing innovative leadership.

C) stuck in the middle.

D) not goal directed.

E) last in line.

Answer: C Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 45) Most entrepreneurial ventures follow A) differentiation strategies.

B) focus strategies.

C) no strategies.

D) cost leadership strategies.

E) stuck in the middle strategies.

Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 12 .

46) Morgan Motor Car Company manufactures classic British sports cars. Which of Porter's strategies is this company following?

A) differentiation focus B) cost leadership C) stuck in the middle D) differentiation E) cost focus Answer: A Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 47) Walt Disney Company competes successfully in the entertainment industry using which of Porter's competitive strategies?

A) differentiation focus B) stuck in the middle C) cost leadership D) differentiation E) cost focus Answer: D Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 48) The focus strategies will likely predominate when many small- and medium-sized local companies compete for relatively small shares of the total market in a(n) A) united industry.

B) fragmented industry.

C) consolidated industry.

D) isolated industry.

E) integrated industry.

Answer: B Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking

13 .

49) As an industry matures while overcoming fragmentation and becomes dominated by a small number of large companies, it tends to become a(n) A) united industry.

B) fragmented industry.

C) consolidated industry.

D) isolated industry.

E) integrated industry.

Answer: C Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 50) A method developed in the mid-1990s as an efficient means to quickly consolidate a fragmented industry can be referred to as a A) merger.

B) strategic rollup.

C) cost strategy.

D) differentiation strategy.

E) focus strategy.

Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 51) As an industry becomes hypercompetitive, firms initially respond by A) raising entry barriers.

B) moving into untapped markets.

C) attacking the strongholds of other firms.

D) competing on cost and quality.

E) working their way to a situation of perfect competition.

Answer: D Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 52) The book Hypercompetition was written by A) Porter.

B) D'Aveni.

C) Mintzberg.

D) Maslow.

E) Drucker.

Answer: B Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge

14 .

53) The last stage of a hypercompetitive industry is reached when the remaining large global competitors A) raise entry barriers.

B) move into untapped markets.

C) attack the strongholds of other firms.

D) compete on cost and quality.

E) work their way to a situation of perfect competition in which no one has any advantage and profits are minimal.

Answer: E Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 54) According to D'Aveni's book, Hypercompetition, which of the following statements is true?

A) Except for a few stable industries, strategy initiatives do not provide sustainable competitive advantage.

B) Hypercompetition is rare.

C) It is enough to gain competitive advantage by being the lowest cost competitor.

D) The theory of hypercompetition is not supported by any research.

E) The American home appliance industry was immune to hypercompetition.

Answer: A Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 55) Which of Porter's broad mass market competitive strategies requires tight cost control, frequent detailed control reports, and cost minimization in areas like R&D, service and advertising?

A) focus B) differentiation C) cost leadership D) focus differentiation E) concentration Answer: C Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking

15 .

56) Research suggests that a differentiation strategy is more likely to generate higher profits than a lower cost strategy because differentiation creates A) a better entry barrier.

B) a better exit barrier.

C) a better niche market.

D) a more sustainable competitive advantage.

E) no clear long-term strategy.

Answer: A Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 57) Differentiation is a viable strategy for earning above-average returns in a specific business because the resulting increased value to the customer A) lowers costs.

B) lowers price sensitivity.

C) lowers customer loyalty.

D) lowers market share.

E) lowers entry barriers.

Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 58) Competitive scope is A) the breadth of the company's target market.

B) a business strategy.

C) the common thread found in the firm's mission statement.

D) the foundation of the choice between cost leadership and differentiation strategies.

E) an element of the marketing mix.

Answer: A Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 59) Which of Porter's competitive strategies is likely to predominate in a fragmented industry?

A) cost leadership B) differentiation C) cost focus D) stuck in the middle E) cooperative Answer: C Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking

16 .

60) Strict targets to improve efficiency are likely to be found in organizations following which of Porter's generic competitive strategies?

A) cost leadership B) differentiation C) stuck in the middle D) differentiation focus E) cooperative Answer: A Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 61) According to Barney, under which condition would tacit collusion most likely be successful?

A) There is a large number of identifiable competitors.

B) Costs vary among firms.

C) One firm tends to act as the price leader.

D) Sales are characterized by a low frequency of large orders.

E) There are low barriers to entry in the industry.

Answer: C Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 62) When a company following a differentiation strategy ensures that the higher price it charges for its higher quality is not priced too far above the price of the competition, the company is using the process of A) low-cost differentiation.

B) cost leadership.

C) cost proximity.

D) basic differentiation.

E) price fixing.

Answer: C Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations 63) When firms follow each other's lead to reduce the level of competition such as GE and Westinghouse did in steam turbines, it is referred to as A) explicit collusion.

B) a strategic alliance.

C) a mutual service consortium.

D) conscious parallelism.

E) partnering.

Answer: D Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 17 .

64) A secret salary cap was the contention in a 2012 collusion lawsuit filed against A) KFC. B) The National Football League.

C) GE. D) Major League Baseball.

E) ESPN. Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 65) Tacit collusion A) involves direct communication among competing firms.

B) is most likely to be successful if there are many competitors.

C) is seen with conscious parallelism as practiced by GE and Westinghouse in the pricing of turbine engines.

D) is not illegal.

E) is most effective when the industry does not have a firm that acts as a price leader.

Answer: C Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 66) Collusion A) may be explicit or tacit.

B) may be tacit and therefore legal.

C) is rarely practiced by competing firms.

D) cannot occur without direct communication among firms.

E) is a popular competitive strategy.

Answer: A Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 67) The active cooperation of firms within an industry to reduce output and raise prices to get around the normal law of supply and demand is referred to as A) a strategic alliance.

B) collusion.

C) a strategic roll up.

D) a merger.

E) licensing.

Answer: B Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge

18 .

68) The two general types of cooperative strategies are A) competitive and functional.

B) collusion and competitive.

C) strategic alliances and collusion.

D) strategic alliances and competitive.

E) competitive and collusive alliances.

Answer: C Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 69) If it is to be successful, Porter advises that a division possess strong marketing abilities, product engineering, a creative flair, strong capability in basic research and a corporate reputation for quality or technological leadership, for which one of the following generic competitive strategies?

A) focus B) differentiation C) overall cost leadership D) vertical growth E) concentration Answer: B Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations 70) Product engineering, creative flair, and strong cooperation from channels are commonly required skills and resources for which of Porter's generic strategies?

A) cost leadership B) differentiation C) cost leadership focus D) differentiation focus E) collusion Answer: B Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Reflective thinking 71) Intense supervision of labor, sustained capital investment and access to capital are commonly required skills and resources for which of Porter's generic competitive strategies?

A) cost leadership B) differentiation C) cost leadership focus D) differentiation focus E) collusion Answer: A Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Reflective thinking 19 .

72) Amenities to attract highly skilled labor, scientists, or creative people are a common organizational requirement for which of Porter's generic competitive strategies?

A) cost leadership B) differentiation C) cost leadership focus D) differentiation focus E) collusion Answer: B Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Reflective thinking 73) Incentives based on meeting strict quantitative targets are a common organizational requirement for which of Porter's generic competitive strategies?

A) cost leadership B) differentiation C) cost leadership focus D) differentiation focus E) collusion Answer: A Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Reflective thinking 74) One skill required of the cost leadership strategy is a strong marketing ability.

Answer: FALSE Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations 75) Business strategy focuses on improving the competitive position of a company's or business unit's products or services within the specific industry or market segment that the company or business unit serves.

Answer: TRUE Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 76) Cost leadership is the ability of a company or business unit to design, produce, and market a comparable product more efficiently than its competitors.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge

20 .

77) A cost leader's lower costs allow it to continue to earn profits during times of heavy competition.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 78) An example of a company following a cost focus strategy is Potlach Corporation, which makes house brands of toilet paper for Safeway and other grocery store chains.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 79) One risk of a cost leadership strategy is that the technology for production or of products may change.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 80) An example of a company that was "stuck in the middle" was K-Mart as the company tried to imitate both Walmart's low-cost strategy and Target's differentiation strategy.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 81) Although Porter agrees that it is possible for a company to achieve low cost and differentiation simultaneously, he suggests that no company has been able to achieve this.

Answer: FALSE Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 82) Most entrepreneurial ventures attempt to follow focus strategies.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 83) The strategic rollup was developed in the mid-1990s as an efficient way to quickly consolidate a fragmented industry with the resulting large firm creating economies of scale.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 21 .

84) Rollups are not synonymous with traditional mergers and acquisitions.

Answer: TRUE Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 85) One danger of D'Aveni's concept of hypercompetition is that it may lead to an overemphasis on short-term tactics over long-term strategy.

Answer: TRUE Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 86) The ability to market a comparable product or service more efficiently than competitors is the one skill not required in a cost leadership strategy.

Answer: FALSE Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 87) Tight cost control is an organizational requirement for a cost leadership strategy.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 88) The only way to gain competitive advantage within an industry is to use a competitive strategy.

Answer: FALSE Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Analytical thinking 89) Those companies using cooperative strategies are generally not able to gain a competitive advantage.

Answer: FALSE Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 90) The two general types of cooperative strategies are collusion and strategic alliances.

Answer: TRUE Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 22 .

91) In tacit collusion, there is no direct communication among competing firms.

Answer: TRUE Difficulty: Difficult Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 92) Collusion is the active cooperation of firms within an industry to reduce output and raise prices in order to get around the normal economic law of supply and demand.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 93) What are Porter's three generic competitive strategies?

Answer: Porter's three generic competitive strategies are overall cost leadership, differentiation, and focus. Cost leadership is the ability of a company or a business unit to design, produce, and market a comparable product or service more efficiently than its competitors. Differentiation is the ability of a company to provide unique and superior value to the buyer. Differentiation may include areas such as product quality, special features, or after-sale service. Focus is the ability of a company to provide unique and superior value to a particular buyer group, segment of the market line, or geographic market.

Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 94) Discuss competitive strategy differences between a fragmented and a consolidated industry.

Answer: In a fragmented industry, there are many small- and medium-sized local companies competing for relatively small shares of the total market. Focus strategies will likely predominate in a fragmented industry. Fragmented industries are typical for products in the early stages of their life cycle. If few economies are to be gained through size, no large firms will emerge and entry barriers will be low—allowing a stream of new entrants into the industry.

As an industry matures, fragmentation is overcome and the industry tends to become a consolidated industry dominated by a few large companies. Although many industries begin fragmented, battles for market share and creative attempts to overcome local or niche market boundaries often increase the market share of a few companies. After product standards become established for minimum quality and features, competition shifts to a greater emphasis on cost and service. Slower growth, overcapacity, and knowledgeable buyers combine to put a premium on a firm's ability to achieve cost leadership or differentiation along the dimensions most desired by the market. Research and development shifts from product to process improvements. Overall product quality improves, and costs are reduced significantly.

Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge

23 .

95) What is the impact of hypercompetition on competitive advantage?

Answer: Hypercompetition reflects the increasing difficulty of sustaining a competitive advantage over time. As a result of this erosion of competitive advantage, companies must constantly work to improve their advantage. Firms must constantly seek new ways to lower costs and add value to their products and services.

Difficulty: Easy Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 96) What are cooperative strategies?

Answer: Cooperative strategies are used to gain competitive advantage within an industry by working with other firms. The two general types of cooperative strategies are collusion and strategic alliances. Collusion is the active cooperation of firms within an industry to reduce output and raise prices in order to get around the normal economic law of supply and demand. A strategic alliance is a partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.

Difficulty: Moderate Learning Obj.: 6.3: Explain the competitive and cooperative strategies available to corporations AACSB: Application of knowledge 97) Jet airplane manufacturers often enter into strategic alliances to A) obtain new capabilities.

B) obtain access to specific markets.

C) reduce financial risk.

D) reduce political risk.

E) preserve autonomy.

Answer: C Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 98) The "cell" chip created by IBM, Sony Electronics, and Toshiba was a result of pooling their resources in a A) joint venture.

B) licensing arrangement.

C) value-chain partnership.

D) mutual service consortium.

E) competitive advantage.

Answer: D Difficulty: Difficult Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge

24 .

99) Disadvantages of joint ventures include all of the following EXCEPT A) loss of control.

B) lower profits.

C) probability of conflicts with partners.

D) likely transfer of technological advantage to the partner.

E) mutual dependence.

Answer: E Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 100) When Facebook partnered with nine news organizations to allow the news organizations (including powerhouses like the New York Times and NBC News) to post stories on the Facebook site, they engaged in A) a joint venture.

B) a licensing arrangement.

C) a value-chain partnership.

D) a mutual service consortium.

E) a competitive advantage.

Answer: C Difficulty: Difficult Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Analytical thinking 101) In licensing arrangements, which of the following is not true?

A) The licensee can gain technical expertise.

B) Companies can be aided in entering new countries directly.

C) The licensee might become a competitor to the licensing firm if they license their distinctive competencies.

D) Companies should never license their distinctive competencies.

E) The licensee is usually following a differentiation strategy.

Answer: E Difficulty: Difficult Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 102) Which of the following is not a reason companies or business units may form a strategic alliance?

A) to obtain access to specific markets B) to reduce financial risk C) to reduce political risk D) to set prices in the industry E) to learn new capabilities Answer: D Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Analytical thinking 25 .

103) The kind of strategic alliance in which there is a partnership of similar companies in similar industries who pool their resources to gain a benefit that is too expensive to develop alone is the A) joint venture.

B) licensing agreement.

C) value-chain partnership.

D) mutual service consortia.

E) holding company.

Answer: D Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 104) Which strategy has been used successfully by Yum! Brands to establish KFC and Pizza Hut restaurants across the globe?

A) joint venture B) licensing arrangement C) strategic alliance D) marketing strategy E) value-chain partnership Answer: B Difficulty: Difficult Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 105) The kind of strategic alliance in which a company forms a strong and close long-term relationship for mutual advantage with a key supplier or distributor is the A) joint venture.

B) licensing agreement.

C) value-chain partnership.

D) mutual service consortia.

E) holding company.

Answer: C Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge

26 .

106) Which of the following is not considered a strategic alliance success factor?

A) Have a clear strategic purpose.

B) Operate with short-term time horizon.

C) Agree on an exit strategy for when the partners' objectives are achieved or the partnership fails.

D) Minimize conflicts among the partners by clarifying the objectives.

E) Identify likely partnering risks and deal with them when the alliance is formed.

Answer: B Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Analytical thinking 107) Alliances do not take less financial resources than do acquisitions or going it alone and are not easier to exit if necessary.

Answer: FALSE Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Analytical thinking 108) Too much partnering experience with the same strategic partners generates diminishing returns over time and leads to reduced performance.

Answer: TRUE Difficulty: Difficult Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Analytical thinking 109) A licensing arrangement is an agreement in which the licensing firm grants rights to another firm in another country or market to produce and/or sell a product.

Answer: TRUE Difficulty: Easy Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 110) A value chain partnership is a loose alliance with several distributors for the short term.

Answer: FALSE Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 111) One success factor to a strategic alliance is the ability to identify likely partnering risks and deal with them when the alliance is formed.

Answer: TRUE Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Analytical thinking

27 .

112) Discuss the reasons a firm may form a strategic alliance.

Answer: A strategic alliance is a long-term cooperative arrangement between two or more independent firms or business units that engage in business activities for mutual economic gain.

A firm may form a strategic alliance to obtain or learn new capabilities, to obtain access to specific markets, to reduce financial risk, or to reduce political risk.

Difficulty: Moderate Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge 113) Discuss the types of alliances that businesses can engage in?

Answer: The types of alliances that businesses can engage in include a mutual service consortium, a joint venture, a licensing arrangement, and a value-chain partnership. A mutual service consortium is a partnership of similar companies in similar industries that pool their resources to gain a benefit that is too expensive to develop alone. A joint venture is a "cooperative business activity, formed by two or more separate organizations for strategic purposes, that creates an independent business entity and allocates ownership, operational responsibilities, and financial risks and rewards to each member, while preserving their separate identity/autonomy." A licensing arrangement is an agreement in which the licensing firm grants rights to another firm in another country or market to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical expertise. A value-chain partnership is a strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage.

Difficulty: Difficult Learning Obj.: 6.4: Identify the types of strategic alliances AACSB: Application of knowledge

28 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 7 Strategy Formulation: Corporate Strategy 1) Which strategy specifies the firm's overall direction in terms of its general orientation toward growth, the industries or markets in which it competes, and the manner in which it coordinates activities and transfers resources among business units?

A) corporate B) functional C) divisional D) organizational E) business Answer: A Difficulty: Easy Learning Obj.: 7.1: Explain the three key issues that corporate strategy addresses AACSB: Application of knowledge 2) Which kind of corporate strategy deals with the firm's overall orientation toward growth?

A) portfolio strategy B) directional strategy C) parenting strategy D) cooperative strategy E) functional strategy Answer: B Difficulty: Easy Learning Obj.: 7.1: Explain the three key issues that corporate strategy addresses AACSB: Application of knowledge 3) Which kind of corporate strategy deals with the manner in which the firm coordinates activities and builds corporate synergies through resource sharing and development?

A) portfolio strategy B) directional strategy C) parenting strategy D) cooperative strategy E) functional strategy Answer: C Difficulty: Easy Learning Obj.: 7.1: Explain the three key issues that corporate strategy addresses AACSB: Application of knowledge 4) Corporate strategy deals primarily with the choice of direction for the firm as a whole and the management of its business or product portfolio.

Answer: TRUE Difficulty: Easy Learning Obj.: 7.1: Explain the three key issues that corporate strategy addresses AACSB: Application of knowledge 1 .

5) Corporate parenting is the coordination of cash flow among units.

Answer: FALSE Difficulty: Moderate Learning Obj.: 7.1: Explain the three key issues that corporate strategy addresses AACSB: Application of knowledge 6) Vertical integration is going backward on an industry's value chain.

Answer: FALSE Difficulty: Moderate Learning Obj.: 7.1: Explain the three key issues that corporate strategy addresses 7) What are the three key issues that corporate strategy addresses?

Answer: Corporate strategy deals with three key issues: 1. The firm's overall orientation toward growth, stability, and retrenchment (directional strategy).

2. The industries or markets in which the firm competes through its products and business units (portfolio analysis).

3. The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units (parenting strategy).

Difficulty: Moderate Learning Obj.: 7.1: Explain the three key issues that corporate strategy addresses AACSB: Application of knowledge 8) Which one of the following directional strategies is most frequently used in corporations?

A) stability B) consolidation C) growth D) retrenchment E) expansion Answer: C Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 9) Which external growth strategy involves two or more corporations joining in a stock exchange and from which only one corporation survives?

A) merger B) strategic alliance C) diversification D) acquisition E) concentration Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 2 .

10) Which of the following strategies was being used when Allied Corporation and Signal Companies formed Allied Signal?

A) merger B) strategic alliance C) diversification D) acquisition E) concentration Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 11) Which external growth strategy was demonstrated when Procter & Gamble completely absorbed Gillette?

A) merger B) strategic alliance C) diversification D) concentration E) acquisition Answer: E Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 12) Which of the following is not a reason why the growth strategy is so desirable?

A) There are more opportunities for advancement and promotion.

B) A corporation that experiences successful growth is thought of positively by the marketplace and potential investors.

C) A large and growth-oriented corporation has more clout and influence.

D) A growing firm can cover up mistakes and inefficiencies because of the increase in cash flow revenue.

E) A large and growing firm attracts more acquisition offers.

Answer: E Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

3 .

13) The most logical growth strategy for a corporation with current product lines with real growth potential in a growing industry is A) concentration.

B) conglomerate integration.

C) concentric diversification.

D) stability.

E) retrenchment.

Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 14) Ford Motor Company's use of company resources to build its River Rouge Plant outside of Detroit so that iron ore could enter into one end of the plant and a finished automobile could exit out of the other end is called A) vertical growth.

B) tapered integration.

C) horizontal integration.

D) external vertical integration.

E) quasi-integration.

Answer: A Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 15) The purpose of vertical growth is to A) take over a function previously supplied by a former employer.

B) take over a function previously provided by a supplier or by a distributor.

C) acquire a company of similar objective.

D) sell a company encumbered with debt.

E) expand to countries with strong trade alliances.

Answer: B Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

4 .

16) The purchase of the supplier Carroll's Foods for its hog-growing facilities by Smithfield Foods, the world's largest pork processor, is an example of A) forward integration.

B) horizontal integration.

C) backward integration.

D) transferred integration.

E) mass integration.

Answer: C Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 17) The ability for Nike to manufacture its own shoes and then build stores for distribution is an example of A) forward integration.

B) horizontal integration.

C) backward integration.

D) transferred integration.

E) mass integration.

Answer: A Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 18) A disadvantage of vertical integration is that it A) creates exit barriers.

B) improves coordination of activities.

C) decreases demand for the firm's products and services.

D) creates entry barriers.

E) avoids time consuming tasks.

Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

5 .

19) An attempt to explain that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market becomes too great has been proposed by A) population theory.

B) institution theory.

C) freakonomics.

D) transaction cost economics.

E) transaction growth theory.

Answer: D Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 20) In many cases, ________ integration is more profitable than ________ integration.

A) forward; backward B) vertical; backward C) backward; vertical D) backward; forward E) mass; forward Answer: D Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 21) When a firm internally makes 100% of its key supplies and completely controls its distributors, this is known as A) full integration.

B) taper integration.

C) mass integration.

D) economical integration.

E) strategic integration.

Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

6 .

22) When Bristol-Myers Squibb purchased 17% of ImClone's common stock to gain access to a new drug, it was using which type of integration?

A) full integration B) long-term contracts C) backwards integration D) taper integration E) quasi integration Answer: E Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 23) A firm's expansion into other geographic locations and/or increasing the range of products and services offered to current markets is called A) forward vertical growth.

B) diversification.

C) backward vertical growth.

D) captive company strategy.

E) horizontal growth.

Answer: E Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 24) Which strategy did Delta choose when it acquired Northwest Airlines to obtain access to Northwest's Asian markets?

A) a retrenchment strategy using horizontal integration through internal means B) a horizontal integration strategy C) a stability strategy using concentric diversification D) a growth strategy using vertical integration through external means E) a retrenchment strategy using a concentration method Answer: B Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

7 .

25) When Coca Cola contracted with Capgemini to provide accounting and financial services, which strategy was Coca Cola using?

A) horizontal growth B) backward integration C) outsourcing D) retrenchment E) diversification Answer: C Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 26) Adding a related or complementary product to a corporation's business units is called A) concentration.

B) horizontal growth.

C) concentric diversification.

D) vertical growth.

E) conglomerate diversification.

Answer: C Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 27) Growth through diversification out of an industry into an unrelated industry is called A) concentration.

B) horizontal growth.

C) concentric diversification.

D) vertical growth.

E) conglomerate diversification.

Answer: E Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

8 .

28) Which strategy might be the most likely when management realizes that the current industry is unattractive and that the firm lacks outstanding skills that it could easily transfer to related products or services in other industries?

A) concentration B) horizontal growth C) concentric diversification D) vertical growth E) conglomerate diversification Answer: E Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 29) With conglomerate diversification, the focus is on A) product-market synergy.

B) sound investment and value-oriented management.

C) employee satisfaction.

D) similar product offerings.

E) market demand.

Answer: B Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 30) An international study by Bain & Company concluded that the likelihood of a successful acquisition is increased with A) previous experience between an acquirer and a target firm.

B) narrowing the number of candidates for acquisition.

C) foregoing the time for due diligence.

D) limited geographical expansion.

E) the addition of capacity levels.

Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

9 .

31) Studies reveal that over one-half to two-thirds of acquisitions are failures primarily because A) the premiums paid were too high for the firm to earn their cost of capital.

B) due diligence was not conducted.

C) the premiums were too high to finance and resulted in bankruptcy.

D) there were unresolved management conflicts.

E) there was a clash of management philosophies.

Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 32) Which family of corporate strategies is often viewed as a lack of strategy?

A) stability strategies B) cooperative strategies C) growth strategies D) retrenchment strategies E) competitive strategies Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 33) Which strategy is considered a timeout?

A) pause/proceed-with-caution B) concentration C) contraction D) rebirth E) captive company Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

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34) Which strategy is an attempt to artificially support profits when a company's sales are declining by reducing investment and short-term discretionary expenditures?

A) profit strategy B) no-change strategy C) turnaround strategy D) concentration strategy E) captive company strategy Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 35) In which phase of a turnaround strategy does the firm attempt to "stop the bleeding" with a general, across-the-board cutback in size and costs?

A) contraction B) consolidation C) captive company D) rebirth E) divestment Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 36) When P&G sold off half of its brands and consolidated others, it was following which retrenchment strategy?

A) divestment B) sell-out C) contraction D) captive company E) liquidation Answer: A Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

11 .

37) ________ seeks to perpetuate a firm while ________ terminates the firm.

A) Bankruptcy; liquidation B) Captive company; bankruptcy C) Bankruptcy; contraction D) Rebirth; bankruptcy E) Liquidation; sell off Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 38) Research comparing concentric with conglomerate diversification concludes that A) conglomerate diversification is always less profitable than concentric diversification.

B) concentric diversification is always less profitable than conglomerate diversification.

C) the relationship between relatedness and performance follows an inverted U-shaped curve.

D) neither concentric nor conglomerate diversification are ever profitable.

E) for optimum effectiveness both conglomerate and concentric diversification should be utilized in tandem.

Answer: C Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 39) The controversy surrounding external versus internal growth finds A) external growth appears to be superior financially to internal growth.

B) internal growth appears to be superior financially to external growth.

C) there appears to be no financial advantage to either.

D) acquisitions have a lower survival rate than new internally generated business ventures.

E) strategic alliances are superior to both.

Answer: B Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

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40) The stability strategy is appropriate for all of the following circumstances EXCEPT A) useful in the short-run but can be dangerous if followed too long.

B) most appropriate for reasonably successful corporations in a reasonably predictable environment.

C) when a firm is continuing its current activities without a significant change in direction.

D) appropriate when the industry is in decline.

E) popular with small business owners who have found a niche and are happy with their success.

Answer: D Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 41) Which strategy is most appropriate as a temporary strategy to enable a corporation to consolidate its resources after prolonged rapid growth in an industry now facing an uncertain future?

A) horizontal integration strategy B) no change strategy C) retrenchment strategy D) pause/proceed with caution strategy E) profit strategy Answer: D Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 42) Which strategy is most appropriate for a company in an industry in which the future is expected to continue as an extension of the present?

A) horizontal integration strategy B) no change strategy C) retrenchment strategy D) pause/proceed with caution strategy E) profit strategy Answer: B Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

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43) Which of the following describes a turnaround strategy?

A) a form of divestment and is appropriate when corporate problems can be traced to the poor performance of an SBU or product line B) occurs when the corporation reduces the scope of some of its functional activities and becomes "captive" to another firm C) emphasizes improving operational efficiency and is appropriate when a corporation's problems are pervasive, but not yet critical D) occurs when a corporation liquidates all its assets E) involves adding different products or divisions to the corporation Answer: C Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 44) The strategy which takes place in three basic phases of contraction, consolidation, and rebirth is A) merger.

B) liquidation.

C) integration.

D) divestment.

E) turnaround.

Answer: E Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 45) Which one of the following is characteristic of a firm that has chosen a captive company strategy?

A) It is most appropriate for a company with a strong competitive position in a growing industry.

B) The firm increases the scope of its functional activities.

C) The firm gains a certainty of sales and production in return for becoming heavily dependent upon another firm for at least 75% of its sales.

D) The captive company acts as an angel to another firm.

E) It is the first phase for the company to execute a turnaround strategy.

Answer: A Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

14 .

46) In which strategy does management hope that another company will have the necessary resources and determination to return the company to profitability?

A) sell out B) captive company C) liquidation D) bankruptcy E) profit Answer: A Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 47) Which strategy involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations?

A) liquidation B) bankruptcy C) diversification D) divestment E) consolidation Answer: B Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 48) Which strategy did Circuit City use in 2008 when it converted its retail stores to cash?

A) liquidation B) bankruptcy C) diversification D) divestment E) consolidation Answer: A Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

15 .

49) Which one of the following is not a characteristic of a firm that has chosen a captive company strategy?

A) It is most appropriate for a company with a strong competitive position in a growing industry.

B) The firm reduces its functional activities to reduce costs.

C) The firm gains a certainty of sales and production in return for becoming heavily dependent upon another firm for at least 75% of its sales.

D) One of its customers makes up a large percentage of the company's sales and wants the company to keep operating as its supplier.

E) Management desperately seeks an "angel" to guarantee the company's continued existence.

Answer: A Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Reflective thinking 50) The most widely pursued corporate directional strategies are those designed to achieve growth.

Answer: TRUE Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 51) A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives.

Answer: TRUE Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 52) The two basic growth strategies are concentration and strategic alliances.

Answer: FALSE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 53) Backward integration is going backward on an industry's value chain.

Answer: TRUE Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

16 .

54) Vertical integration is the degree to which a firm operates vertically in multiple locations on an industry's value chain from extracting raw materials to manufacturing to retailing.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 55) Backward integration is often more profitable than forward integration.

Answer: TRUE Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 56) BP and Royal Dutch Shell are examples of fully integrated firms because they internally make 100% of their key supplies and completely control their distributors.

Answer: TRUE Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 57) With taper integration, a firm internally makes 100% of its key supplies and completely controls its distributors.

Answer: FALSE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 58) An example of forward quasi-integration would be a large pharmaceutical firm that acquires part interest in a drugstore chain in order to guarantee that its drugs have access to the distribution channel.

Answer: TRUE Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 59) A long-term contract is considered vertical integration.

Answer: FALSE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 17 .

60) Horizontal growth can be achieved by expanding the firm's products into other geographic locations and/or by increasing the range of products and services offered to current markets.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 61) Vertical integration is always more efficient than the marketplace.

Answer: FALSE Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 62) Some companies have moved away from vertical growth strategies toward cooperative contractual relationships with suppliers and even with competitors.

Answer: TRUE Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 63) Horizontal growth is achieved through internal development and not external means.

Answer: FALSE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 64) The probability of succeeding by moving into a related business is a function of a company's position in its core business.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 65) Companies following a related diversification strategy appear to be higher performers and survive longer than companies with narrower scope following a pure concentration strategy.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 18 .

66) Strategic managers who adopt a conglomerate diversification strategy are primarily concerned with financial considerations of cash flow or risk reduction.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 67) Concentric diversification is growth into unrelated businesses but may be a very appropriate corporate strategy when a firm has a strong competitive position but industry attractiveness is low.

Answer: FALSE Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 68) Conglomerate diversification is diversifying into an industry unrelated to its current one.

Answer: TRUE Difficulty: Easy Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 69) If a new business is very similar to that of the acquiring firm, it adds little new to the corporation and only marginally improves performance.

Answer: TRUE Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 70) The stability strategies are really a lack of any strategy.

Answer: FALSE Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 71) Stability strategies can be very useful in the short run, but they can be dangerous if followed for too long.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 19 .

72) When Sony's CEO, Howard Stringer, eliminated 10,000 jobs and closed 11 plants, he was addressing the contraction phase of the turnaround strategy.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 73) Discuss the three general orientations comprising directional strategy.

Answer: The three general orientations comprising directional strategy (sometimes referred to as grand strategies) are growth, stability, and retrenchment. Growth strategies expand the company's activities. Stability strategies make no change to the company's current activities.

Retrenchment strategies reduce the company's level of activities.

Having chosen the general orientation (such as growth), a company's managers can select from several more specific corporate strategies such as concentration within one product line/industry or diversification into other products/industries. These strategies are useful both to corporations operating in only one industry with one product line and to those operating in many industries with many product lines.

Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 74) Why is growth a very attractive strategy?

Answer: A growing flow of revenue into a highly leveraged corporation can create a large amount of organization slack (unused resources) that can be used to quickly resolve problems and conflicts between departments and divisions. Growth also provides a big cushion for turnaround in case a strategic error is made. Larger firms also have more bargaining power than do small firms and are more likely to obtain support from key stakeholders in case of difficulty.

A growing firm offers more opportunities for advancement, promotion, and interesting jobs.

Growth itself is exciting and ego enhancing for everyone. The marketplace and potential investors tend to view a growing corporation as a "winner" or "on the move." Executive compensation tends to get bigger as an organization increases in size. Large firms are also more difficult to acquire than smaller ones—thus, an executive's job in a large firm is more secure.

Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking

20 .

75) Discuss the two basic growth strategies.

Answer: The two basic growth strategies are concentration on the current product line in one industry and diversification into other product lines in other industries. If a company's product lines have real growth potential, concentration of resources on those product lines makes sense as a strategy for growth. Companies begin thinking about diversification when their growth has plateaued and opportunities for growth in the original business have been depleted.

Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge 76) Discuss the differences among full integration, taper integration, and quasi-integration.

Answer: A firm's level of vertical integration can range from total ownership of the value chain to no ownership at all. Under full integration, a firm itself makes all of its key supplies and completely controls its distributors. With taper integration, a firm itself produces less than half of its requirements and buys the rest from outside suppliers. This is also known as concurrent sourcing. Under quasi-integration, a firm does not make any of its key supplies, but instead buys most of its requirements from outside suppliers that are under its partial control.

Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 77) Discuss the more popular stability strategies.

Answer: The more popular stability strategies include the pause-proceed with caution, no change, and profit strategies. A pause-proceed with caution strategy is, in effect, a timeout—an opportunity to rest before continuing a growth or retrenchment strategy. It is a deliberate attempt to make only incremental improvements until the particular environmental situation changes. A no change strategy is a decision to do nothing new—a choice to continue current operations and policies for the foreseeable future. This strategy's success depends on a lack of significant change in a firm's situation. A profit strategy is a decision to do nothing new in a worsening situation but instead to act as though the company's problems are only temporary. This strategy is useful only to help a company get through a temporary difficulty.

Difficulty: Moderate Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Application of knowledge

21 .

78) Define a retrenchment strategy. Discuss the more popular options.

Answer: A retrenchment strategy may be used when a company has a weak competitive position in some or all of its product lines resulting in poor performance—sales are down and profits are becoming losses. The more popular options are the turnaround, becoming a captive company, selling out, bankruptcy, and liquidation. Turnaround strategy emphasizes the improvement of operational efficiency and is probably most appropriate when a corporation's problems are pervasive, but not yet critical. The three phases of a turnaround strategy are contraction, consolidation and rebirth. A captive company strategy is the giving up of independence in exchange for security. If a corporation with a weak competitive position in this industry is unable either to pull itself up by its bootstraps or to find a customer to which it can become a captive company, it may have no choice but to sell out. Bankruptcy involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations. Liquidation is the termination of the firm.

Difficulty: Difficult Learning Obj.: 7.2: Apply the directional strategies of growth, stability, and retrenchment to the organizational environment in which they work best AACSB: Analytical thinking 79) One of the most popular aids to developing corporate strategy in multi-business corporations that views business units in terms of the cash they generate is called A) PIMS. B) segmentation analysis.

C) portfolio analysis.

D) industry analysis.

E) diversification study.

Answer: C Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 80) In the Boston Consulting Group's Growth-Share Matrix, the relative competitive position of a product or division is defined as A) its market share.

B) its gross sales divided by its market share.

C) its market share multiplied by that of its nearest competitor.

D) its market share divided by that of the smallest other competitor.

E) its market share divided by that of the largest other competitor.

Answer: E Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge

22 .

81) The Growth-Share Matrix of the Boston Consulting Group suggests that the excess cash being generated by cash cows should be used to fund A) dogs.

B) question marks.

C) stars.

D) white knights.

E) fish.

Answer: B Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 82) According to the BCG Growth-Share Matrix, market leaders that typically are at the peak of their product life cycle and are usually able to generate enough cash to maintain their high share of the market are called A) cash cows.

B) lost leaders.

C) dogs.

D) question marks.

E) stars.

Answer: E Difficulty: Easy Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 83) According to the BCG Growth-Share Matrix, products that typically bring in far more money than is needed for maintenance of their market share are called A) cash cows.

B) lost leaders.

C) dogs.

D) question marks.

E) stars.

Answer: A Difficulty: Easy Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge

23 .

84) According to the BCG Growth-Share Matrix, those products with low market share in an unattractive industry that do not have the potential to bring in much cash are called A) cash cows.

B) lost leaders.

C) dogs.

D) question marks.

E) stars.

Answer: C Difficulty: Easy Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 85) According to the BCG Growth-Share Matrix, the key to success with this model is A) effective management.

B) competitive positioning.

C) innovative initiative.

D) industry growth.

E) market share leadership.

Answer: E Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 86) Which of the following is not one of the limitations of the BCG Growth-Share Matrix?

A) It is too simplistic.

B) The link between market share and profitability is questionable.

C) Growth rate is only one aspect of industry attractiveness.

D) The market leader is ignored in the analysis.

E) Small competitors with fast-growing market share are ignored.

Answer: D Difficulty: Difficult Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Analytical thinking

24 .

87) Underlying the BCG Growth-Share Matrix is the concept of the A) product life cycle.

B) industry life cycle.

C) market size.

D) experience curve.

E) industry profitability.

Answer: D Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Analytical thinking 88) An example of a company that did not blindly follow the prescriptions of a portfolio model was A) Apple.

B) Nike.

C) General Mills.

D) Dell.

E) IBM. Answer: C Difficulty: Difficult Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses 89) A simple way to portray a corporation's portfolio of investments is by using the A) SWOT Matrix.

B) transaction cost economics.

C) BCG Growth-Share Matrix.

D) SFAS Matrix.

E) IFAS Matrix.

Answer: C Difficulty: Easy Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 90) Which of the following is not one of the advantages of portfolio analysis?

A) The graphic depiction facilitates communication.

B) It provides the basis for impartial objectivity from which to make decisions.

C) It encourages top management to evaluate each of the corporation's businesses individually.

D) It raises the issue of cash flow availability for use in expansion and growth.

E) It stimulates the use of externally oriented data to supplement management's judgment.

Answer: B Difficulty: Difficult Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Analytical thinking 25 .

91) Which of the following is not one of the limitations of portfolio analysis?

A) It contains value-laden terminology that can lead to self-fulfilling prophecies.

B) It is not difficult: Easy to define product/market segments.

C) It relies too heavily on objective judgments.

D) It suggests the use of standard strategies which may be impractical or may miss potential opportunities.

E) It provides an illusion of scientific rigor.

Answer: C Difficulty: Difficult Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Analytical thinking 92) The GE Business Screen is based on long-term industry attractiveness and business strength/competitive position.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses 93) According to the BCG Growth-Share Matrix, cash cows are market share leaders typically at the growth stage of their product life cycle and are usually able to generate enough cash to maintain their high share of the market.

Answer: FALSE Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 94) According to the BCG Growth-Share Matrix, dogs should be either sold off or managed carefully for the small amounts of cash they can generate.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 95) According to the BCG Growth-Share Matrix, question marks are also known as "problem children."

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge

26 .

96) A limitation of the BCG Growth-Share Matrix is the questionable link between market share and profitability.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Analytical thinking 97) One limitation of portfolio analysis is that it provides an illusion of scientific rigor.

Answer: TRUE Difficulty: Easy Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Analytical thinking 98) What is portfolio analysis?

Answer: In portfolio analysis, top management views its product lines and business units as a series of investments from which it expects a profitable return. Corporate headquarters is in the role of an internal banker. The product lines/business units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporation's invested money.

Difficulty: Easy Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge 99) Describe the four categories of the BCG Growth-Share Matrix.

Answer: The four categories of the BCG Growth-Share Matrix are question marks, stars, cash cows, and dogs. Question marks are new products with the potential for success, but they need a lot of cash for development. Stars are market leaders typically at the peak of their product life cycle and are usually able to generate enough cash to maintain their high share of the market and contribute to the company's profits. Cash cows typically bring in far more money than is needed to maintain their market share. In this declining stage of their life cycle, these products are "milked" for cash that will be invested in new question marks. Dogs have low market share and do not have the potential to bring in much cash because they are in unattractive industries. Dogs should be either sold off or managed carefully for the small amount of cash they can generate.

Difficulty: Moderate Learning Obj.: 7.3: Apply portfolio analysis to guide decisions in companies with multiple products and businesses AACSB: Application of knowledge

27 .

100) According to Campbell, Goold, and Alexander, when parent companies create more value than any of their rivals would if they owned the same businesses, they have A) multi-point competition.

B) strategic advantage.

C) parenting advantage.

D) portfolio analysis.

E) no real advantage.

Answer: C Difficulty: Moderate Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation 101) Corporate parenting generates corporate strategy by focusing on A) the core competencies of the parent corporation and on the value created from the relationship between the parent and its units.

B) the cash flow among its business units.

C) whether a business unit should be growing, stabilizing, or retrenching.

D) acquiring distinctive competencies in the marketplace.

E) differentiating its activities into separate units and integrating these activities through complex integrating mechanisms.

Answer: A Difficulty: Easy Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Analytical thinking 102) According to the text, 75% of a company's market value is derived from its A) employees.

B) intangible assets.

C) plant assets.

D) joint ventures.

E) licensing agreements.

Answer: B Difficulty: Moderate Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Application of knowledge 103) As corporations become global competitors and expand into more markets through strategic alliances, multipoint competition is likely A) to remain unchanged.

B) to become even more prevalent.

C) to become less prevalent going forward.

D) to become non-existent.

E) to eliminate the use of horizontal strategies.

Answer: C Difficulty: Moderate Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Analytical thinking 28 .

104) A corporate strategy that cuts across divisional boundaries to build synergy across business units and to improve the competitive position of one or more business units is called A) vertical strategy.

B) horizontal strategy.

C) hierarchical strategy.

D) portfolio strategy.

E) pyramid strategy.

Answer: B Difficulty: Moderate Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Application of knowledge 105) When P&G, Kimberly-Clark, and Scott Paper compete with each other in varying combinations of consumer paper products, they are said to be engaging in A) oligopolistic competition.

B) strategic competition.

C) multipoint competition.

D) laissez-faire competition.

E) horizontal competition.

Answer: C Difficulty: Moderate Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Analytical thinking 106) Corporate parenting views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.

Answer: TRUE Difficulty: Easy Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Analytical thinking 107) In multipoint competition, large multi-business corporations compete against other large multi-business firms in a number of markets.

Answer: TRUE Difficulty: Moderate Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Application of knowledge 108) Define corporate parenting.

Answer: Corporate parenting views the corporation regarding resources and capabilities that can be used to build business unit value as well as generate synergies across business units.

Corporate parenting generates corporate strategy by focusing on the core competencies of the parent corporation and the value created from the relationship between the parent and its businesses.

Difficulty: Easy Learning Obj.: 7.4: Develop a parenting strategy for a multiple-business corporation AACSB: Application of knowledge 29 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 8 Strategy Formulation: Functional Strategy and Strategic Choice 1) Which strategy is developed to pull together the various activities and competencies of each department so that corporate and business unit performance improves and resource productivity is maximized?

A) business strategy B) competitive strategy C) generic strategy D) enterprise strategy E) functional strategy Answer: E Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 2) The pricing, selling, and distributing of a product is referred to as a(n) ________ strategy.

A) functional B) marketing C) operations D) financial E) human resource management Answer: B Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 3) The type of marketing strategy in which a company captures a larger share of an existing market for current products through market saturation or market penetration or develops new markets for current products is called A) market development.

B) push strategy.

C) product development.

D) pull strategy.

E) skimming the cream.

Answer: A Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

1 .

4) When Smith & Wesson puts its name on others' products, like men's cologne, it is using which marketing strategy?

A) demand pricing B) brand pricing C) brand extension D) penetration extension E) demand extension Answer: C Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 5) A company may use which of the following trade promotions to "pull" their products through the distribution system?

A) discounts B) in-store special offers C) advertising allowances D) coupons E) consumer advertising Answer: E Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 6) When a company spends a large amount of money on trade promotion in order to gain or hold shelf space in retail outlets, a company is using a ________ strategy.

A) pull B) push C) financial D) dedicated line E) dynamic pricing Answer: B Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

2 .

7) Which type of pricing takes advantage of the demand curve while the product is still novel and competitors are few to increase profits?

A) demand pricing B) skim pricing C) competitive pricing D) penetration pricing E) loss-leader pricing Answer: B Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 8) Which type of pricing attempts to hasten market development and offers the pioneer the opportunity to utilize the experience curve to gain market share with a low price and dominate the industry?

A) demand pricing B) competitive pricing C) skim pricing D) penetration pricing E) loss-leader pricing Answer: D Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 9) Which of the following is not a goal of financial strategies?

A) Examine the financial implication of corporate and business-level strategic options and identify the best financial course of action.

B) Provide the corporation with the appropriate financial structure and funds to achieve its overall objectives.

C) Institute a new product development plan to generate profit gain market share.

D) Provide competitive advantage through a lower cost of funds and a flexible ability to raise capital to support a business strategy.

E) Attempt to maximize the financial value of the firm.

Answer: C Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking

3 .

10) All of the following are benefits for a company to raising its debt levels EXCEPT A) deter takeover attempts by other firms.

B) improve productivity.

C) improve cash flows.

D) force management to focus on core businesses.

E) improve strategic options available.

Answer: E Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 11) A popular financial strategy in which a company is acquired in a transaction financed largely by debt and eventually paid with money generated from the acquired company's operations or by sale of its assets is A) illegal in most countries.

B) a good way to build a core competency.

C) an application of the capital asset pricing model.

D) the leveraged buyout.

E) an example of internal financing.

Answer: D Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 12) Leveraged buyouts are also sometimes referred to as A) leveraged bargains.

B) management buyouts.

C) management bargains.

D) coordinated buyouts.

E) debt buyouts.

Answer: B Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

4 .

13) When a company exchanges 200 shares of stock worth $20 each for 100 shares worth $40 each, they are using A) tracking stock.

B) holding stock.

C) a leveraged buyout.

D) reverse stock split.

E) split stock.

Answer: D Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 14) The strategy that deals with product and process innovation and improvement is known as a(n) ________ strategy.

A) marketing B) R&D C) operations D) financial E) human resource management Answer: B Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 15) A company that pioneers an innovation is called a A) technological follower.

B) technological opportunist.

C) technological leader.

D) technological manufacturer.

E) technological entrepreneur.

Answer: C Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

5 .

16) A company that imitates the products of competitors is referred to as a A) technological follower.

B) technological opportunist.

C) technological leader.

D) technological manufacturer.

E) technological entrepreneur.

Answer: A Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 17) When Intel opened four small-scale research facilities adjacent to universities to promote the cross-pollination of ideas, they were using which approach to R&D? A) open innovation B) differentiation C) technology scouting D) continuous improvement E) technology leadership Answer: A Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 18) P&G decreed that the company would search outside their organization for new ideas. To achieve this, the company used A) technology scouts.

B) a technological follower strategy.

C) open sourcing.

D) outsourcing.

E) offshoring.

Answer: A Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking

6 .

19) The reconfiguring of people, processes, units, and technology to give customers exactly what they want and when they want it is known as A) mass customization.

B) modular manufacturing.

C) a connected line batch flow.

D) open innovation.

E) a push marketing strategy.

Answer: A Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 20) If a company wishes to be a technological leader and also maintain a cost advantage, the appropriate R&D strategy would be to A) increase the cost of the product.

B) lower the cost of the product or value activities by learning from the leader's experience.

C) avoid R&D costs through imitation.

D) create low-cost ways of performing value activities.

E) innovate in other activities to increase buyer value.

Answer: D Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 21) If a company wishes to be a technological follower and also pursue a differentiation strategy, the appropriate R&D strategy would be to A) adapt the product or delivery system more closely to buyer needs by learning from the leader's experience.

B) value activities by learning from the leader's experience.

C) avoid R&D costs through imitation.

D) create low-cost ways of performing value activities.

E) innovate in other activities to increase buyer value.

Answer: A Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking

7 .

22) When a company determines how and where a product or service is to be manufactured, the level of vertical integration in the production process, the deployment of physical resources, and relationships with suppliers, the company is developing its ________ strategy.

A) marketing B) operations C) R&D D) financial E) human resource management Answer: B Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 23) A flexible manufacturing system is A) one-of-a-kind production using skilled labor.

B) highly automated assembly lines making one mass-produced product using little human labor.

C) a grouping of parts into manufacturing families to produce a wide variety of mass-produced items.

D) a process utilizing the just-in-time (JIT) method of manufacturing.

E) standardization of components with each machine functioning like a job shop, but is positioned in the same order as the parts are processed.

Answer: C Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 24) When components are standardized and each machine functions like a job shop but is positioned in the same order as the parts are processed, this setup is known as A) mass customization.

B) connected line batch flow.

C) connected job flow.

D) mass batch flow.

E) mass job flow.

Answer: B Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

8 .

25) When there are highly automated assembly lines making one mass-produced product using little human labor, this setup is called A) dedicated transfer lines.

B) connected line batch flow.

C) connected job flow.

D) mass batch lines.

E) mass job flow.

Answer: A Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 26) As it relates to operations, AMT stands for A) Automated Manufacturing Technology.

B) Advanced Manufacturing Technology.

C) Asymptotic Manufacturing Technology.

D) Advanced Monotone Technology.

E) Automated Manufacturing Technician.

Answer: B Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 27) Continuous improvement is an operations concept developed by Deming and perfected by firms in A) the United States.

B) Sweden.

C) Japan.

D) Germany.

E) Canada.

Answer: C Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

9 .

28) The use of 3-D printing demonstrates which manufacturing strategy?

A) continuous improvement B) mass production C) job shop D) mass customization E) just-in-time Answer: D Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 29) When a company deals with obtaining raw materials, parts, and supplies needed to perform the operations function, the company is developing its ________ strategy.

A) operations B) purchasing C) R&D D) financial E) human resource management Answer: B Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 30) The purchasing strategy used by an automobile manufacturer when it orders seats for a specific car model from several vendors is A) sole sourcing.

B) multiple sourcing.

C) just-in-time sourcing.

D) backup sourcing.

E) parallel sourcing.

Answer: B Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking

10 .

31) The concept of ________ was taken one step further in JIT II, in which vendor sales representatives usually have desks next to the purchasing company's factory floor, attend production status meetings, visit the R&D lab, and analyze the purchasing company's sales forecasts.

A) multiple sourcing B) outsourcing C) sole sourcing D) parallel sourcing E) all of the above Answer: C Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 32) The purchasing strategy in which two suppliers are the sole suppliers of different parts, but are also the backup suppliers for each other's parts is A) sole sourcing.

B) multiple sourcing.

C) just-in-time sourcing.

D) backup sourcing.

E) parallel sourcing.

Answer: E Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 33) Three trends are evident in logistics: outsourcing, the use of the Internet, and A) centralization.

B) downsizing.

C) logistical partnerships.

D) computerization.

E) containerized shipping.

Answer: A Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

11 .

34) The flow of products into and out of the manufacturing process is a factor when developing a(n) ________ strategy.

A) marketing B) logistics C) operations D) financial E) human resource management Answer: B Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 35) Companies such as Georgia-Pacific, Marriott, and Union Carbide view the ________ as an important way to differentiate themselves from the competition, to add value, and to reduce costs.

A) R&D function B) logistics function C) finance function D) engineering function E) purchasing function Answer: B Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 36) Avon is an example of a company that demonstrated having a diverse workforce A) can be a competitive advantage.

B) can lower productivity.

C) can be an effective logistics strategy.

D) can hinder quality.

E) hinders growth.

Answer: A Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

12 .

37) A recent trend in information systems strategy used by multi-national corporations is A) computerizing accounting.

B) automating customer service.

C) practicing follow-the-sun management.

D) replacing Fortran with Cobol in order to boost productivity.

E) replacing mainframe computers with robots.

Answer: C Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 38) When Dell Computer's customers use the Internet to design their own computers, this demonstrates which manufacturing strategy?

A) continuous improvement B) mass production C) job shop D) mass customization E) just-in-time Answer: D Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Reflective thinking 39) Church & Dwight uses the line extension strategy when they put the Arm & Hammer name on various new food products.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 40) The importance of sole sourcing was supported by Deming to obtain high supplier quality.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives 41) The orientation of the functional strategy is dictated by its parent business unit's strategy.

Answer: TRUE Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

13 .

42) Each business unit has its own set of departments, each with its own functional strategy.

Answer: TRUE Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 43) A product development strategy deals with pricing, selling, and distributing a product.

Answer: FALSE Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 44) Using a market development strategy, a company can capture a larger share of an existing market for current products or develop new markets for current products.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 45) When Colgate-Palmolive and Unilever take a successful product that they marketed in one part of the world and market it elsewhere, they are following a market development strategy.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 46) A company, such as Church & Dwight, follows the market development strategy of developing new uses and/or markets for current products such as for its successful product: Arm & Hammer brand baking soda.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 47) When the Kellogg Company changed to a push strategy, they spent more money on consumer advertising designed to build brand awareness so that shoppers will ask for the products.

Answer: FALSE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 14 .

48) Penetration pricing attempts to hasten market development and offers the pioneer the opportunity to use the experience curve to gain market share with a low price and dominate the industry.

Answer: TRUE Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 49) The use of the Internet to market goods directly to the customer allows a company to use dynamic pricing.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 50) A financial strategy examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action.

Answer: TRUE Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 51) Equity financing is preferred for unrelated diversification while debt financing is preferred for related diversification.

Answer: FALSE Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 52) In a leveraged buyout, the acquired company, in effect, pays for its own acquisition.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

15 .

53) An example of the use of the leader R&D functional strategy to achieve a differentiation competitive advantage is Nike Inc. Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 54) An operations strategy determines how and where a product or service is to be manufactured, the level of vertical integration in the production process, the deployment of physical resources, and relationships with suppliers.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 55) The continuous improvement system was developed by Deming.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 56) The automobile industry is currently experimenting with the strategy of mass customization in which pre-assembled sub-assemblies are delivered as they are needed to a company's assembly line workers.

Answer: FALSE Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 57) W. Edwards Deming, a well-known management consultant, strongly recommended sole sourcing as the only manageable way to obtain high supplier quality.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

16 .

58) Two suppliers are the sole suppliers of two different parts, but they are also backup suppliers for each other's parts in parallel sourcing.

Answer: TRUE Difficulty: Difficult Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 59) Logistics strategy deals with the flow of products into and out of the manufacturing process.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 60) Research indicates that the use of work teams leads to decreased quality and productivity as well as lower employee satisfaction and commitment as a result of less accountability.

Answer: FALSE Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 61) Multi-national corporations use sophisticated intranets to allow employees to practice followthe-sun management, in which project team members living in one country can pass their work to team members in another country in which the workday is just beginning.

Answer: TRUE Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 62) What is a functional strategy?

Answer: Functional strategy is the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage. Each business unit has its own set of departments, each with its own functional strategy.

Difficulty: Easy Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

17 .

63) Distinguish between a market development and a product development strategy.

Answer: Using a market development strategy, a company or business unit can (1) capture a larger share of an existing market for current products through market saturation and market penetration or (2) develop new markets for current products.

Using the product development strategy, a company or unit can (1) develop new products for existing markets or (2) develop new products for new markets.

Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 64) What does a financial strategy examine?

Answer: A financial strategy examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. It can also provide competitive advantage through a lower cost of funds and a flexible ability to raise capital to support a business strategy. Financial strategy usually attempts to maximize the financial value of the firm.

Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge 65) Give an example of a technological leader.

Answer: Answers will vary. Examples should include a technological leader is a company that pioneers an innovation (Apple, Google Uber, Genentech, etc.). Students may mention the example from the text, which is Nike. Students may mention that Nike spends more than most in the industry on R&D to differentiate the performance of their athletic shoes from that of their competitors.

Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Analytical thinking 66) Discuss W. Edwards Deming's position on sole sourcing.

Answer: W. Edwards Deming strongly recommended sole sourcing as the only manageable way to obtain high supplier quality. Sole sourcing relies on only one supplier for a particular part.

Deming argued that the buyer should work closely with the supplier at all stages. This reduces both cost and time spent on product design as well as improving quality. By using JIT, it can also simplify the production process.

Difficulty: Moderate Learning Obj.: 8.1: Discuss the impact that various types of functional strategies have on the achievement of organizational goals and objectives AACSB: Application of knowledge

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67) Purchasing a product or service from an outside contractor that had been previously provided internally is called A) vertical integration.

B) horizontal integration.

C) transaction costing.

D) outsourcing.

E) geographic integration.

Answer: D Difficulty: Easy Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Application of knowledge 68) The top factors in a successful ________ seemed to be a spirit of partnership, a welldesigned agreement, joint governance, and consistent communication.

A) IT relationship B) customer relationship management C) outsourcing relationship D) logistics relationship E) accounting relationship Answer: C Difficulty: Difficult Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Analytical thinking 69) According to a recent survey by Deloitte Consulting, the most popular outsourced activity was A) marketing.

B) sales.

C) finance.

D) R&D. E) information technology.

Answer: E Difficulty: Moderate Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Application of knowledge

19 .

70) Which of the following is not one of the major outsourcing errors that should be avoided?

A) failure to keep core activities in-house B) selecting the wrong vendor C) writing a poor contract D) micromanaging the outsourced activity to maintain control E) overlooking personnel issues Answer: D Difficulty: Moderate Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Application of knowledge 71) The key to outsourcing is to purchase from the outside only those activities that A) are not key to the company's distinctive competence.

B) are very expensive.

C) provide the company competitive advantage.

D) are provided by an important supplier.

E) are not very expensive.

Answer: A Difficulty: Moderate Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Analytical thinking 72) Outsourcing is the alternative to vertical integration.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Reflective thinking 73) Outsourcing is the reverse of vertical integration.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Analytical thinking 74) The key to outsourcing is to purchase from outside only those activities that are not key to the company's distinctive competencies.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Application of knowledge

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75) What is outsourcing? What are the seven major outsourcing errors that should be avoided?

Answer: Outsourcing is purchasing from someone else a product or service that had been previously provided internally. It is the reverse of vertical integration. Outsourcing is becoming an increasingly important part of strategic decision-making and an important way to increase efficiency and often quality.

The seven major outsourcing errors that should be avoided are as follows: 1. Companies failed to keep core activities in-house.

2. Companies selected the wrong vendor—those that were not trustworthy or lacked state-ofthe-art processes.

3. Companies failed to write an effective contract establishing the balance of power in the relationship.

4. Companies overlooked personnel issues, resulting in employees losing commitment to the firm.

5. Management lost control over the outsourced activity.

6. Companies overlooked the hidden costs of outsourcing.

7. Companies failed to plan an exit strategy (such as reversibility clauses).

Difficulty: Difficult Learning Obj.: 8.2: Explain which activities and functions are appropriate to outsource/offshore in order to gain or strengthen competitive advantage AACSB: Application of knowledge 76) A company that has previously found great success pioneering an extremely successful product that is presently trying to turn another "long-shot" into a success would be an example of which strategy to avoid?

A) follow the leader B) hit another home run C) arms race D) do everything E) losing hand Answer: B Difficulty: Moderate Learning Obj.: 8.3: List and explain strategies to avoid AACSB: Analytical thinking 77) A company that keeps up by imitating a leading company's strategy while ignoring its own strengths and weaknesses is an example of which strategy to avoid?

A) follow the leader B) hit another home run C) arms race D) do everything E) losing hand Answer: A Difficulty: Moderate Learning Obj.: 8.3: List and explain strategies to avoid AACSB: Analytical thinking 21 .

78) Since the deregulation of the airline industry, major airlines have entered into a spirited battle for market share by cutting prices and offering special deals. This is an example of which strategy to avoid?

A) follow the leader B) hit another home run C) arms race D) do everything E) losing hand Answer: C Difficulty: Moderate Learning Obj.: 8.3: List and explain strategies to avoid AACSB: Analytical thinking 79) A corporation might have invested so much in a particular strategy that top management is unwilling to accept its failure. This is an example of which strategy to avoid?

A) follow the leader B) hit another home run C) arms race D) do everything E) losing hand Answer: E Difficulty: Moderate Learning Obj.: 8.3: List and explain strategies to avoid AACSB: Analytical thinking 80) A company which has invested so heavily in a particular strategy that it will not consider a change in this strategy even if it is not successful, would be an example of which strategy to avoid?

A) follow the leader B) hit another home run C) arms race D) do everything E) losing hand Answer: E Difficulty: Moderate Learning Obj.: 8.3: List and explain strategies to avoid 81) Fujitsu demonstrated a follow-the-leader strategy when it imitated IBM's strategy focused on mainframes in 1990.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.3: List and explain strategies to avoid AACSB: Analytical thinking

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82) What are the strategies to avoid proposed by the authors?

Answer: The strategies to avoid are as follows: 1. Follow the leader. Imitating a leading competitor's strategy might seem to be a good idea, but it ignores a firm's particular strengths and weaknesses and the possibility that the leader may be wrong.

2. Hit another home run. If a company is successful because it pioneered an extremely successful product, it tends to search for another super product that will ensure growth and prosperity.

3. Arms race. Entering into a spirited battle with another firm for increased market share might increase sales revenue, but that increase will probably be more than offset by increases in advertising, promotion, R&D, and manufacturing costs.

4. Do everything. When faced with several interesting opportunities, management might tend to leap at all of them. At first, a corporation might have enough resources to develop each idea into a project, but money, time, and energy are soon exhausted as the many projects demand large infusions of resources.

5. Losing hand. A corporation might have invested so much in a particular strategy that top management is unwilling to accept its failure. Believing that it has too much invested to quit, the corporation continues to throw "good money after bad."

Difficulty: Difficult Learning Obj.: 8.3: List and explain strategies to avoid AACSB: Application of knowledge 83) An important consideration in the selection of a strategy is the ability of each alternative to satisfy agreed-upon objectives with the least resources and the fewest negatives. The competitive advantages developed earlier using ________ is an excellent place to start.

A) factors to ensure profitable return on investment B) the VRIO framework C) the analysis of the competitive environment D) industry research E) the analysis of governmental regulations and requirements Answer: B Difficulty: Difficult Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking

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84) The technique used to help strategic managers choose among alternative choices by defining the task environment, developing a set of various forecasts, and using pro forma financial statements is called A) decision trees.

B) SWOT analysis.

C) industry scenarios.

D) corporate scenarios.

E) Capital Asset Pricing Model.

Answer: D Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 85) The first step in constructing a corporate scenario is to A) develop a common-sized financial statement.

B) construct detailed pro forma financial statements.

C) decide upon how much risk management is willing to accept.

D) analyze the societal environment.

E) use industry scenarios to develop a set of assumptions about the task environment.

Answer: E Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 86) Which of the following is not true of risk?

A) It includes the length of time the asset will be unavailable for other uses.

B) It includes the probability that the strategy will be effective.

C) Managers who own a significant amount of stock in their firms are less likely to engage in risk-taking actions.

D) It includes the amount of assets the corporation must allocate to that strategy.

E) The greater the assets involved, the more likely top management is to demand a high probability of success.

Answer: C Difficulty: Difficult Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking

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87) According to the text, which of the following is not one of the reasons why innovations seem to occur more often in small firms rather than in large, established corporations?

A) An entrepreneur in a small firm is more willing to accept greater risk than would a larger firm.

B) Small firms are completely ignorant of risk management.

C) The greater the assets involved and the longer they are tied up, the more likely top management in large firms are to demand a high probability of success.

D) Companies operating in global industries must deal with a greater amount of risk than firms operating only in one country.

E) If the corporation's stock is widely held as in the case of large firms and experiences stock price declines due to some external assessment, it places the firm in jeopardy of being acquired.

Answer: B Difficulty: Difficult Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 88) Another approach to evaluating alternatives under conditions of high environmental uncertainty is to use the A) net present value.

B) real-options approach.

C) stakeholder priority matrix.

D) risk assessment approach.

E) hurdle rate approach.

Answer: B Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 89) Constituency building, coalition building, and advocacy advertising are commonly used A) marketing strategies.

B) risk strategies.

C) human resource management strategies.

D) political strategies.

E) logistics strategies.

Answer: D Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking

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90) Which one of the following is not one of the questions that management should raise in their attempt to assess the importance to the corporation of stakeholders' concerns?

A) Which stakeholder group should be represented on the board of directors?

B) How will this decision affect each stakeholder?

C) How much of what the stakeholders want are they likely to get under a certain alternative?

D) What are the stakeholders likely to do if they don't get what they want?

E) What is the probability that the stakeholders will follow through on their demand?

Answer: A Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 91) The most commonly used political strategies include which of the following?

A) constituency building B) political action committee contributions C) advocacy advertising D) lobbying E) all of the above Answer: E Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options 92) The type of strategy used to influence a corporation's key stakeholders in order to increase their support of corporate activities is A) cooperative strategy.

B) political strategy.

C) competitive strategy.

D) marketing strategy.

E) profit strategy.

Answer: B Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 93) If there is little fit between a strategic alternative under consideration and the corporate culture, which of the following is one of management's options to consider?

A) Take a chance on ignoring the culture by implementing the strategic alternative.

B) Manage around the culture and change the implementation plan.

C) Try to change the culture to fit the strategy.

D) Change the strategy to fit the culture.

E) Restrict the firm to consider only those strategies compatible with the culture.

Answer: E Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking

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94) Which of the following reflects the impact of industry backgrounds on strategic choices?

A) Executives from other industries tend to make riskier decisions.

B) Executives with strong ties within an industry tend to choose strategies commonly used in that industry.

C) Executives from other industries tend to downsize as a first choice.

D) Executives with strong ties within an industry tend to make riskier decisions.

E) Executives from other industries tend to emphasize ROI. Answer: B Difficulty: Difficult Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 95) The evaluation of alternative strategies and selection of the best alternative is referred to as A) alternative generation.

B) strategic implementation.

C) strategic choice.

D) strategic selection.

E) evaluation.

Answer: C Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 96) To avoid the consensus trap, which technique assigns a group or individual to identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation?

A) devil's advocate B) Sloan's judgment C) sales presentation D) dialectical inquiry E) scenario construction Answer: A Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 97) To avoid the consensus trap, which technique involving presenting two conflicting views (the thesis and the antithesis) presented in a debate format can be traced back to Plato and Aristotle?

A) devil's advocate B) Sloan's judgment C) sales presentation D) dialectical inquiry E) scenario construction Answer: D Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 27 .

98) Once the best strategic alternative is selected, the broad guidelines for its implementation are then defined by A) trade-offs.

B) policies.

C) procedures.

D) resource allocation.

E) strategic options.

Answer: B Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 99) According to Paul Nutt, a decision-making authority, what percent of decisions made by managers are failures?

A) 10% B) 25% C) 50% D) 75% E) 90% Answer: C Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 100) Risk in strategic management is only the probability that the strategy will be effective.

Answer: FALSE Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options 101) Corporate scenarios are pro forma balance sheets and income statements that forecast the effect each alternative strategy and its various programs will likely have on division and corporate return on investment.

Answer: TRUE Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 102) Risk is composed not only of the probability that the strategy will be effective but also of the amount of assets the corporation must allocate to that strategy and the length of time the assets will be unavailable for other uses.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge

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103) The real-options approach used by Chevron for bidding on petroleum reserves improves organizational performance.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 104) The attractiveness of a strategic alternative is affected by its perceived compatibility with the key stakeholders in a corporation's task environment.

Answer: TRUE Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 105) A strategy's compatibility with the corporate culture has little likelihood of impacting its success.

Answer: FALSE Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 106) Even the most attractive strategic alternative might not be selected if it is contrary to the needs and desires of important top managers.

Answer: TRUE Difficulty: Easy Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 107) Some executives show a self-serving tendency to attribute the firm's problems not to their own poor decisions, but to environmental events out of their control such as government policies or a poor economic climate.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 108) There is mounting evidence that when an organization is facing a dynamic environment, the best strategic decisions are arrived at through consensus when everyone agrees on one alternative.

Answer: FALSE Difficulty: Difficult Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking

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109) "The customer is always right" is an example of a policy in Nordstrom's.

Answer: TRUE Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 110) What is a corporate scenario? What are the three steps in their construction?

Answer: Corporate scenarios are pro forma balance sheets and income statements that forecast the effect each alternative strategy and its various programs will likely have on division and corporate return on investment.

To construct a corporate scenario, the following three steps should be taken: 1. Use industry scenarios to develop a set of assumptions about the task environment.

2. Develop common-size financial statements for the company's or business unit's previous years, to serve as the basis for the trend projections of pro forma financial statements.

3. Construct detailed pro forma financial statements for each strategic alternative.

Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Application of knowledge 111) In evaluating a strategic alternative, if there is little fit with the company's culture, what are management's options?

Answer: In evaluating a strategic alternative, management must consider corporate culture pressures and assess the strategy's compatibility with the corporate culture. If there is little fit, management must decide if it should take a chance on ignoring the culture, manage around the culture and change the implementation plan, try to change the culture to fit the strategy, or change the strategy to fit the culture.

Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 112) In a dynamic environment, using consensus to arrive at a strategic decision is not recommended. Why? What two techniques can strategic managers use to avoid the consensus trap?

Answer: The best decisions involve a certain amount of heated disagreement, and even conflict.

Many diverse opinions are presented, participants trust in one another's abilities and competencies, and conflict is task-oriented, not personal. Two techniques to help strategic managers avoid the consensus trap are the devil's advocate and dialectical inquiry. A devil's advocate is assigned to identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation. The dialectical inquiry involves combining two conflicting views—the thesis and the antithesis—into a synthesis. It requires that two proposals using different assumptions be generated for each alternative strategy under consideration.

Difficulty: Moderate Learning Obj.: 8.4: Construct corporate scenarios to evaluate strategic options AACSB: Analytical thinking 30 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 9 Strategy Implementation: Global Strategy 1) An MNC uses which international strategy for entering a foreign market by simply shipping goods produced in the company's home country to other countries for marketing to minimize risk and to experiment with a specific product?

A) licensing B) joint ventures C) exporting D) production sharing E) acquisitions Answer: C Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 2) An MNC uses which international strategy for entering a foreign market by associating itself with a firm in the host country or a government agency in that country to combine resources and expertise needed for the development of a new product or technologies?

A) licensing B) joint ventures C) production sharing D) exporting E) acquisitions Answer: B Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 3) One benefit of a U.S. company entering a joint venture with an international firm is that it A) reduces the risks of expropriation by host country officials.

B) enhances the policy of the host country's takeover of the firm.

C) promotes skepticism among other countries not involved in the merger.

D) encourages competitors to work with the company.

E) increases revenues by 20%.

Answer: A Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking

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4) To obtain a solid position in the profitable North American beer market, InBev of Belgium purchased Anheuser-Busch. This was an example of which means of international entry?

A) joint venture B) acquisition C) green-field development D) production sharing E) BOT Answer: B Difficulty: Easy Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 5) Which means of international entry is a variation of the turnkey operation?

A) joint venture B) acquisition C) green-field development D) production sharing E) BOT Answer: E Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 6) Which means of international entry is often called outsourcing?

A) joint venture B) acquisition C) green-field development D) production sharing E) BOT Answer: D Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge

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7) When a host government expropriates part or all of a foreign-owned company's holdings in its country, which means of international entry is common for firms to use?

A) joint venture B) acquisition C) management contracts D) production sharing E) BOT Answer: C Difficulty: Difficult Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 8) An MNC uses which international strategy for entering a foreign market by purchasing another company already operating in the area developing synergistic benefits gained from acquiring strong complementary product lines and a good distribution network?

A) licensing B) joint ventures C) production sharing D) exporting E) acquisitions Answer: E Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 9) In international dealings, green-field development is A) a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC. B) a way in which an MNC can take total control of operations by acquiring a firm already established in the host country.

C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire its workforce.

D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.

E) contracting for construction of operating facilities in exchange for a fee.

Answer: C Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking

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10) An MNC uses which international strategy for entering a foreign market by combining the higher labor skills and technology available in the developed countries with the lower cost labor available in the developing countries?

A) licensing B) joint ventures C) production sharing D) exporting E) acquisitions Answer: C Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 11) In international dealings, turnkey operations are A) a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC. B) a way in which an MNC can take total control of operations by either starting a business from scratch or acquiring a firm already established in the host country.

C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire a workforce.

D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.

E) contracting for construction of operating facilities in exchange for a fee.

Answer: E Difficulty: Difficult Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 12) Management contracts are used in international dealings A) as a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC. B) as a way in which an MNC can take total control of operations by either starting a business from scratch or acquiring a firm already established in the host country.

C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire a workforce.

D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.

E) when an MNC typically contracts for construction of operating facilities in exchange for a fee.

Answer: D Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking

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13) Research indicates that growing internationally is positively associated with firm profitability.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 14) Licensing grants rights to another company to open a retail store using the franchiser's name and operating system.

Answer: FALSE Difficulty: Easy Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 15) Exporting is popular for small businesses because of the Internet and rapid advance of overnight express services.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 16) Licensing is an especially useful strategy if the brand name is well known but the firm does not have the funds to finance its entering the country directly.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 17) A joint venture reduces the risks of expropriation and harassment by host country officials.

Answer: TRUE Difficulty: Difficult Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 18) Forming a joint venture between a foreign corporation and a domestic company is the most popular strategy used to enter a new country.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 5 .

19) Research suggests that joint ventures are more successful in international undertakings than are wholly owned subsidiaries.

Answer: FALSE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 20) A relatively quick way to move into an international area is through green-field development.

Answer: FALSE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Analytical thinking 21) Government restrictions on ownership can discourage acquisitions.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 22) Turnkey operations are typically contracts for the construction of operating facilities in exchange for a fee.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 23) Acquisitions are usually a far more complicated and expensive operation than green-field development.

Answer: FALSE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 24) The term production sharing was coined by Alfred Chandler.

Answer: FALSE Difficulty: Easy Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge

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25) Production sharing is often called outsourcing.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 26) Management contracts are common when a host government expropriates part or all of a foreign-owned company's holdings in its country.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 27) The BOT concept stands for Build, Operate, Transfer.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge

7 .

28) What are the more popular options for international entry?

Answer: There are several popular options for international entry. Exporting is a good way to minimize risk and experiment with a specific product. Exporting involves shipping goods produced in the company's home country to other countries for marketing. Under a licensing agreement, the licensing firm grants rights to another firm in the host country to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical expertise. Under a franchising agreement, the franchiser grants rights to another company to open a retail store using the franchiser's name and operating system. In exchange, the franchisee pays the franchiser a percentage of its sales as a royalty. Forming a joint venture between a foreign corporation and a domestic company is the most popular strategy used to enter a new country. Companies often form joint ventures to combine the resources and expertise needed to develop new products or technologies. A relatively quick way to move into an international area is through acquisitions—purchasing another company already operating in that area. If a company doesn't want to purchase another company's problems along with its assets, it may choose green-field development— building its manufacturing plant and distribution system.

Production sharing is the process of combining the higher labor skills and technology available in the developed countries with the lower-cost labor available in developing countries. Turnkey operations are typically contracts for the construction of operating facilities in exchange for a fee. The BOT (Build, Operate, Transfer) concept is a variation of the turnkey operation. Instead of turning the facility over to the host country when completed, the company operates the facility for a fixed period during which it earns back its investment, plus a profit. Management contracts offer a means through which a corporation may use some of its personnel to assist a firm in a host country for a specified fee and period of time.

Difficulty: Difficult Learning Obj.: 9.1: Describe the means of entry by which an organization can do business in another country AACSB: Application of knowledge 29) A highly developed international company with a deep involvement throughout the world, plus a worldwide perspective in its management and decision-making is called a(n) A) international corporation.

B) multi-domestic corporation.

C) multi-national corporation.

D) global corporation.

E) Stage IV corporation.

Answer: C Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge

8 .

30) A multi-national corporation A) is synonymous with an international corporation.

B) has limited involvement through the world.

C) has a worldwide perspective in its decision-making.

D) has limited perspective in its management.

E) manages worldwide operations as if they were independent.

Answer: C Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 31) Which of the following is not identified as a key driver for strategic fit between alliance partners?

A) The alliance must be important to both partners.

B) Joint activities must have added value for customers and the partners.

C) The alliance must be accepted by key stakeholders.

D) Partners contribute key strengths, but protect core competencies.

E) Partners must independently achieve their goals.

Answer: E Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 32) The global MNC faces the dual challenge of achieving scale economies through standardization while at the same time responding to A) increased competition.

B) local customer differences.

C) higher prices.

D) global economics.

E) increased shipping expenses.

Answer: B Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 33) What is the key to the successful implementation of strategic alliances?

A) the selection of an appropriate country B) the timing of the entry C) the selection of the local partner D) the size of the local partner firm E) the political environment of the country Answer: C Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge

9 .

34) A prior relationship with an alliance partner helps to develop A) a level of trust.

B) a larger profit.

C) a stronger contractual agreement.

D) less need on negotiations.

E) fewer personnel.

Answer: A Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 35) What type of partner is favored by firms when forming new alliances?

A) entrepreneurial firms B) firms in alliances with multiple other firms C) small organizations D) past partners E) large organizations Answer: D Difficulty: Easy Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 36) Which of the following is not true of the drivers for strategic fit between alliance partners?

A) The alliance must be important to both partners.

B) Partners must be mutually dependent for achieving clear and realistic objectives.

C) The alliance need not be accepted by key stakeholders.

D) Partners contribute key strengths.

E) Partners protect core competencies.

Answer: C Difficulty: Difficult Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Analytical thinking 37) An international company is a highly developed company with a deep involvement throughout the world, plus a worldwide perspective in its management and decision-making.

Answer: FALSE Difficulty: Easy Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 38) For a multi-national corporation (MNC) to be considered global, it must manage its worldwide operations as if they were totally interconnected.

Answer: TRUE Difficulty: Difficult Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 10 .

39) The global multi-national corporation faces the dual challenge of achieving scale economies through standardization while at the same time responding to local customer differences.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 40) A key driver for strategic fit between international alliance partners is that the alliance must be important to both partners.

Answer: TRUE Difficulty: Easy Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 41) A key driver for strategic fit between international alliance partners is that both partners must contribute core competencies.

Answer: FALSE Difficulty: Difficult Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 42) Discuss the key drivers for strategic fit between international alliance partners.

Answer: Key drivers for strategic fit between international alliance partners include the following. Partners must agree on fundamental values and have a shared vision about the potential for joint value creation. Alliance strategy must be derived from business, corporate and functional strategy. The alliance must be important to both partners. And these partners must be mutually dependent for achieving clear and realistic objectives. Joint activities must have added value for customers and the partners. Key stakeholders must also accept the alliance. And partners must contribute key strengths to the alliance but protect core competencies.

Difficulty: Moderate Learning Obj.: 9.2: Explain the elements of International Strategic Alliances AACSB: Application of knowledge 43) What is the activity that occurs in the last stage of international development?

A) The company invests in production facilities in key countries.

B) The company exports, but trade is minor and handled by an export department.

C) The company establishes its own export division with sales offices in other countries.

D) The company operates in a global industry and establishes worldwide human resources, R&D, and financing strategies thereby denationalizing its operations.

E) The company establishes local operating divisions in host countries to better serve individual country markets.

Answer: D Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge

11 .

44) What is the activity that occurs in Stage 1 of international development?

A) The company invests in production facilities in key countries.

B) The company exports, but trade is minor and handled by an export department.

C) The company establishes its own export division with sales offices in other countries.

D) The company operates in a global industry and establishes worldwide human resources, R&D, and financing strategies.

E) The company establishes local operating divisions in host countries to better serve individual country markets.

Answer: B Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 45) The establishment of its own sales company with offices in other countries to eliminate the middlemen and to better control marketing occurs in which stage of international development?

A) Stage 1 B) Stage 2 C) Stage 3 D) Stage 4 E) Stage 5 Answer: B Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 46) The impact on the firm's structure is minimal in which stage of international development?

A) Stage 1 B) Stage 2 C) Stage 3 D) Stage 4 E) Stage 5 Answer: A Difficulty: Easy Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 47) An export division is established to oversee foreign sales offices in which stage of international development?

A) Stage 1 B) Stage 2 C) Stage 3 D) Stage 4 E) Stage 5 Answer: B Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 12 .

48) The firm becomes a full-fledged MNC in which stage of international development?

A) Stage 1 B) Stage 2 C) Stage 3 D) Stage 4 E) Stage 5 Answer: D Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 49) Global considerations dominate organizational design in which stage of international development?

A) Stage 1 B) Stage 2 C) Stage 3 D) Stage 4 E) Stage 5 Answer: E Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 50) Which of the following is not true of the stages of international development?

A) Corporations operating internationally tend to evolve through five common stages.

B) Stage 1 of international development is the domestic company.

C) In Stage 4 of international development, the company adds an international division with responsibility for most of the business functions conducted in other countries.

D) In Stage 2 of international development, the firm is a domestic company with an export division.

E) In Stage 5 of international development, all managers are responsible for dealing with international as well as domestic issues.

Answer: C Difficulty: Difficult Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Analytical thinking

13 .

51) The research findings on the stages of international development suggest A) some support for the stages of international development, but not necessarily the sequence of stages.

B) no support for the stages of international development.

C) widespread support for the sequence of stages.

D) firms cannot skip stages of the development sequence.

E) all divisions of a corporation must be at the same stage of development at the same time.

Answer: A Difficulty: Difficult Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Analytical thinking 52) The first stage of international development is the domestic company.

Answer: TRUE Difficulty: Easy Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 53) The most successful MNCs move into a fifth stage of international development in which they have worldwide human resources, R&D, and financing strategies.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 54) To be successful with a global emphasis, firms may not skip across stages of development.

Answer: FALSE Difficulty: Moderate Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge

14 .

55) Discuss the five stages of international development.

Answer: The five stages of international development are as follows: Stage 1 (Domestic Company): The primarily domestic company exports some of its products through local dealers and distributors in the foreign countries.

Stage 2 (Domestic Company with Export Division): Success in Stage I leads the company to establish its sales company with offices in other countries to eliminate the middlemen and to better control marketing. Because exports have now become more important, the company establishes an export division to oversee foreign sales offices.

Stage 3 (Primarily Domestic Company with International Division): The company now adds an international division with responsibilities for most of the business functions conducted in other countries.

Stage 4 (Multi-national Corporation with Multi-domestic Emphasis): Now a full-fledged multinational corporation, the company increases its investments in other countries. The company establishes a local operating division or company in the host country. The product line is expanded, and local manufacturing capacity is established. Managerial functions are organized locally. Over time, the parent company acquires other related businesses, broadening the base of the local operating division.

Stage 5 (Multi-national Corporation with Global Emphasis): The most successful multi-national corporations move into a fifth stage in which they have worldwide personnel, R&D, and financing strategies. Global considerations now dominate organizational design.

Difficulty: Difficult Learning Obj.: 9.3: Discuss the stages of International Development AACSB: Application of knowledge 56) One of the big common mistakes by corporations sending executives on global assignments is A) not raising their salaries.

B) not educating executives about customs and values in other countries.

C) not providing training for the regulatory environment.

D) not providing excellent health care.

E) not giving executives the opportunity to visit home.

Answer: B Difficulty: Easy Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge

15 .

57) Which one of the following is not one of the dangers of using primarily foreign nationals to staff managerial positions in subsidiaries?

A) the increased likelihood of suboptimization B) difficulty for the MNC to meet long-term, worldwide objectives C) the ability for communication and coordination becomes increasingly difficult D) promotes anger and jealousy within the nationalistic host government E) problems in coordinating activities of several international subsidiaries leads to problems in operating in a global industry Answer: D Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Analytical thinking 58) The percentage of U.S.-based expatriate managers who fail to adjust to a host country's social and business environment is A) 6% or less.

B) between 20% and 45%.

C) between 50% and 70%.

D) between 60% and 75%.

E) greater than 90%.

Answer: B Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 59) Of those expatriate managers who completed an assignment, what percent left their company within one year of returning home?

A) 6% or less B) 25% C) 50% D) 75% E) greater than 90% Answer: B Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge

16 .

60) What percent of midsize and larger companies send some of their employees abroad?

A) 10% B) 25% C) 40% D) 60% E) 80% Answer: E Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 61) Employees who are sent on international assignments by their firms are known as A) commuters.

B) expatriates.

C) stealth employees.

D) telecommuters.

E) executives.

Answer: B Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 62) The reasons cited for a large percent of expats sent abroad who return home early are A) failure to learn the language and difficult job responsibilities.

B) difficulties adjusting to the culture and the language.

C) job dissatisfaction or difficulties adjusting to a foreign country.

D) job dissatisfaction and lack of technical skills.

E) lack of technical skills and inability to fulfill job responsibilities.

Answer: C Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 63) Within a year of returning home, 25% of expats A) leave the company to join a competitor.

B) get promoted.

C) take a headquarters position.

D) take another international assignment.

E) mentor other expats.

Answer: A Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 17 .

64) Only ________ of human resource managers have ever worked abroad, so most have little understanding of a global assignment's unique personal and professional challenges and thus fail to develop the training necessary for such an assignment.

A) 11% B) 21% C) 51% D) 41% E) 31% Answer: A Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 65) Most human resource managers fail to develop the training necessary for international assignments because A) most have not worked abroad themselves and have little understanding of the unique challenges of these positions.

B) most think this training is unnecessary.

C) the financial resources are not available.

D) the time is too limited for extensive training to be delivered before the assignment.

E) cultural training resources and experts are not available to the firm.

Answer: A Difficulty: Difficult Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 66) The vast majority of companies select employees for an international assignment based on their A) language skills.

B) ability to adapt.

C) cultural sensitivity.

D) technical expertise.

E) position in the organization.

Answer: D Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge

18 .

67) Which of the following is not true of global MNCs? A) Global MNCs emphasize international experience.

B) Global MNCs have a greater number of senior managers who have been expatriates.

C) Global MNCs have a strong focus on leadership development through the expat experience.

D) To improve organizational learning, many MNCs are providing expats with five year assignments.

E) Less emphasis is being placed on intercultural training for managers being sent on overseas assignments.

Answer: E Difficulty: Difficult Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Analytical thinking 68) The likelihood that an expat will return home early is increased by A) the perceived lack of organizational support for international assignments.

B) the emphasis on cultural training.

C) an inability to speak the language.

D) interpersonal conflicts with host country employees.

E) a lack of fit with the technical skills of the job.

Answer: A Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 69) Which of the following is not a recommendation to improve the entire expat process?

A) Keep reasons for international assignments broad.

B) Assign mentors in both the home country and the host country.

C) Develop a means of maintaining open, frequent communication throughout the process.

D) Design a plan for repatriation.

E) Develop an approach for sharing the international experience within the company.

Answer: A Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge

19 .

70) When should an organization begin communication to discuss the repatriation process?

A) when the expat accepts the assignment B) 6 months prior to the end of the assignment C) when the expat returns home D) 6 months after the expat returns home E) when the expat arrives at the foreign assignment Answer: B Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 71) When designing a plan for repatriation, A) communication should begin as soon as the manager returns home.

B) it should always include details of the next international assignment.

C) the employee should be involved in how he or she would like to incorporate the skills learned at the home office.

D) little of the experience should be shared during the assignment.

E) the plan should be generic enough to apply to all expatriates.

Answer: C Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Analytical thinking 72) Nationalistic governments tend to be placated by organizations that choose to hire A) general managers with local experience.

B) home country managers.

C) managers with general international experience, but not from the host country.

D) fewer local managers.

E) parent company managers.

Answer: A Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge

20 .

73) Suboptimization in the MNC refers to A) the local subsidiary ignoring the needs of the larger parent company.

B) the parent company ignoring the needs of the local subsidiary.

C) the parent company failing to hire local managers.

D) the local subsidiary being staffed by all expatriates.

E) the ease of the MNC in meeting its worldwide objectives.

Answer: A Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Analytical thinking 74) Using third-country nationals A) eliminates misunderstandings with local employees.

B) eliminates conflicts with the host country's government.

C) is a widespread practice among European firms.

D) decreases the opportunities for promotion.

E) is the transfer of parent company managers to an international assignment.

Answer: C Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Analytical thinking 75) Executive recruiters have reported that more major corporations are A) now requiring candidates to have international experience.

B) eliminating international assignments.

C) de-emphasizing the need for international experience.

D) eliminating stealth expatriate positions.

E) replacing executives with accidental expats.

Answer: A Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Analytical thinking 76) To improve organizational learning, many multi-national corporations are providing their managers with international assignments as long as five years.

Answer: TRUE Difficulty: Easy Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge

21 .

77) Research indicates that corporations using cross-national teams, whose members have international experience and communicate frequently with overseas managers, have greater product development capabilities.

Answer: TRUE Difficulty: Difficult Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 78) Cross border commuters are known as stealth expatriates.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 79) The danger in using primarily foreign nationals to staff managerial positions in subsidiaries is the increased likelihood of suboptimization.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 80) To improve organizational learning, many multi-national corporations are providing their managers with international assignments as long as five years.

Answer: TRUE Difficulty: Easy Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 81) Research indicates that a multi-national corporation performs at a higher level when its CEO has international experience.

Answer: TRUE Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 82) European multi-national corporations seldom use people with an international orientation to staff their management positions.

Answer: FALSE Difficulty: Easy Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 22 .

83) Discuss some of the recommendations to improve the entire expatriation process.

Answer: Some of the recommendations to improve the entire expatriation process include the following. Have a compelling reason for sending an employee to a new country. That is, a business case should be made for each assignment. Choose individuals who are open to the assignment and committed to adapting to the new environment. Assign sponsors and/or mentors in the home country and the host country. Develop an open, frequent means of communication throughout the assignment. Design a plan for repatriation. Craft an approach for sharing the experiences and lessons learned within the company.

Difficulty: Moderate Learning Obj.: 9.4: Explain how companies can improve their staffing efforts as they expand beyond their home country AACSB: Application of knowledge 84) A limitation of ROI as a measure of international performance is that A) it is a single comprehensive figure examining only one facet of the firm.

B) it provides disincentive to use existing assets efficiently.

C) it provides an incentive to acquire new assets.

D) it is very sensitive to depreciation policy.

E) it does not provide the basis for common comparison.

Answer: E Difficulty: Difficult Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Analytical thinking 85) A study of 79 MNCs revealed that international transfer pricing from one country unit to another is primarily used to A) evaluate performance.

B) minimize taxes.

C) control imports.

D) improve communication.

E) move corporate headquarters.

Answer: B Difficulty: Difficult Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge

23 .

86) Transferring profits from a foreign subsidiary to the parent corporation through dividends, royalties, or management fees is called A) technology transfer.

B) activity-based costing.

C) transfer pricing.

D) repatriation of profits.

E) transnational funding.

Answer: D Difficulty: Easy Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 87) A multi-domestic MNC should use what type of controls on its foreign units?

A) Management should be given considerable latitude, but be required to meet some predetermined performance targets.

B) Management should use a matrix structure allowing some limited autonomy of the foreign unit.

C) Management needs to exert tight controls over its many units using a centralized strategic operational decision-making format.

D) Management should use a functional approach assigning distinct and separate responsibilities to each department throughout the MNC. E) Management should use a divisional approach assigning goals and targets for each productgroup throughout the MNC. Answer: A Difficulty: Difficult Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Analytical thinking 88) A global MNC should use what type of controls over its foreign units?

A) Management should be given considerable latitude, but be required to meet some predetermined performance targets.

B) Management should use a matrix structure allowing some limited autonomy of the foreign unit.

C) Management needs to exert tight controls over its many units using a centralized strategic operational decision-making format.

D) Management should use a functional approach assigning distinct and separate responsibilities to each department throughout the MNC. E) Management should use a divisional approach assigning goals and targets for each productgroup on all its foreign units collectively.

Answer: C Difficulty: Difficult Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Analytical thinking 24 .

89) Which measure was cited as the most important measure for international performance evaluation?

A) rate of return B) ROI C) budget analysis D) ROE E) stock price Answer: A Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 90) The three most widely used techniques for international performance evaluation are A) ROI, budget analysis, and historical comparisons.

B) ROI, ROE, and stock price.

C) ROE, stock price, and rate of return.

D) rate of return, ROE, and budget analysis.

E) ROE, ROI, and interest rate.

Answer: A Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 91) What percent of corporate officers report using the same evaluation techniques for foreign and domestic operations?

A) 95% B) 80% C) 65% D) 50% E) 25% Answer: A Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge

25 .

92) The London-based International Accounting Standards Board developed International Financial Reporting Standards (IFRS) to A) harmonize international accounting practices.

B) address transfer pricing.

C) replace GAAP. D) enforce FASB standards.

E) standardize worldwide expatriate assignments.

Answer: A Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 93) Which country has been the location of choice for MNCs to move their operations and/or headquarters due to its 12.5% corporate tax rate?

A) Ireland B) Japan C) India D) Mexico E) South Korea Answer: A Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 94) Which of the following is not one of the ways MNCs can reduce taxes and capture profits from a subsidiary?

A) dividends B) royalties C) management fees D) transfer pricing E) exporting Answer: E Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 95) In one study, 95% of the corporate officers interviewed stated that they use different evaluation techniques for foreign and domestic operations.

Answer: FALSE Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 26 .

96) A study of 79 MNCs revealed that international transfer pricing from one country unit to another is primarily used not to evaluate performance but to minimize taxes.

Answer: TRUE Difficulty: Difficult Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 97) Among the most important barriers to international trade are the different standards for products and services.

Answer: TRUE Difficulty: Easy Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 98) An MNC should use loose controls on its foreign units, but a global MNC needs tight controls over its many units.

Answer: TRUE Difficulty: Difficult Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 99) Corporate tax rates tend to be relatively stable from country to country.

Answer: FALSE Difficulty: Easy Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 100) Foreign units of MNCs are evaluated more as investment or profit centers.

Answer: FALSE Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge 101) Stage 4 of international development is a multi-national corporation with global emphasis.

Answer: FALSE Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge

27 .

102) Which types of controls are recommended for a global MNC versus a multi-domestic MNC? Answer: It is recommended that the control systems used by a global MNC be different from those used by a multi-domestic MNC. An MNC should use loose controls on its foreign units.

The management of each geographic unit should be given considerable operational latitude, but it should be expected to meet some performance targets. It is recommended that top management emphasize budgets and non-financial measures of performance. Multiple measures should be used to differentiate between the worth of the subsidiary and the performance of its management.

A global MNC needs tight controls over its many units. Its key operational decisions must be centralized. Foreign units are evaluated more as cost centers, revenue centers, or expense centers than as investment or profit centers.

Difficulty: Moderate Learning Obj.: 9.5: Discuss the unique issues related to measuring organizational performance that are presented with the administration of a truly international company AACSB: Application of knowledge

28 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 10 Strategy Implementation: Organizing and Structure 1) The sum total of the activities and choices required for the execution of a strategic plan is known as A) strategic formulation.

B) environmental scanning.

C) strategy implementation.

D) evaluation and control.

E) strategic development.

Answer: C Difficulty: Easy Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge 2) Which statement below is not true of strategy implementation?

A) It is the process by which strategies and policies are put into action through the development of programs/tactics, budgets, and procedures.

B) Implementation is often considered after strategy has been formulated.

C) Strategy implementation is the sum total of the activities and choices required for the execution of a strategic plan.

D) Strategy implementation should be kept separate and distinct from that of strategic management.

E) Strategy formulation and strategy implementation are two sides of the same coin.

Answer: D Difficulty: Moderate Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Analytical thinking 3) A survey of 93 Fortune 500 firms found ten major problems that over half of the group experienced when they attempted to implement a strategic change. Which of the following is not one of the implementation problems?

A) ineffective coordination of activities B) uncontrollable external environmental factors C) time allocated for implementation was adequate, but was used inappropriately D) poor definition of key implementation tasks and activities E) crises that distracted attention away from implementation Answer: C Difficulty: Difficult Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Analytical thinking

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4) Who typically implements strategy in large, multi-industry corporations?

A) the board of directors B) top management C) middle management D) first level management E) everyone in the organization Answer: E Difficulty: Easy Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge 5) It is advisable to have management from all levels participate in the strategy formulation process A) because it is a legal requirement.

B) because collective bargaining agreements often mandate worker participation.

C) to gain an insight as to what work needs to be done and to gain cooperation in the implementation of the strategy.

D) because it is part of their job responsibilities to provide input regarding their respective area of expertise.

E) because it helps boost the self-image and ego of all managers to be asked for advice.

Answer: C Difficulty: Moderate Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Analytical thinking 6) Strategy formulation is the sum total of the activities and choices required for the execution of a strategic plan.

Answer: FALSE Difficulty: Easy Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge 7) Strategy formulation and strategy implementation should be considered as two sides of the same coin.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge 8) Poor implementation is often blamed for strategic failure.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge

2 .

9) According to a survey of Fortune 500 firms, the most frequently cited problem with implementing a strategic change is that implementation took more time than originally planned.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge 10) Those who implement strategy will probably be a much more diverse set of people than those who formulate it.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge 11) Many of the people in the organization who are crucial to successful strategy implementation probably have little to do with the development of the corporate and business strategy.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Application of knowledge 12) What is strategy implementation? What questions must strategy makers consider to begin the implementation process?

Answer: Strategy implementation is the sum total of the activities and choices required for the execution of a strategic plan. It is the process by which objectives, strategies, and policies are put into action through the development of programs and tactics, budgets, and procedures.

Implementation should be evaluated as strategy is being formulated, although many companies separate the two. Implementation is the key part of strategic management, for without implementation, we have nothing. Strategy formulation and strategy implementation should be considered as two sides of the same coin.

Poor implementation has been blamed for a number of strategic failures. Merger and acquisitions activities are clear types of very visible implementations.

To begin the implementation process, strategy makers must consider these questions: Who are the people who will carry out the strategic plan?

What must be done to align the company's operations in the new intended direction?

How is everyone going to work together to do what is needed?

Difficulty: Moderate Learning Obj.: 10.1: Describe the major issues that impact successful strategy implementation AACSB: Analytical thinking

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13) The term used in strategic implementation that describes a statement of activities or steps needed to accomplish a plan and whose use is to make the strategy action-oriented is A) a program.

B) a guideline.

C) a budget.

D) a course of action.

E) a procedure.

Answer: A Difficulty: Easy Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 14) The innovative bottle design of Ecologic Brands was influenced by a pulp tray used to ship A) soda.

B) iPhones.

C) beer.

D) yogurt.

E) reusable totes.

Answer: B Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 15) The term used in strategic implementation that describes a system of sequential steps or techniques that describe in detail how a particular task or job is to be done is A) a program.

B) a guideline.

C) a budget.

D) a course of action.

E) a procedure.

Answer: E Difficulty: Easy Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge

4 .

16) When the return on investment for each division of a corporation is greater than what the return would be if each division were an independent business, that corporation is said to have achieved A) synergy.

B) a leveraged buyout.

C) its hurdle rate.

D) the status of a true conglomerate.

E) Stage III. Answer: A Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 17) Which form of synergy was demonstrated when P&G purchased Gillette to combine P&G's knowledge of the female consumer with Gillette's knowledge of the male consumer?

A) shared tangible resources B) shared know-how C) coordinated strategies D) economies of scale E) new business creation Answer: B Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 18) According to Goold and Campbell, when companies coordinate the flow of products or services of one unit with that of another unit to reduce inventory, the synergistic effect is known as A) pooled negotiating power.

B) shared know-how.

C) coordinated strategies.

D) economies of scale or scope.

E) new business creation.

Answer: D Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking

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19) According to Goold and Campbell, which of the following is not one of the forms that synergy can take?

A) shared know-how B) coordinated strategies C) value chain creation D) pooled negotiating power E) economies of scale or scope Answer: C Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 20) When Kimberly-Clark introduced Huggies disposable diapers against Procter & Gamble's market leading Pampers, they were using the offensive tactic known as a(n) A) flanking maneuver.

B) frontal assault.

C) encirclement.

D) bypass attack.

E) guerilla attack.

Answer: B Difficulty: Difficult Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 21) When Yamaha entered the market with a broader range of pianos, keyboards, and other musical instruments, it was using which offensive tactic?

A) flanking maneuver B) frontal assault C) encirclement D) bypass attack E) guerilla attack Answer: C Difficulty: Difficult Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking

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22) Which of the following is not true of defensive tactics?

A) Defensive tactics aim to lower the probability of attack.

B) Defensive tactics divert attacks to less threatening avenues.

C) Defensive tactics lessen the intensity of an attack.

D) Defensive tactics reduce short-term profitability to ensure long-term profitability.

E) Defensive tactics include a frontal assault.

Answer: E Difficulty: Difficult Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 23) Which defensive tactic was used by Southwest Airlines when deliberately keeping their prices low and constantly investing in cost-reducing measures?

A) guerilla warfare B) lower the inducement for attack C) encirclement D) raise structural barriers E) increase expected retaliation Answer: B Difficulty: Difficult Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 24) Which of the following is not an offensive tactic?

A) frontal assault B) flanking maneuver C) guerilla warfare D) raising structural barriers E) encirclement Answer: D Difficulty: Difficult Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking

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25) Which market location tactic is being used when a company attempts to cut the market out from under the established defender by offering a new type of product that makes the competitor's product unnecessary?

A) flanking maneuver B) bypass attack C) encirclement D) guerrilla warfare E) frontal assault Answer: B Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 26) Which market location tactic is being used when a company goes head to head with its competitor matching in every category from price to promotion to distribution channel?

A) flanking maneuver B) bypass attack C) encirclement D) guerrilla warfare E) frontal assault Answer: E Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 27) Which market location tactic did Texas Instruments use when they avoided direct competition with Intel by developing cell phones, medical devices, and consumer electronics rather than computers?

A) flanking maneuver B) bypass attack C) encirclement D) guerrilla warfare E) frontal assault Answer: A Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking

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28) Which defensive tactic did P&G use when they test marketed their liquid bleach product in an attempt to scare Clorox into retreating from their detergent market?

A) lower the inducement for attack B) bypass attack C) increase expected retaliation D) flanking maneuver E) raise structural barriers Answer: C Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 29) What is the last real check a firm has on the feasibility of its selected strategy?

A) budget planning B) standard operating procedure development C) exit strategy development D) program development and execution E) tactic developments Answer: A Difficulty: Easy Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 30) The first company to manufacture and sell a new product or service is referred to as a pioneer.

Answer: TRUE Difficulty: Easy Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 31) The purpose of a program or tactic is to make the strategy action-oriented.

Answer: TRUE Difficulty: Easy Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 32) After programs have been developed, the budget process begins.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 9 .

33) Standard operating procedures typically detail the various activities that must be carried out to complete a corporation's programs.

Answer: TRUE Difficulty: Easy Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 34) Once in place, procedures seldom have to be updated to reflect changes in technology or strategy.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 35) One of the goals to be achieved in strategy implementation is synergy between and among functions and business units.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 36) Successful late movers tend to be large firms with considerable resources and related experience.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 37) Microbreweries that make beer for sale for local customers use guerilla warfare against national brewers like Anheuser-Busch.

Answer: TRUE Difficulty: Easy Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 38) Job enlargement is the movement of workers through several jobs to increase variety.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 10 .

39) An offensive tactic usually takes place in the firm's own current market position.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Application of knowledge 40) What is synergy? According to Goold and Campbell, what are the six forms it can take?

Answer: Synergy is said to exist for a divisional corporation if the return on investment of each division is greater than what the return would be if each division were an independent business.

Synergy can take place in one of six forms according to Goold and Campbell: 1. Shared know how: combined units often benefit from sharing knowledge or skills.

2. Coordinated strategies: aligning the business strategies of two or more business units may provide a corporation significant advantage by reducing inter-unit competition and developing a coordinated response to common competitors.

3. Shared tangible resources: combined units can sometimes save money by sharing resources.

4. Economies of scale or scope: coordinating the flow of products or services of one unit with that of another unit can reduce inventory, increase capacity utilization, and improve market access.

5. Pooled negotiating power: combined units can combine their purchasing to gain bargaining power over common suppliers to reduce costs and improve quality.

6. New business creation: exchanging knowledge and skills can facilitate new products or services by extracting discrete activities from various units and combining them in a new unit or by establishing joint ventures among internal business units.

Difficulty: Difficult Learning Obj.: 10.2: Explain how you would develop programs, budgets, and procedures to implement strategic change AACSB: Analytical thinking 41) Alfred Chandler, known for his study of large American corporations, concluded that A) organic structure is best for firms in a changing environment.

B) mechanistic structure is best for firms in a changing environment.

C) structure follows strategy.

D) strategy follows structure.

E) strategic business units are the key to effective decentralization.

Answer: C Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking

11 .

42) According to Chandler and others, which factors MUST be closely aligned to avoid the consequences of poor organizational performance?

A) management, workforce, and customers B) operations, marketing, and finance C) strategy, structure, and environment D) rules, goals, and tasks E) hierarchy, contacts, and integrators Answer: C Difficulty: Difficult Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 43) Which of the following is not true of a Stage I corporation?

A) It is typified by the entrepreneur.

B) The entrepreneur tends to make all the important decisions personally.

C) The Stage I corporation has little formal structure.

D) Planning tends to be long range and progressive.

E) The greatest strength of a Stage I corporation is its flexibility and dynamism.

Answer: D Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 44) Objectives that are personal and subjective and are typified by an entrepreneurial spirit describe what stage of corporate development?

A) Stage I company B) Stage II company C) Stage III company D) Stage IV company E) Stage V company Answer: A Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking

12 .

45) A corporation run by a team of managers with functional specializations and which successfully operates in one industry is said to be a A) Stage I company.

B) Stage II company.

C) Stage III company.

D) Stage IV company.

E) Stage V company.

Answer: B Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 46) In a Stage I company, if the entrepreneur falters, the company usually flounders. This is labeled by Greiner as a crisis of A) autonomy.

B) confidence.

C) clarity.

D) differentiation.

E) leadership.

Answer: E Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 47) When the people managing diversified product lines in a functionally structured corporation need more decision-making freedom than top management is willing to delegate to them, there is a crisis of A) autonomy.

B) confidence.

C) clarity.

D) differentiation.

E) leadership.

Answer: A Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking

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48) In Stage III of a corporation, when various units of the company optimize their sales and profits without regard to the overall corporation, the organization may be experiencing a crisis of A) leadership.

B) control.

C) autonomy.

D) decentralization.

E) empowerment.

Answer: B Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 49) A candidate for a fourth stage in corporate development is the A) conglomerate structure.

B) functional structure.

C) divisional structure.

D) matrix structure.

E) hybrid structure.

Answer: D Difficulty: Difficult Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 50) An external block preventing a corporation from moving from one stage to another is A) unfavorable economic conditions.

B) strategic myopia.

C) organizational inflexibility.

D) lack of ability.

E) lack of resources.

Answer: A Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking

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51) Stage III in the organizational life cycle is the A) birth stage.

B) growth stage.

C) maturity stage.

D) decline stage.

E) death stage.

Answer: C Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 52) Stage V in the organizational life cycle is the A) birth stage.

B) growth stage.

C) maturity stage.

D) decline stage.

E) death stage.

Answer: E Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 53) During Stage II of the organizational life cycle, the structure most likely to be implemented is A) entrepreneur-dominated.

B) functional management.

C) decentralization into profit or investment centers.

D) structural surgery.

E) dismemberment of structure.

Answer: B Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking

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54) During Stage V of the organizational life cycle, the popular strategy is A) concentration in a niche.

B) horizontal and vertical growth.

C) liquidation or bankruptcy.

D) concentric and conglomerate diversification.

E) profit strategy followed by retrenchment.

Answer: C Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 55) What is the additional phase in the organizational life cycle that may occur sometime during the maturity or decline stages?

A) pause phase B) acquisition phase C) recovery phase D) temporal displacement phase E) revival phase Answer: E Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 56) When the drive of the entrepreneur is no longer enough to keep the Stage I company from floundering, this type of crisis is called A) a crisis of autonomy.

B) a crisis of confidence.

C) a crisis of clarity.

D) a crisis of differentiation.

E) a crisis of leadership.

Answer: E Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 57) Stage IV of a corporation could involve a pressure-cooker crisis.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage

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58) Any change in corporate strategy is very likely to require some sort of change in the way an organization is structured and in the kind of skills needed in particular positions.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 59) The concept that structure follows strategy was developed by Alfred Chandler.

Answer: TRUE Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 60) Research generally supports Chandler's proposition that structure follows strategy as well as the reverse proposition that structure influences strategy.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 61) Firms in the same industry seldom organize themselves in similar ways.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 62) The first stage of corporate development is the simple structure.

Answer: TRUE Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 63) The greatest strengths of a Stage I corporation are its flexibility and dynamism.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking

17 .

64) The greatest weakness of a Stage II corporation is that all its eggs are in one basket.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 65) A crisis of control may develop in the Stage III divisional structure.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 66) Stage III (Divisional Structure) is the point when the entrepreneur is replaced by a team of managers who have functional specialization.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 67) In Stage IV, the use of SBUs may result in a red tape crisis in which the corporation has grown too large and complex to be managed through formal programs, and rigid systems and procedures take precedence over problem solving.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 68) Stage IV of a corporation could involve a pressure-cooker crisis in which employees in these collaborative organizations will eventually grow emotionally and physically exhausted from the intensity of teamwork and the heavy pressure for innovative solutions.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 69) Asking "What would Walt do" at Disney years after his death could present blocks to needed change.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 18 .

70) The second stage of the organizational life cycle is maturity.

Answer: FALSE Difficulty: Easy Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 71) The corporation's life cycle can be extended by managerial and product innovation.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 72) Discuss Chandler's conclusion concerning strategy.

Answer: Chandler concluded that structure follows strategy—that is, changes in corporate strategy lead to changes in organizational structure. He also concluded that organizations follow a pattern of development from one kind of structural arrangement to another as they expand.

According to Chandler, these structural changes occur because the old structure, having been pushed too far, has caused inefficiencies that have become too obviously detrimental to bear.

Chandler, therefore, proposed the following as the sequence of what occurs: 1. New strategy is created.

2. New administrative problems emerge.

3. Economic performance declines.

4. New appropriate structure is created.

5. Economic performance rises.

Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 73) What are the four stages of corporate development?

Answer: There are four stages of corporate development. Stage I is typified by the entrepreneur, who founds the company to promote an idea. This is a simple structure. Stage II is the functional structure. This is the point when the entrepreneur is replaced by a team of managers who have functional specialization. Stage III is typified by the corporation's managing diverse product lines in numerous industries; it decentralizes the decision-making authority. This is the divisional structure. Stage IV is beyond SBUs. The matrix and the network are two possible candidates for a fourth stage in corporate development—a stage that not only emphasizes horizontal over vertical connections between people and groups, but also organizes work around temporary projects in which sophisticated information systems support collaborative activities.

Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Application of knowledge 19 .

74) How can a corporation's life cycle be extended?

Answer: A corporation's life cycle can be extended by managerial and product innovations.

Developing new combinations of existing resources to introduce new products or acquiring new resources through acquisitions can enable firms with declining performance to regain growth— so long as the action is valuable and difficult to imitate. This often occurs during the implementation of a turnaround strategy. A revival phase may occur sometime during the maturity or decline stages.

Difficulty: Moderate Learning Obj.: 10.3: List the stages of corporate development and the structure that characterizes each stage AACSB: Analytical thinking 75) Which structure simultaneously combines functional and product forms at the same level of the organization?

A) strategic business units B) simple structure C) network structure D) divisional structure E) matrix structure Answer: E Difficulty: Easy Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Application of knowledge 76) Which of the following is not descriptive of the matrix structure?

A) People from functional units are often assigned on a temporary basis to product units.

B) Although employees often work on one or more product units, they maintain only one direct supervisor.

C) The matrix structure is very useful when the external environment is very uncertain.

D) The matrix structure can produce conflicts revolving around duties, authority, and resource allocation.

E) The matrix structure was developed to combine the stability of functional structure with the flexibility of the product form.

Answer: B Difficulty: Difficult Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Analytical thinking

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77) There are three distinct phases in the development of a matrix structure. Which is the first phase to occur usually when a new product line is being introduced?

A) temporary cross-functional task forces B) true dual-authority structure C) product/brand management D) immature matrix E) mature matrix Answer: A Difficulty: Difficult Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Analytical thinking 78) There are three distinct phases in the development of a matrix structure. Which phase occurs when both the functional and product structures become permanent in a true dual-authority structure?

A) temporary cross-functional task forces B) true dual-authority structure C) product/brand management D) immature matrix E) mature matrix Answer: E Difficulty: Difficult Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Analytical thinking 79) Which structure is described as a "non-structure" by its virtual elimination of in-house business functions?

A) strategic business units B) functional structure C) network structure D) divisional structure E) matrix structure Answer: C Difficulty: Easy Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Application of knowledge

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80) Which structure is often called a virtual organization?

A) strategic business units B) functional structure C) divisional structure D) network structure E) matrix structure Answer: D Difficulty: Easy Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Application of knowledge 81) Which of the following is not descriptive of a network structure?

A) The network organization is a series of independent firms or business units linked together through design, production, and marketing.

B) Independent inventors and entertainment companies often use the network structure.

C) The network structure typically is located in a large, single building or areas with many work projects in operation on the site.

D) The network structure provides an organization with increased flexibility and adaptability to cope with rapid technological changes.

E) The network structure is particularly suited to coping with the shifting patterns of international trade and competition.

Answer: C Difficulty: Difficult Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Analytical thinking 82) An organization that is composed of cells that can operate alone but that can interact with other cells to produce a more potent and competent business mechanism is referred to as a(n) A) reengineered organization.

B) virtual organization.

C) modular organization.

D) network organization.

E) ongoing organization.

Answer: C Difficulty: Moderate Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Application of knowledge

22 .

83) Pioneered in the automobile industry, the matrix structure was developed to combine the flexibility of the functional structure with the stability of the product form.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Analytical thinking 84) When using a network structure, many corporate activities are outsourced.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Application of knowledge 85) The network structure becomes most useful when the environment of a firm is unstable and is expected to remain so.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Analytical thinking 86) What is the matrix structure? What are the three conditions which usually exist when the matrix structure is found?

Answer: In matrix structures, functional and product forms are combined simultaneously at the same level of the organization. Pioneered in the aerospace industry, the matrix structure was developed to combine the stability of the functional structure with the flexibility of the product form. The matrix structure is very useful when the external environment (especially its technological and market aspects) is very complex and changeable. It does, however, produce conflicts revolving around duties, authority, and resource allocation. To the extent that the goals to be achieved are vague and the technology used is poorly understood, a continuous battle for power between product and functional managers is likely.

The matrix structure is often found in an organization or within an SBU when the following three conditions exist: 1. Ideas need to be cross-fertilized across projects or products.

2. Resources are scarce.

3. Abilities to process information and to make decisions need to be improved.

Difficulty: Moderate Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Application of knowledge

23 .

87) Discuss the network structure.

Answer: The network structure is an example of what could be termed a "non-structure" by its virtual elimination of in-house business functions. Many activities are outsourced. A corporation organized in this manner is often called a virtual organization because it is composed of a series of project groups or collaborations linked by constantly changing nonhierarchical, cobweb-like electronic networks. It becomes most useful when the environment of a firm is unstable and expected to remain so.

Difficulty: Moderate Learning Obj.: 10.4: Explain how matrix, network and modular structures are used to implement strategy AACSB: Application of knowledge 88) The job characteristics model is a good example of A) job rotation.

B) job design.

C) job enrichment.

D) job enlargement.

E) all of the above Answer: C Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking 89) The radical redesign of business processes to achieve major gains in cost, service, or time is called A) total quality management.

B) reengineering.

C) management by objectives.

D) action planning.

E) statistical process control.

Answer: B Difficulty: Easy Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge

24 .

90) Which of the following is not a principle of reengineering identified by Hammer?

A) puts the decision point where the work is performed B) organizes around tasks, not outcomes C) treats geographically dispersed resources as though they were centralized D) links parallel activities E) captures information once at the source Answer: B Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking 91) The program which incorporates the statistical approach of Six Sigma with the lean manufacturing program originally developed by Toyota is known as A) reengineering.

B) Lean Six Sigma.

C) job enlargement.

D) just-in-time.

E) flexible manufacturing.

Answer: B Difficulty: Easy Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking 92) What term refers to the study of individual tasks in an attempt to make them more relevant to the company and to the employee(s)?

A) position matching B) functional duties C) job design D) task conversion E) responsibility shift Answer: C Difficulty: Easy Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge

25 .

93) The movement of workers through several jobs to increase variety is referred to as A) job combination.

B) job rotation.

C) job enrichment.

D) job enlargement.

E) job motivation.

Answer: B Difficulty: Easy Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge 94) The job design technique that combines tasks to give a worker more of the same type of duties to perform is known as A) job combination.

B) job rotation.

C) job enrichment.

D) job enlargement.

E) job motivation.

Answer: D Difficulty: Easy Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge 95) How does job rotation combat the adverse consequences of task specialization?

A) by altering the work to provide the worker with more control over activities B) by moving workers through several jobs, thereby exposing them to increased task variety C) by combining different tasks, thereby giving them more responsibilities D) by giving the worker more autonomy through alterations in the job E) by forming natural work units to provide the worker with more responsibility Answer: B Difficulty: Difficult Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking

26 .

96) In an attempt to "think globally, act locally," companies are decentralizing operations that are culturally oriented and closest to the customers such as A) marketing.

B) R&D. C) finance.

D) information systems.

E) accounting.

Answer: C Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking 97) Which type of structure was used by American Cyanamid to introduce and manage a similar line of products throughout the world?

A) geographic-area structure B) network structure C) product-group structure D) international structure E) functional structure Answer: C Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking 98) Which type of structure was used by Nestle to tailor products to regional differences and to achieve regional coordination?

A) geographic-area structure B) network structure C) product-group structure D) international structure E) functional structure Answer: A Difficulty: Difficult Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking

27 .

99) Which type of structure enables a corporation to centralize decision-making along product lines and to reduce costs?

A) geographic-area structure B) product-group structure C) network structure D) matrix structure E) functional structure Answer: B Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking 100) Which type of structure enables a corporation to decentralize decision-making to the local subsidiaries?

A) geographic-area structure B) product-group structure C) network structure D) matrix structure E) functional structure Answer: A Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking 101) The geographic-area structure allows the company to introduce and manage a similar line of products around the world.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations 102) As industries move from being multi-domestic to more globally integrated, multi-national corporations are increasingly switching from the geographic-area to the product-group structure.

Answer: TRUE Difficulty: Difficult Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations 103) In order to implement reengineering, Hammer suggests that those who use the output of the process perform the reengineering process.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge 28 .

104) Studies of the performance of reengineering programs show clear, consistent, and overwhelming evidence of success and improved productivity.

Answer: FALSE Difficulty: Easy Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge 105) Lean Six Sigma incorporates the statistical approach of Six Sigma with the lean manufacturing program originally developed by Toyota.

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge 106) Rather than attempting to fix existing problems through minor adjustments and the finetuning of existing processes, the key to reengineering is to ask, "If this were a new company, how would we run this place?"

Answer: TRUE Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge 107) Reengineering appears to be most useful to changing an entire organization.

Answer: FALSE Difficulty: Moderate Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Analytical thinking

29 .

108) What is reengineering? What are the principles for reengineering proposed by Michael Hammer?

Answer: Reengineering is the radical redesign of business processes to achieve major gains in cost, service, or time. It is not in itself a type of structure, but it is an effective way to implement a turnaround strategy. Business process reengineering strives to break away from the old rules and procedures that develop and become ingrained in every organization over the years. They may be a combination of policies, rules, and procedures that have never been seriously questioned because they were established years earlier.

The principles of reengineering proposed by Michael Hammer are as follows: 1. Organize around outcomes, not tasks.

2. Have those who use the output of the process perform the process.

3. Subsume information-processing work into the real work that produces the information.

4. Treat geographically dispersed resources as though they were centralized.

5. Link parallel activities instead of integrating their results.

6. Put the decision point where the work is performed, and build control into the process.

7. Capture information once and at the source.

Difficulty: Difficult Learning Obj.: 10.5: Discuss the issues related to centralization versus decentralization in structuring organizations AACSB: Application of knowledge

30 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 11 Strategy Implementation: Staffing and Directing 1) The hiring of new people with new skills, firing of people with inappropriate or substandard skills, and/or training existing employees to learn new skills are included in the process of A) training.

B) staffing.

C) structuring.

D) operating.

E) financing.

Answer: B Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 2) All of the following reflect characteristics of a successful integration manager EXCEPT A) a deep knowledge of the acquiring company.

B) a flexible management style.

C) an ability to work in cross-functional project teams.

D) a propensity to hire like-minded people.

E) a willingness to work independently.

Answer: D Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 3) Training is especially important in reinforcing the customer service culture at Zappos where A) new employees are offered money to quit.

B) employees are just interested in getting a paycheck.

C) training does not include any tests.

D) a cost leadership strategy is being used.

E) little screening of employees occurs.

Answer: A Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking

1 .

4) According to the Association for Talent Development, the average annual expenditure per employee on corporate training and development is A) $0.

B) $362.

C) $748.

D) $1,229.

E) $2,361.

Answer: D Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 5) Executives with a particular mix of skills and experiences may be classified as an executive type and paired with A) a specific personal characteristic.

B) a specific corporate strategy.

C) a certain educational background.

D) a specific experience background.

E) a specific industry.

Answer: B Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 6) Which of the following statements is not true concerning the career life cycle for top executives?

A) During the early years of executives' tenures, they tend to experiment extensively with product lines to learn about their business.

B) It is possible that a current CEO may not be appropriate to implement a new strategy.

C) The harvest stage occurs when executives' accumulated knowledge allows them to reduce experimentation and increase performance.

D) There is an inverted U-shaped relationship between top executive tenure and the firm's financial performance.

E) The length of time spent in each stage is relatively stable for all CEOs. Answer: E Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking

2 .

7) Which type of chief executive officer with a great deal of experience in that particular industry would be appropriate for a corporation following a concentration strategy emphasizing vertical or horizontal growth?

A) professional liquidator B) dynamic industry expert C) turnaround specialist D) analytical portfolio manager E) cautious profit planner Answer: B Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 8) Which type of chief executive officer who is highly knowledgeable in other industries and can manage diverse product lines would be appropriate for a corporation following a diversification strategy?

A) professional liquidator B) dynamic industry expert C) turnaround specialist D) analytical portfolio manager E) cautious profit planner Answer: D Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 9) Which type of chief executive officer with a conservative style, a production or engineering background, and experience with controlling budgets, capital expenditures, inventories, and standardization procedures would be appropriate for a corporation following a stability strategy?

A) professional liquidator B) dynamic industry expert C) turnaround specialist D) analytical portfolio manager E) cautious profit planner Answer: E Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking

3 .

10) Successful prospector firms tend to be headed by CEOs with backgrounds in the areas of A) research/engineering and general management.

B) accounting/finance, manufacturing/production, and general management.

C) marketing/sales.

D) human resources and strategy.

E) purchasing and logistics.

Answer: A Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 11) Successful defender firms tend to be headed by CEOs with backgrounds in the areas of A) research/engineering and general management.

B) accounting/finance, manufacturing/production, and general management.

C) marketing/sales.

D) human resources and strategy.

E) purchasing and logistics.

Answer: B Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 12) Successful analyzer firms tend to be headed by CEOs with backgrounds in the areas of A) research/engineering and general management.

B) accounting/finance, manufacturing/production, and general management.

C) marketing/sales.

D) human resources and strategy.

E) purchasing and logistics.

Answer: C Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 13) What did a study of 173 firms over a 25-year period reveal about CEOs of successful corporations, especially when the past CEO's strategy continued to be successful?

A) They tended to have less loyalty than former CEOs, switching companies at a faster pace.

B) They tended to have the same functional specialization as the former CEO. C) They tended to be more aggressive in their risk-taking than former CEOs. D) They tended to rely more on skills developed through group decision-making.

E) They tended to be turnaround specialists.

Answer: B Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking

4 .

14) The process of replacing a key top manager is called A) executive succession.

B) executive placement.

C) executive strategy.

D) executive search.

E) executive outside succession.

Answer: A Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 15) Research suggests that boards of directors tend to look outside the firm for the next CEO under which of the following circumstance?

A) when the company is prosperous B) when the company is having R&D challenges C) when the company is in trouble D) when the company needs to follow a stability strategy E) when the company needs to expand in order to continue growing Answer: C Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 16) One study reported the percentage of senior executives that left a firm after a new CEO took office was ________ when the new CEO was an insider and ________ when the new CEO was an outsider.

A) 35; 10 B) 20; 34 C) 30; 30 D) 20; 10 E) 40; 20 Answer: B Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 17) What percent of large U.S. companies have CEO succession plans in place?

A) 10 B) 25 C) 50 D) 75 E) 90 Answer: C Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 5 .

18) Which one of the following is not one of the activities and techniques typically used in an assessment center to evaluate a person's suitability for advancement?

A) leaderless group discussions B) management games C) in-basket exercises D) IQ tests E) case analyses Answer: D Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 19) Assessment centers have been able to accurately predict subsequent A) job satisfaction.

B) job performance and career success.

C) organizational commitment.

D) organizational attachment.

E) management longevity.

Answer: B Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 20) To ensure employees are gaining the appropriate mix of experience to prepare employees for future responsibilities, many corporations move people from one job to another utilizing the technique of A) job design.

B) job specialization.

C) job rotation.

D) job enlargement.

E) job enrichment.

Answer: C Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Reflective thinking 21) According to a study of downsizing in the U.S. automobile-related industry, all of the following are problems associated with inappropriate downsizing EXCEPT A) outsourcing was eliminated.

B) blanket offers for early retirement prompted even valuable employees to leave.

C) surviving employees experienced decreased morale.

D) surviving employees had to do extra work in addition to their own.

E) the wrong jobs were eliminated.

Answer: A Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 6 .

22) Downsizing is often used to implement a(n) ________ strategy.

A) retrenchment B) growth C) stability D) hold E) integration Answer: A Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 23) Which of the following is not a guideline proposed for successful downsizing?

A) Contract out work that others can do cheaper.

B) Plan for long-run efficiencies.

C) Make across-the-board cuts.

D) Communicate the reasons for actions.

E) Invest in the remaining employees.

Answer: C Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 24) A dynamic industry expert is someone with an analytical mind who is highly knowledgeable in other industries and can manage diverse product lines.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions 25) To improve organizational learning, many multi-national corporations are providing their managers with international assignments as long as five years.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions 26) Research indicates that a multi-national corporation performs at a higher level when its CEO has international experience.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions 27) European multi-national corporations seldom use people with an international orientation to staff their management positions.

Answer: FALSE Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Diverse and multicultural work environments 7 .

28) Staffing issues can involve hiring new people with new skills, firing people with inappropriate or substandard skills, and/or training existing employees to learn new skills.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 29) As in the case of structure, staffing requirements should follow a change in strategy.

Answer: TRUE Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 30) Training and development can be especially important for organizations implementing an overall low cost or differentiation strategy, but not for those in retrenchment.

Answer: FALSE Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 31) It is possible that a current CEO may not be appropriate to implement the firm's new strategy.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 32) A corporation following a concentration strategy emphasizing vertical or horizontal growth would probably not want an aggressive new chief executive with a great deal of experience in that particular industry—a dynamic industry expert.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 33) IHOP's CEO, Julia Stewart, built a reputation as a turnaround specialist.

Answer: TRUE Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge

8 .

34) A professional liquidator was the executive type called in to Montgomery Ward, Inc., the nation's first catalog retailer, when the company declared bankruptcy for the second time.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 35) Chandler proposed that the most appropriate CEO for a firm remains constant as the company proceeds through its life cycle.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 36) Analyzers are corporations that operate in at least two different product-market areas, one stable and one variable. Analyzers corporations tend to have CEOs with a marketing/sales background.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 37) Executive succession is the process of replacing a key top manager.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 38) Succession planning has become the most important topic discussed by boards of directors.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 39) According to Hofstede's dimensions of national culture, long-term orientation is the extent to which society is oriented toward the long versus the short term.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Diverse and multicultural work environments 40) Firms in trouble seldom choose outsiders to lead them.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 9 .

41) Downsizing refers to the planned elimination of positions or jobs; it is often used to implement retrenchment strategies.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 42) Companies that pursue related diversification strategies through internal development make greater use of interdivisional transfers of people than do companies that grow through unrelated acquisitions.

Answer: TRUE Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 43) A good retrenchment strategy can be implemented well in terms of organizing, but poorly in terms of staffing.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Analytical thinking 44) Research indicates that companies undertaking cost-cutting programs are four times more likely than others to cut costs again, typically by reducing staff.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 45) To successfully downsize, companies must invest in the remaining employees.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 46) To successfully downsize, the recommendation is to make across-the-board cuts to maintain fairness.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 47) When downsizing, it is important to eliminate all R&D and maintenance expenses.

Answer: FALSE Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 10 .

48) What is an executive type? What is its significance to strategy?

Answer: Executives with a particular mix of skills and experiences may be classified as an executive type and paired with a specific corporate strategy. A corporation following a concentration strategy emphasizing vertical or horizontal growth would probably want an aggressive new chief executive with a great deal of experience in that particular industry—a dynamic industry expert.

A diversification strategy, in contrast, might call for someone with an analytical mind who is highly knowledgeable in other industries and can manage diverse product lines—an analytical portfolio manager. A corporation choosing to follow a stability strategy would probably want as its CEO a cautious profit planner, a person with a conservative style, a production or engineering background, and experience with controlling budgets, capital expenditures, inventories, and standardization procedures. Weak companies in a relatively attractive industry tend to turn to a type of challenge-oriented executive known as the turnaround specialist to save the company. If a company cannot be saved, a professional liquidator might be called on by a bankruptcy court to close the firm and liquidate its assets.

Because priorities certainly change over an organization's life, successful corporations need to select managers who have the skills and characteristics appropriate to the organization's particular stage of development and position in its life cycle.

Difficulty: Difficult Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 49) What is executive succession? Discuss the hiring of insiders versus outsiders.

Answer: Executive succession is the process of replacing a key top manager. Succession planning has become the most important topic discussed by boards of directors. Prosperous firms tend to look outside for CEO candidates only if they have no obvious internal candidates. Hiring an outsider to be a CEO is a risky gamble. CEOs from the outside tend to introduce significant change and high turnover among the current management. Firms in trouble overwhelmingly choose outsiders to lead them. Boards realize that the best way to force a change in strategy is to hire a new CEO with no connections to the current strategy.

Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge

11 .

50) What are some of the approaches a company can take to identify and prepare its people for important positions?

Answer: A company can identify and prepare its people in several ways. One approach is to establish a sound performance appraisal system to identify good performers with promotion potential. The human resource system should also be examined to be sure that diverse people are hired, promoted, and provided training opportunities. Many large organizations are using assessment centers to evaluate a person's suitability for an advanced position. They use special interviews, management games, in-basket exercises, leaderless group discussions, case analyses, decision-making exercises, and oral presentation to assess the potential of employees for specific positions. Assessment centers have generally been able to accurately predict subsequent job performance and career success. Job rotation is also used by many large corporations to ensure that employees are gaining the appropriate mix of experiences to prepare them for future responsibilities. Rotating people among divisions is one way that the corporation can improve the level of organizational learning.

Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 51) List the guidelines proposed for successful downsizing.

Answer: The following guidelines have been proposed for successful downsizing: • Eliminate unnecessary work instead of making across-the-board cuts.

• Contract out work that others can do cheaper.

• Plan for long-run efficiencies.

• Communicate the reasons for actions.

• Invest in the remaining employees.

• Develop value-added jobs to balance out job elimination.

Difficulty: Moderate Learning Obj.: 11.1: Explain the link between strategy and staffing decisions AACSB: Application of knowledge 52) Which of the following is not true of corporate culture?

A) Corporate culture has a strong tendency to resist change.

B) Corporate culture can strongly affect an organization's ability to shift its strategic direction.

C) A problem for a strong culture is that a change in mission is not likely to be successful if it is in opposition to the accepted corporate culture.

D) Corporate culture often rests on preserving stable relationships.

E) Corporate culture has little influence on the behavior of the firm's employees.

Answer: E Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking

12 .

53) Nardelli's failed attempt to replace Home Depot's old informal entrepreneurial collaborative culture with one of military efficiency is a testament to A) the strength of corporate culture.

B) the importance of collaborative environments.

C) the failure of the human resources staff.

D) the iron rule of some CEOs. E) the costs of measurement.

Answer: A Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 54) Which of the following is not one of the questions used to assess strategy-culture compatibility?

A) Is the proposed strategy compatible with the company's current culture?

B) Can the culture be easily modified to make it more compatible with the new strategy?

C) Is management willing and able to make major organizational changes, and accept probable delays and a likely increase in costs?

D) Is management still committed to implementing the strategy?

E) Is there a better-matched CEO to implement this strategy?

Answer: E Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 55) To effectively manage strategic changes, it is important to communicate A) to management without letting other employees know until the change is complete.

B) the rationale for the change to all employees.

C) the change in just the centralized location so as not to upset any decentralized locations.

D) in only company newsletters.

E) with only those immediately involved in the change.

Answer: B Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking

13 .

56) A top challenge reported by almost 70% of major U.S. corporations in mergers and acquisitions is A) selecting an appropriate CEO. B) integrating culture.

C) paying for the transaction.

D) laying off employees.

E) deciding on a location for the new headquarters.

Answer: B Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 57) The method of managing two different cultures that is often accompanied by much confusion, conflict, resentment, and stress is A) consolidation.

B) integration.

C) separation.

D) deculturation.

E) assimilation.

Answer: D Difficulty: Difficult Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 58) When managing corporate culture, the first question management must ask is A) what the change in strategy means to the corporate culture.

B) whether a change in culture is needed.

C) whether an attempt to change the culture is worth the likely costs.

D) whether it is possible to manage around the culture.

E) whether stakeholders will be impacted.

Answer: A Difficulty: Difficult Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 59) Which CEO of Home Depot learned the dangers of attempting to change corporate culture?

A) Jack Welch B) Robert Nardelli C) Alfred Chandler D) Julia Stewart E) Antonio Perez Answer: B Difficulty: Difficult Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge

14 .

60) According to the text, what is the "key" to effective management of change in culture?

A) planning B) operationalization C) evaluation D) staffing E) communication Answer: E Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 61) Which one of the following is not one of the characteristics possessed by companies that have made successful major culture changes?

A) The CEO has a strategic vision of what the company could become.

B) If the vision is difficult, the CEO immediately terminates the goal.

C) The vision is translated into objective, well-defined goals with appropriate incentives and recognition aides.

D) The CEO communicates to all employees where the organization stands in relation to the competition and its outlook on the future.

E) The CEO constantly updates the workforce as to the progress of the company in achieving those elements identified as important in attaining the vision.

Answer: B Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 62) Which one of the following is not one of the four general methods of managing two different cultures?

A) separation B) deculturation C) integration D) assimilation E) segmentation Answer: E Difficulty: Easy Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge

15 .

63) Which method of managing disparate cultures involves a relatively balanced give-and-take of cultural and managerial practices between the merger partners, and no strong imposition of cultural change on either company?

A) separation B) deculturation C) integration D) assimilation E) segmentation Answer: C Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 64) When Renault purchased a controlling interest in Japan's Nissan Motor Company to form one successful auto group from two with particular sensitivity to Nissan's culture, which approach to managing culture was employed?

A) separation B) integration C) deculturation D) assimilation E) segmentation Answer: B Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 65) Which method of managing disparate cultures involves one organization's domination over another willing organization?

A) separation B) deculturation C) integration D) assimilation E) segmentation Answer: D Difficulty: Easy Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge

16 .

66) Which method of managing disparate cultures is characterized by a separation of the two companies' cultures because of their differences?

A) separation B) deculturation C) integration D) assimilation E) segmentation Answer: A Difficulty: Easy Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 67) Which method of managing disparate cultures is the most common and most destructive method of dealing with two different cultures because one company imposes its demands at the expense of another company's culture?

A) separation B) deculturation C) integration D) assimilation E) segmentation Answer: B Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 68) When Admiral was acquired by Maytag Corporation, the Admiral employees were willing to accept the dominance of Maytag's strong quality-oriented culture because they respected it. This demonstrates which approach to managing culture?

A) integration B) separation C) deculturation D) assimilation E) segmentation Answer: D Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking

17 .

69) When AT&T acquired NCR Corporation, the NCR managers were replaced with an AT&T management team. Which management strategy was employed in terms of culture?

A) integration B) separation C) deculturation D) assimilation E) segmentation Answer: C Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 70) Corporate culture does not necessarily have to support the strategy of the firm.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture 71) Corporate culture has a strong tendency to resist change because its very reason for existence often rests on preserving stable relationships and patterns of behavior.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 72) Implementation of staffing involves leading through coaching people to use their abilities and skills most effectively and efficiently to achieve organizational objectives.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 73) While an organization's culture can exert a powerful influence on the behavior of all employees, it can seldom affect a company's ability to shift its strategic direction.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 74) Corporate culture should support the strategy of the firm.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge

18 .

75) A key to the effective management of change is communication.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 76) Assimilation involves the relatively balanced give-and-take of culture and managerial practices between the merger practices.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 77) When Boeing created a separate unit to house the newly acquired operations of McDonnellDouglas, they were managing the different cultures through separation—structurally separated, without cultural exchange.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Analytical thinking 78) Separation involves the disintegration of one company's culture resulting from unwanted and extreme pressure from the other to impose its culture and practices.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 79) What are the four general methods of managing two different cultures?

Answer: There are four general methods of managing two different cultures.

Integration involves a relatively balanced give-and-take of cultural managerial practices between the merger partners, and no strong imposition of cultural change on either company. It merges the two cultures in such a way that the separate cultures of both firms are preserved in the resulting culture.

Assimilation involves the domination of one organization over the other. The domination is not forced, but it is welcomed by members of the acquired firm, who may feel for many reasons that their culture and managerial practices have not produced success.

Separation is characterized by a separation of the two companies' cultures. They are structurally separated, without cultural exchange.

Deculturation involves the disintegration of one company's culture resulting from unwanted and extreme pressure from the other to impose its culture and practices. This is the most common and most destructive method of dealing with two different cultures. It is often accompanied by much confusion, conflict, resentment, and stress.

Difficulty: Moderate Learning Obj.: 11.2: Discuss how leaders manage corporate culture AACSB: Application of knowledge 19 .

80) The strategy implementation tool used to determine what actions are going to be taken, by whom, during what time frame, and with what expected results is called a(n) A) mission statement.

B) action plan.

C) MBO. D) TQM. E) succession plan.

Answer: B Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 81) Strategic goals can be accomplished through defining an action plan. Which one of the following is not one of the components that make up an action plan?

A) the specific actions to be taken B) who will perform the action C) during what time frame the action will be completed D) where the action will be done E) what are the expected results of the action Answer: D Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 82) Action plans are important for several reasons. Which one of the following is not one of these reasons?

A) If the action plan is implemented properly, it ensures that the strategy will be a success.

B) It serves as a link between strategy formulation and evaluation and control.

C) The action plan specifies what needs to be done differently from the way operations are currently carried out.

D) During the evaluation and control process, an action plan helps in the appraisal of the performance and identifying remedial actions needed.

E) Motivation may be improved with the assignment of specific responsibility.

Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking

20 .

83) What does "MBO" stand for?

A) Market Buy-Out B) Mergers, Buy-outs, and Options C) Multi-national Business Organization D) Manufacturing Backlog Order E) Management By Objectives Answer: E Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 84) Which one of the following is not part of the process of MBO? A) establishing and communicating organizational objectives B) setting individual objectives that help implement organizational ones C) reinforcing rules and regulations D) developing an action plan of activities needed to achieve the objectives E) periodically reviewing performance as it relates to the objectives Answer: C Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking 85) Which of the following is not descriptive of the purpose of MBO? A) MBO provides an opportunity for the corporation to connect the objectives of people at each level to those at the next higher level.

B) MBO operates independently and requires very little supervision or administration.

C) The goals at each level ideally contribute directly towards overall organizational objectives.

D) MBO provides a potential method of integrating the physical, financial and human resource plans of an organization as it relates to the goals of the individual.

E) MBO ties the corporate, business, and functional objectives together along with the strategies used to achieve them.

Answer: B Difficulty: Difficult Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking

21 .

86) "TQM" refers to A) Total Questioning Methods.

B) Terrible Quantitative Management.

C) Tremulous Qualitative Methodology.

D) Total Quality Management.

E) Total Quality Methods.

Answer: D Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 87) Which of the following is not one of TQM's objectives?

A) improve quality B) lower costs C) increased alignment of employee goals with management's objectives D) increase employee participation E) improve customer satisfaction Answer: C Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 88) Which of the following is not an essential ingredient of TQM? A) intense focus on customer satisfaction B) internal as well as external customers C) action planning D) continuous improvement E) accurate measurement of every critical variable in a company's operations Answer: C Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 89) TQM is committed to A) quality/excellence.

B) improved communication.

C) culture compatibility.

D) mass customization.

E) modular manufacturing.

Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 22 .

90) Many TQM principles have been incorporated into the series of standards and certifications of A) ISO 9000.

B) MBO. C) AMT. D) 501K E) CDRH Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 91) Inspecting for quality in TQM emphasizes A) improving the process to prevent errors.

B) identifying ways to cut costs.

C) avoiding the use of quality teams.

D) changing work relationships.

E) avoiding measurement.

Answer: A Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 92) In TQM, giving employees wide latitude in how they go about achieving the company's goals is referred to as A) empowerment.

B) continuous improvement.

C) integration.

D) assimilation.

E) delegation.

Answer: A Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge

23 .

93) Which of the following might not be included in an action plan?

A) the person responsible for carrying out each action B) the compensation provided to the person responsible for completing each action C) the person responsible for monitoring the timeliness of each action D) contingency plans E) the dates to begin and end each action Answer: B Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking 94) One of the real benefits of MBO is the reduction in the amount of A) internal politics.

B) culture clash.

C) overhead expenses.

D) defects.

E) compensation paid.

Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking 95) In MBO, the objectives of people at each level are connected to A) the objectives of those at the next higher level.

B) specific action plans.

C) the corporate strategy.

D) financial consequences.

E) SOPs. Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge

24 .

96) In 2014, one executive search firm reported what percentage of the CEOs selected to run S&P 500 companies were insiders?

A) 10% B) 25% C) 40% D) 60% E) 80% Answer: E Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 97) The average tenure of an outsider hired as a CEO A) tends to be significantly less than for insiders.

B) is the same as that for insiders.

C) tends to be significantly higher than for insiders.

D) is tied directly to the firm's performance.

E) is less than one year.

Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking 98) Boards realize that the best way to force a change in strategy is to A) hire a new CEO who has no connections to the current strategy.

B) hire an outsider with no experience in the industry.

C) hire an insider dissatisfied with the status quo.

D) continue with the current CEO. E) increase the compensation package for the CEO. Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking

25 .

99) Research indicates that companies undertaking cost-cutting programs A) are four times more likely than others to cut costs again.

B) seldom reduce staff further.

C) seldom undertake a strategic re-orientation.

D) overwhelmingly improve financial performance in the long run.

E) change strategy immediately.

Answer: A Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking 100) An action plan states what actions are going to be taken, by whom, during what time frame, and with what expected results.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 101) One component of an effective action plan is the determination of the expected financial and physical consequences of each action.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 102) TQM links organizational objectives and the behavior of individuals.

Answer: FALSE Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking 103) TQM is an operational philosophy committed to customer satisfaction and continuous improvement.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking

26 .

104) One objective of TQM is better, less variable quality of the product and service.

Answer: TRUE Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 105) An essential ingredient of MBO is that an employee must be just as concerned with pleasing the internal customer as the external customer.

Answer: FALSE Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Analytical thinking 106) A rule of TQM is that you only improve what you measure.

Answer: TRUE Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 107) The emphasis of TQM is correction, not prevention.

Answer: FALSE Difficulty: Easy Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 108) What information should an action plan include?

Answer: An action plan should include the following information: • Specific actions to be taken to make the program operational.

• Dates to begin and end each action.

• Person (identified by name and title) responsible for carrying out each action.

• Person responsible for monitoring the timeliness and effectiveness of each action.

• Expected financial and physical consequences of each action.

• Contingency plans.

Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge

27 .

109) What are the four elements of the MBO process?

Answer: The Management by Objectives (MBO) process involves the following: 1. Establishing and communicating organizational objectives.

2. Setting individual objectives (through superior-subordinate interaction) that help implement organizational ones.

3. Developing an action plan of activities needed to achieve the objectives.

4. Periodically reviewing performance as it relates to the objectives and including the results in the annual performance appraisal.

Difficulty: Moderate Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge 110) What is TQM and what are its essential ingredients?

Answer: Total Quality Management (TQM) is an operational philosophy committed to customer satisfaction and continuous improvement. TQM is committed to quality/excellence and to being the best in all functions. Because TQM aims to reduce costs and improve quality, it can be used as a program to implement an overall low-cost or a differentiation business strategy. Many TQM principles have been incorporated into the ISO 9000 series of standards and certifications. While TQM is focused upon employee participation, refinement, and improvement, the ISO standards are tied to the reporting and data analysis of the process. The two can go hand-in-hand.

TQM's essential ingredients are: • An intense focus on customer satisfaction.

• Internal as well as external customers.

• Accurate measurement of every critical variable in a company's operations.

• Continuous improvement of products and services.

• New work relationships based on trust and teamwork.

Difficulty: Difficult Learning Obj.: 11.3: Utilize an action-planning framework to implement an organization's MBO and TQM initiatives AACSB: Application of knowledge

28 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 12 Evaluation and Control 1) Which one of the following is not a part of the evaluation and control of performance?

A) Establish corporate strategies.

B) Determine what to measure.

C) Establish standards for performance.

D) Measure actual performance.

E) Take corrective actions.

Answer: A Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 2) If performance data and activity reports indicate undesirable performance as a result of inappropriate use of the strategic management process, operational managers must A) immediately notify the board of directors.

B) change the strategic management model.

C) know about it so that they can correct the employee activity.

D) allow sufficient time to pass to verify if it is the process or just the usage that is the problem.

E) check the performance data to ensure their accuracy and take two more measurements.

Answer: C Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 3) The end result of activity is known as A) measurement.

B) gratuity.

C) performance.

D) return on equity.

E) achievement.

Answer: C Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge

1 .

4) Controls which measure variables that influence future profitability are called A) steering controls.

B) activity controls.

C) behavior controls.

D) output controls.

E) influencing controls.

Answer: A Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 5) The inventory turnover ratio is an example of a(n) A) steering control.

B) activity control.

C) behavior control.

D) output control.

E) influencing control.

Answer: A Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 6) Which type of control specifies how something is to be done through policies, rules, standard operating procedures, and orders from a superior?

A) tactical control B) strategic control C) output control D) behavior control E) functional control Answer: D Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking

2 .

7) Which type of control specifies what is to be accomplished by focusing on the end result of behaviors through the use of objectives and performance targets or milestones?

A) tactical control B) strategic control C) output control D) functional control E) behavior control Answer: C Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 8) The ISO 9000 and 14000 Standards Series as a way to objectively document a company's high level of quality operations are examples of A) tactical control.

B) strategic control.

C) output control.

D) functional control.

E) behavior control.

Answer: E Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 9) All of the following are examples of behavior controls EXCEPT A) monitoring employees' phone calls.

B) monitoring employees' PCs. C) monitoring employees' Internet usage.

D) using ISO 14000 Standards Series.

E) sales quotas.

Answer: E Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge

3 .

10) All of the following are examples of output controls EXCEPT A) sales quotas.

B) specific cost reduction objectives.

C) profit objectives.

D) getting to work on time.

E) surveys of customer satisfaction.

Answer: D Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 11) What percent of U.S. employers use some form of electronic monitoring in the workplace as reported in a 2015 study?

A) 0% B) 17% C) 30% D) 47% E) 67% Answer: E Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 12) Corporations will emphasize output controls when they are following a strategy of A) concentric diversification.

B) conglomerate diversification.

C) retrenchment.

D) divestment.

E) vertical integration.

Answer: B Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking

4 .

13) Corporations will emphasize all types of controls (output, input, and behavior) when they are following a strategy of A) conglomerate diversification.

B) concentric diversification.

C) retrenchment.

D) divestment.

E) vertical integration.

Answer: B Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 14) Activity-based costing is a method of accounting which is very useful in making outsourcing decisions by doing A) total quality management.

B) value-chain analysis.

C) reengineering.

D) MBO. E) benchmarking.

Answer: B Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 15) ________ is a corporate-wide, integrated process to manage the uncertainties that could negatively or positively influence the achievement of the corporation's objectives.

A) ISO 14000 Series B) Input controls C) Activity-based costing D) Enterprise Risk Management E) Market Value Added Answer: D Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge

5 .

16) Which is the MOST commonly used measure of corporate performance (in terms of profit)?

A) EPS B) ROE C) DPS D) ROI E) ROVA Answer: D Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 17) ROI is A) Repatriation of investments.

B) Return on interest.

C) Repatriation of interest.

D) Return on investment.

E) Return of internationals.

Answer: D Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 18) An advantage of ROI as a measure of performance is that A) it is sensitive to book value.

B) it provides an incentive to use existing assets efficiently.

C) the time span of concern is short range.

D) the business cycle strongly affects ROI performance often despite managerial performance.

E) it is very sensitive to depreciation policy.

Answer: B Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 19) The result of dividing net income before taxes by the total amount invested in the company is A) ROI. B) EPS. C) ROE. D) operating cash flow.

E) free cash flow.

Answer: A Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 6 .

20) Some takeover specialists look at the amount of money a new owner can take out of the firm without harming the business. This is known as A) leveraged buyout.

B) operating cash flow.

C) free cash flow.

D) dividends.

E) shareholder measure.

Answer: C Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 21) Because of the belief that accounting-based numbers such as ROI, ROE, and EPS are not reliable indicators of a corporation's economic value, which method of corporate performance is now preferred?

A) shareholder value B) basic earning power C) price/earnings ratio D) profit margin on sales E) return on assets Answer: A Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 22) The present value of the anticipated future stream of cash flows from the business plus the value of the company if liquidated is referred to as A) return on assets.

B) ROVA. C) earnings per share.

D) shareholder value.

E) ROI. Answer: D Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking

7 .

23) The difference between the pre-strategy and post-strategy values for the business is A) ROI. B) EPS. C) ROE. D) EVA. E) MVA. Answer: D Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 24) Which of the following is a way in which managers can improve their company's or business unit's EVA? A) earning more profit without using more capital B) using more capital C) investing capital in multiple low-return projects D) extending their line of credit E) divest a unit Answer: A Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 25) Which of the following is not considered an adequate measure by itself of corporate performance?

A) ROI B) EPS C) ROE D) operating cash flow E) all of the above Answer: E Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA 26) ABC is an accounting method for allocating direct and fixed costs to individual products.

Answer: FALSE Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA

8 .

27) The evaluation and control process ensures that the company is achieving what it set out to accomplish.

Answer: TRUE Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 28) Evaluation and control information consists only of performance data.

Answer: FALSE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 29) One of the obstacles to effective control is the difficulty in developing appropriate measures of important activities and outputs.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 30) Performance is the end result of activity.

Answer: TRUE Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 31) One example of a steering control used by retail stores is the inventory turnover ratio, which shows how hard an investment in inventory is working.

Answer: TRUE Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 32) Behavior controls specify how something is to be done through policies, rules, standard operating procedures, and orders from a superior.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge

9 .

33) The ISO 9000 Standards Series, developed by the International Standards Association of Geneva, Switzerland, is an example of a behavior control.

Answer: TRUE Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 34) Behavior, output, and input controls are all interchangeable.

Answer: FALSE Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 35) Activity-based costing (ABC) is an accounting method for allocating indirect and fixed costs to individual products or product lines based on the value-added activities going into that product.

Answer: TRUE Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 36) ABC accounting allows accountants to charge costs more accurately than the traditional method because it allocates overhead far more precisely.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 37) Enterprise risk management is being adopted because of the increasing amount of environmental uncertainty that can affect an entire corporation.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 38) ROI stands for return on incentives.

Answer: FALSE Difficulty: Easy Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 10 .

39) One advantage of using ROI is that it is a single comprehensive figure that includes all revenues, costs, and expenses.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 40) Operating cash flow is also known as free cash flow.

Answer: FALSE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 41) Stickiness and eyeballs are two non-financial performance measures used by Internet business ventures.

Answer: TRUE Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 42) EVA may eventually replace ROI as the standard performance measure.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Analytical thinking 43) Unlike ROI, managers cannot manipulate the numbers of EVA. Answer: FALSE Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge

11 .

44) List the five-step feedback model of the evaluation and control process.

Answer: The five-step feedback model is composed of the following steps.

1. Determine what to measure.

2. Establish standards of performance.

3. Measure actual performance.

4. Compare actual performance with the standard.

5. Take corrective action.

Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 45) Distinguish between behavior and output controls. Provide examples of each.

Answer: Behavior controls specify how something is to be done through policies, rules, standard operating procedures, and orders from a superior. Output controls specify what is to be accomplished by focusing on the result of the behaviors through the use of objectives and performance targets or milestones. An example of a behavior control is a policy on arriving to work on time. An example of an output control is a sales quota.

Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 46) What is the most commonly used measure of corporate performance (in terms of profits)?

Discuss the limitations of using this measure.

Answer: The most commonly used measure of corporate performance (in terms of profits) is return on investment (ROI). It is simply the result of dividing net income before taxes by the total amount invested in the company. There are limitations to using this measure. ROI is very sensitive to depreciation. It can discourage investment in new facilities or upgrading of old ones.

It provides an incentive for division managers to set transfer prices for goods sold to other divisions as high as possible. Managers tend to focus more on ROI in the short-run over its use in the long-run, providing an incentive for goal displacement. ROI is not comparable across industries. Finally, it is influenced by the overall economy.

Difficulty: Moderate Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge

12 .

47) What is the difference between EVA and MVA? Answer: Economic value added (EVA) has become an extremely popular shareholder value method of measuring corporate and divisional performance and may be on its way to replacing ROI as the standard performance measure. EVA measures the difference between the prestrategy and post-strategy value for the business. EVA is after-tax operating income minus the total annual cost of capital. Market value added (MVA) is the difference between the market value of a corporation and the capital contributed by shareholders and lenders. It measures the stock market's estimate of the net present value of a firm's past and expected capital investment projects. MVA is the present value of future EVA. Difficulty: Difficult Learning Obj.: 12.1: Explain how various types of measures and controls are utilized to properly assess performance including activity-based costing, ERM, ROI, and EVA AACSB: Application of knowledge 48) Which of the following is not one of the areas in which goals or objectives should be developed for use in the balanced scorecard approach?

A) customer B) innovation and learning C) financial D) stakeholder E) internal business perspective Answer: D Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Analytical thinking 49) The balanced scorecard approach to evaluation and control assigns to each goal/objective in an area one or more measures that are each essential for achieving a desired strategic option.

These measures are called A) critical success factors.

B) strategic factors.

C) key performance measures.

D) behavioral measures.

E) responsibility centers.

Answer: C Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Analytical thinking

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50) Which of the following is not descriptive of responsibility centers?

A) They are used to the extent that they can isolate specific functional units such as R&D. B) Each responsibility center has its own budget and is evaluated on its use of budgeted resources.

C) The responsibility center coordinates all the functional areas and project developments to implement the strategic decision plan.

D) The center uses resources to produce a service or a product.

E) A responsibility center is headed by the manager responsible for the center's performance.

Answer: C Difficulty: Difficult Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Analytical thinking 51) The comparison of the expected cost of production against the actual cost of production typically occurs in the A) investment center.

B) revenue center.

C) standard cost center.

D) profit center.

E) expense center.

Answer: C Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Analytical thinking 52) What responsibility center is judged for effectiveness rather than efficiency?

A) investment center B) revenue center C) standard cost center D) profit center E) expense center Answer: B Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge

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53) A responsibility center which measures resources in dollars without consideration of service or product costs is called a(n) A) investment center.

B) revenue center.

C) expense center.

D) profit center.

E) standard cost center.

Answer: C Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge 54) A responsibility center which measures performance in terms of the difference between revenues (which measure production) and expenditures (which measure resources) is a(n) A) investment center.

B) revenue center.

C) expense center.

D) profit center.

E) standard cost center.

Answer: D Difficulty: Difficult Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge 55) A type of responsibility center which is typically established whenever an organizational unit has control over both its resources and its products or services is a(n) A) investment center.

B) revenue center.

C) expense center.

D) profit center.

E) standard cost center.

Answer: D Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge

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56) Return on investment (ROI) is the most widely used measure of performance in what responsibility center?

A) revenue center B) expense center C) investment center D) profit center E) standard cost center Answer: C Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge 57) A multidivisional corporation like GE would tend to use what type of responsibility center?

A) expense center B) investment center C) profit center D) standard cost center E) revenue center Answer: B Difficulty: Difficult Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Analytical thinking 58) The balanced scorecard combines financial measures that tell the results of actions already taken with operational measures on customer satisfaction, internal processes, and the corporation's innovation and improvement activities.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge 59) Management audits have been developed to evaluate activities such as corporate social responsibility, functional areas such as the marketing department, and divisions such as the international division.

Answer: TRUE Difficulty: Easy Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge

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60) The revenue center is measured in terms of efficiency.

Answer: FALSE Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge 61) A profit center is typically established whenever an organizational unit has control over both its resources and its products or services.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge 62) What is the balanced scorecard? What are the four areas to be addressed?

Answer: The balanced scorecard combines financial measures that tell the results of actions already taken with operational measures on customer satisfaction, internal processes, and the corporation's innovation and improvement activities—the drivers of future financial performance. Management should develop goals or objectives in each of four areas: 1. Financial (How do we appear to shareholders?)

2. Customer (How do customers view us?)

3. Internal business perspective (What must we excel at?)

4. Innovation and learning (Can we continue to improve and create value?)

Difficulty: Moderate Learning Obj.: 12.2: Develop a balanced scorecard to examine key performance measures of a company AACSB: Application of knowledge 63) The continual process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders is A) total quality management.

B) benchmarking.

C) action planning.

D) reengineering.

E) management by objectives.

Answer: B Difficulty: Easy Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge

17 .

64) Which of the following is not one of the steps followed in the benchmarking process?

A) Develop tactical programs for closing performance gaps.

B) Implement tactical programs, measure the results, and compare the results with those of the best-in-class company.

C) Implement activity-based costing.

D) Identify the area or process to be examined.

E) Calculate the differences among the company's performance measurements and those of the best-in-class company.

Answer: C Difficulty: Moderate Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Analytical thinking 65) What company pioneered the concept of benchmarking in the United States?

A) Walmart B) Boeing C) PepsiCo D) Xerox Corp E) Coca Cola Answer: D Difficulty: Easy Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge 66) An odd twist to benchmarking in the arena of international trade is A) counterfeiting/piracy.

B) repatriation of profits.

C) freakonomics.

D) RFID. E) transfer pricing.

Answer: A Difficulty: Easy Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge 67) The concept that suggest it makes no sense to reinvent something that someone else is already using is A) benchmarking.

B) ERP. C) RFID. D) TQM. E) MBO. Answer: A Difficulty: Easy Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge 18 .

68) The worldwide cost of software piracy in 2016 was estimated to be approximately A) $3 million.

B) $30 million.

C) $3 billion.

D) 63 billion.

E) over $100 billion.

Answer: D Difficulty: Moderate Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge 69) A study by Bain & Company revealed what percentage of companies using benchmarking in some manner?

A) 10% B) 30% C) 50% D) 65% E) 90% Answer: D Difficulty: Moderate Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity 70) Benchmarking has been decreasing in popularity as companies emphasize uniqueness.

Answer: FALSE Difficulty: Easy Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Analytical thinking 71) Benchmarking involves openly learning how others do something better than one's own company so that one not only can imitate, but perhaps even improve on their current techniques.

Answer: TRUE Difficulty: Easy Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge 72) The worldwide cost of software piracy is estimated to be about $63 billion.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge 73) Benchmarking has been found to produce the best results in companies that are already well managed.

Answer: TRUE Difficulty: Difficult Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Analytical thinking 19 .

74) Discuss the benchmarking process.

Answer: Benchmarking is "the continual process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders." The benchmarking process usually involves the following steps: 1. Identify the area or process to be examined.

2. Find behavioral and output measures of the area or process and obtain measurements.

3. Select an accessible set of competitors and best-in-class companies against which to benchmark.

4. Calculate the differences among the company's performance measurements and those of the best in class and determine why the differences exist.

5. Develop tactical programs for closing performance gaps.

6. Implement the programs and then compare the resulting new measurements with those of the best-in-class companies.

Difficulty: Moderate Learning Obj.: 12.3: Apply the benchmarking process to a function or an activity AACSB: Application of knowledge 75) An electronic tagging technology used in a number of companies to improve supply-chain efficiency with contactless communication between devices is A) RFID. B) ERP. C) MBO. D) TQM. E) ROE. Answer: A Difficulty: Easy Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge 76) What is becoming the business information system's global standard?

A) ERP B) SAP C) GDP D) TQM E) ISO 9000 Answer: A Difficulty: Difficult Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge

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77) The German company SAP AG originated the concept of ERP with its A) activity-based costing.

B) transfer pricing.

C) spreadsheet software.

D) R/3 software system.

E) transnational software integrator.

Answer: D Difficulty: Moderate Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge 78) The union of all of a company's major business activities from order processing to production within a single family of software modules is known as A) enterprise resource planning.

B) enterprise strategic planning.

C) information system planning.

D) united resource planning.

E) united strategic planning.

Answer: A Difficulty: Easy Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge 79) Which of the following is not a reason ERP could fail?

A) insufficient tailoring of the software to fit the company B) inadequate training C) simplicity of system D) insufficient implementation support E) demands a high level of standardization Answer: C Difficulty: Moderate Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge

21 .

80) RFID A) is radio frequency identification.

B) replaces cell phones.

C) replaces wireless barcodes.

D) has not currently been widely implemented.

E) is not permitted by government contractors.

Answer: A Difficulty: Difficult Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge 81) ERP unites all of a company's major business activities, from order processing to production, within a single family of software modules.

Answer: TRUE Difficulty: Difficult Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge 82) RFID is an electronic tagging technology used to improve supply-chain efficiency in a number of companies.

Answer: TRUE Difficulty: Easy Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge 83) One of the key reasons for the success of Walmart has been management's use of the company's sophisticated information system to control purchasing decisions.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Information Technology 84) ERP software provides instant access to critical information to everyone in the organization from the CEO to the factory floor worker.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Information Technology

22 .

85) What is ERP? What are the three reasons why ERP could fail?

Answer: ERP is enterprise resource planning. ERP unites all of a company's major business activities from order processing to production within a single family of software modules. The system provides instant access to critical information to everyone in the organization from the CEO to the factory floor worker.

There are three reasons ERP could fail: (1) insufficient tailoring of the software to fit the company, (2) inadequate training, and (3) insufficient implementation support.

Difficulty: Moderate Learning Obj.: 12.4: Explain how strategic information systems are being utilized to support specific strategies AACSB: Application of knowledge 86) Which of the following is not one of the reasons many executives do not conduct long-run performance evaluations, preferring to focus primarily on short-run performance?

A) They do not realize their importance.

B) They are not personally evaluated on a long-term basis.

C) They believe short-run results are the most important.

D) They do not have the time to make a long-run analysis.

E) They do not believe in strategic planning.

Answer: E Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 87) What term describes when activities originally intended to help managers attain corporate objectives become ends in themselves or are adapted to meet ends other than those for which they were intended?

A) economic rationality B) minimal acceptable behavior C) goal displacement D) closed system thinking E) Machiavellianism Answer: C Difficulty: Easy Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge

23 .

88) Behavior substitution occurs when A) a division or functional unit views itself as a separate entity and refuses to cooperate with other divisions or units in order to keep its performance measures at a high level.

B) there is a failure to produce at or near full capacity.

C) individuals are placed into positions not suited to their abilities.

D) individuals focus more of their attention on those aspects which are measurable than on those which are not.

E) managers concentrate too much on short-term performance objectives.

Answer: D Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 89) The U.S. Navy quip, "What you inspect (or reward) is what you get" reflects A) behavior substitution.

B) suboptimization.

C) output control.

D) ERP. E) none of the above Answer: A Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 90) Which company experienced a tarnished reputation and scandal after experiencing behavior substitution when employees altered their behavior on the job to fit the reward system?

A) Sears B) J.C. Penney C) Neiman Marcus D) Saks E) Macy's Answer: A Difficulty: Difficult Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge

24 .

91) Suboptimization occurs when A) a division or functional unit views itself as a separate entity and refuses to cooperate with other divisions or units to the detriment of the organization as a whole.

B) there is a failure to produce at or near full capacity.

C) individuals are placed into positions not suited to their abilities.

D) managers tend to focus more of their attention on those aspects which are measurable than on those which are not.

E) managers concentrate too much on short-term performance objectives.

Answer: A Difficulty: Easy Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge 92) If marketing attains its goal at the expense of rising production costs for the manufacturing department, the end result of marketing's achievements and manufacturing's cost increases reflects A) behavior substitution.

B) suboptimization.

C) resource allocation.

D) resource optimization.

E) strategy optimization.

Answer: B Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 93) Which of the following is not a guideline for proper control?

A) Control should involve only a minimum amount of information.

B) Long-term as well as short-term controls should be used.

C) Controls should be timely so that corrective actions can be taken before it is too late.

D) Controls should measure all activities in order to be comprehensive.

E) Controls should emphasize the reward of meeting or exceeding standards rather than punishment for failing to meet standards.

Answer: D Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge

25 .

94) An emphasis on monitoring those few things which must go well to ensure corporate success is reflected in A) the 60/40 rule.

B) the 30/70 rule.

C) the 80/20 rule.

D) success factors.

E) key performance measures.

Answer: C Difficulty: Easy Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge 95) One approach to better match executive rewards to the accomplishment of strategic objectives is A) return on investment.

B) year-end bonuses.

C) zero base budgeting.

D) weighted-factor method.

E) return on assets.

Answer: D Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives 96) What amount of the typical CEO pay package in 2015 was in cash?

A) 10% B) 20% C) 33% D) 50% E) 75% Answer: C Difficulty: Easy Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge

26 .

97) Which method of matching executive rewards to the accomplishment of strategic objectives is particularly appropriate for measuring and rewarding the performance of top SBU managers and group-level executives when performance factors and their importance vary from one SBU to another?

A) strategic-funds method B) segmentation method C) long-term evaluation method D) individual evaluation method E) weighted-factor method Answer: E Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 98) A survey of 600 business units found that compensation programs emphasizing bonuses and other incentives were most used in those units emphasizing A) stability strategies.

B) retrenchment strategies.

C) cooperative strategies.

D) international strategies.

E) growth strategies.

Answer: E Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge 99) What method is particularly appropriate for measuring and rewarding the performance of top SBU managers and group-level executives when performance factors and their importance vary from one SBU to another?

A) return on investment B) year-end bonuses C) zero base budgeting D) weighted-factor method E) return on assets Answer: D Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking

27 .

100) The ________ encourages executives to look at developmental expenses as being different from expenses required for current operations.

A) strategic-funds method B) segmentation method C) long-term evaluation method D) individual evaluation method E) weighted-factor method Answer: A Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 101) Which method of matching rewards to the accomplishment of strategic objectives compensates managers for achieving objectives set over a multi-year period?

A) strategic-funds method B) segmentation method C) long-term evaluation method D) individual evaluation method E) weighted-factor method Answer: C Difficulty: Easy Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 102) Which method of matching rewards to the accomplishment of strategic objectives encourages executives to look at developmental expenses as being different from those expenses required for current operations?

A) strategic-funds method B) segmentation method C) long-term evaluation method D) individual evaluation method E) weighted-factor method Answer: A Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking

28 .

103) When GE offered its CEO 250,000 performance share units tied to performance targets achieved over five years, it was using which method of matching rewards to the accomplishment of strategic objectives?

A) strategic-funds method B) segmentation method C) long-term evaluation method D) individual evaluation method E) weighted-factor method Answer: C Difficulty: Difficult Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 104) According to the text, using a long-term performance evaluation system, a company executive might be promised incentives such as A) company cars.

B) company stock.

C) health insurance.

D) retirement plans.

E) vacations.

Answer: B Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge 105) Walt Disney Company, Dow Chemical, IBM, and General Motors are just some firms in which top management compensation is ________.

A) contingent upon the company's achieving strategic objectives B) not contingent upon the company's achieving strategic objectives C) contingent upon the company's product development process D) contingent upon the individual's ability to expand internationally E) contingent upon the board's approval Answer: A Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 106) International transfer pricing is primarily used not to evaluate performance, but to minimize taxes.

Answer: TRUE Difficulty: Difficult Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives 29 .

107) Among the most important barriers to international trade are the different standards for products and services.

Answer: TRUE Difficulty: Easy Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives 108) The long-term evaluation method encourages executives to look at developmental expenses as being different from expenses required for current operations.

Answer: FALSE Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives 109) The use of timely, quantifiable standards guarantees good performance.

Answer: FALSE Difficulty: Easy Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 110) People tend to substitute behaviors that are recognized and rewarded for those behaviors that are ignored, without regard to their contribution to goal accomplishment.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 111) The over-billing of customers in Sears's auto repair shops was an example of suboptimization.

Answer: FALSE Difficulty: Difficult Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 112) According to the 80/20 rule, companies should monitor the 20% of the factors that determine 80% of the results.

Answer: TRUE Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge

30 .

113) The long-term evaluation method encourages executives to analyze the long-term implications of present operations on the strategy they have adopted and the operational impact of a strategy on the corporate mission.

Answer: FALSE Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Analytical thinking 114) Discuss the guidelines for proper control.

Answer: The following guidelines are recommended for proper control: 1. Control should involve only the minimum amount of information needed to give a reliable picture of events.

2. Controls should monitor only meaningful activities and results, regardless of measurement difficulty.

3. Controls should be timely so that corrective action can be taken before it is too late.

4. Long-term and short-term controls should be used.

5. Controls should aim at pinpointing exceptions.

6. Emphasize the reward of meeting or exceeding standards rather than punishments for failing to meet standards.

Difficulty: Moderate Learning Obj.: 12.5: Discuss the issues with measuring organizational performance and how organizations can establish proper controls to achieve objectives AACSB: Application of knowledge

31 .

Strategic Management and Business Policy, 15e (Wheelen et al.)

Chapter 13 Suggestions for Case Analysis 1) What has been the most popular method of teaching strategy and policy for years?

A) lecture B) case analysis C) team teaching D) group presentations E) student teaching Answer: B Difficulty: Easy Learning Obj.: 13.1: Explain the issues involved in researching a case situation AACSB: Application of knowledge 2) The case method offers the opportunity to move from a narrow, specialized view that emphasizes functional techniques to a broader, less precise analysis of the overall corporation.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.1: Explain the issues involved in researching a case situation AACSB: Analytical thinking 3) Case analysis is the most popular method of teaching strategy.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.1: Explain the issues involved in researching a case situation AACSB: Application of knowledge 4) The case method provides the opportunity to move from a broader, less precise analysis of the overall corporation to a narrow, specialized view that emphasizes functional techniques.

Answer: FALSE Difficulty: Easy Learning Obj.: 13.1: Explain the issues involved in researching a case situation 5) The case analysis approach provides students with what it is like to make and implement strategic decisions.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.1: Explain the issues involved in researching a case situation AACSB: Analytical thinking 6) In case analysis, you might be asked to critically analyze a situation in which a manager had to make a decision of long-term corporate importance.

Answer: TRUE Difficulty: Easy Learning Obj.: 13.1: Explain the issues involved in researching a case situation AACSB: Analytical thinking 1 .

7) When preparing a case analysis, you should always undertake outside research and go beyond the decision date of the case.

Answer: FALSE Difficulty: Easy Learning Obj.: 13.1: Explain the issues involved in researching a case situation 8) Cases present actual business situations and enable you to examine only successful corporations.

Answer: FALSE Difficulty: Easy Learning Obj.: 13.1: Explain the issues involved in researching a case situation AACSB: Analytical thinking 9) SEC 10-K forms include detailed information not usually available in an annual report.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.1: Explain the issues involved in researching a case situation AACSB: Application of knowledge 10) What is the main purpose of conducting outside research into the environmental setting of the case?

A) It allows students to identify how the company addressed the problem.

B) It provides a learning experience on library usage, which is helpful in all courses.

C) It gives a realistic background of the industry during a specified period.

D) It gives you clues as to what the organization should be doing in the future.

E) It furnishes large amounts of data—both pertinent and extraneous.

Answer: C Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Application of knowledge 11) According to the text, what information can be obtained by accessing the SEC website?

A) corporate annual reports and 10-K forms B) press releases C) product specifications D) research and development trends E) information about graduate school Answer: A Difficulty: Easy Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Application of knowledge

2 .

12) Among the most useful and important documents that can be used to understand why actions were taken are A) news releases.

B) product specification reports.

C) its corporate history.

D) annual reports.

E) 10-K forms.

Answer: D Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Application of knowledge 13) All of the following are true of annual reports EXCEPT A) 80% of portfolio managers use annual reports when making decisions.

B) annual reports contain income statements and balance sheets.

C) annual reports contain cash flow statements.

D) annual reports contain all the information found in the 10-K form.

E) annual reports contain notes to the financial statements indicating why certain actions were taken.

Answer: D Difficulty: Easy Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Application of knowledge 14) According to the text, what percentage of portfolio managers uses annual reports when making decisions?

A) 20% B) 35% C) 50% D) 60% E) 80% Answer: E Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Application of knowledge

3 .

15) According to the text, what percentage of security analysts use annual reports when making decisions?

A) 20% B) 35% C) 50% D) 75% E) 100% Answer: D Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Application of knowledge 16) Ratio analysis is a valuable part of SWOT analysis, helping to assess the company's overall situation and pinpoint some problem areas.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures 17) Unless instructed otherwise, you should not restrict yourself only to the information and timing of when the case was written and undertake outside research about the environmental setting.

Answer: TRUE Difficulty: Easy Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Analytical thinking 18) A company's annual report from the year of the case can be helpful, but the SEC 10-K form is not beneficial for those conducting a case analysis.

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Analytical thinking 19) According to the Yankelovich Partners survey firm, eight out of ten portfolio managers and 75 percent of security analysts use annual reports when making decisions.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures AACSB: Application of knowledge

4 .

20) A Z-value below 10 indicates significant credit problems.

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.2: Analyze financial statements using ratio analysis, common-size statements, Z-values and economic measures 21) The calculation of ratios from financial data is referred to as A) SWOT analysis.

B) ratio analysis.

C) receivables analysis.

D) integration analysis.

E) diversification analysis.

Answer: B Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 22) Which of the following is not one of the categories of important financial ratios that are mentioned in the text to help assess an organization's overall financial situation?

A) leverage ratios B) liquidity ratios C) asset management ratios D) activity ratios E) profitability ratios Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 23) What financial ratio serves as a short-term indicator of the company's ability to pay its shortterm liabilities from its short-term assets?

A) quick ratio B) current ratio C) cash ratio D) strategic ratio E) inventory ratio Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

5 .

24) Which financial ratio measures the company's ability to pay off its short-term obligations from current assets, excluding inventories?

A) quick ratio B) current ratio C) cash ratio D) strategic ratio E) inventory ratio Answer: A Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 25) Which financial ratio measures the extent to which the company's capital is in cash or cash equivalents?

A) quick ratio B) current ratio C) cash ratio D) strategic ratio E) inventory ratio Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 26) All of the following represent liquidity ratios EXCEPT A) cash ratio.

B) inventory to net working capital.

C) quick ratio.

D) gross profit margin.

E) current ratio.

Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

6 .

27) Which financial ratio indicates how much after-tax profit is generated by each dollar of sales?

A) return on investment B) return on equity C) gross profit margin D) net profit margin E) inventory to net working capital Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 28) Which financial ratio measures the rate of return on the book value of shareholders' total investment in the company?

A) return on investment B) return on equity C) gross profit margin D) net profit margin E) earnings per share Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 29) Which financial ratio shows the after-tax earnings generated for each share of common stock?

A) return on investment B) return on equity C) gross profit margin D) earnings per share E) net profit margin Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

7 .

30) Which financial ratio shows the return on all of the assets under management's control regardless of source of financing?

A) return on investment B) return on equity C) earnings per share D) gross profit margin E) net profit margin Answer: A Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 31) Which financial ratio measures the number of times that average inventory of finished goods was turned over or sold during a period of time?

A) days of inventory B) asset turnover C) average collection period D) fixed asset turnover E) inventory turnover Answer: E Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 32) Which of the following financial ratios is not a profitability ratio?

A) net profit margin B) gross profit margin C) asset turnover D) ROE E) ROI Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

8 .

33) Which financial indicator measures the number of one day's worth of inventory that a company has on hand at any given time?

A) days of cash B) days of inventory C) average collection period D) fixed asset turnover E) inventory turnover Answer: B Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 34) "Inventory to net working capital" is an example of a(n) A) leverage ratio.

B) liquidity ratio.

C) activity ratio.

D) asset management ratio.

E) profitability ratio.

Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 35) "Earnings per share" is an example of a(n) A) leverage ratio.

B) liquidity ratio C) activity ratio.

D) asset management ratio.

E) profitability ratio.

Answer: E Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

9 .

36) "Days of inventory" is an example of a(n) A) leverage ratio.

B) liquidity ratio C) activity ratio.

D) asset management ratio.

E) profitability ratio.

Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 37) Net profit margin is what type of financial ratio?

A) liquidity ratio B) profitability ratio C) activity ratio D) leverage ratio E) revenue ratio Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 38) Return on equity A) is an activity ratio.

B) shows how much after-tax profits are generated by each dollar of sales.

C) is referred to by the acronym ROI. D) measures the rate of return on the book value of shareholders' total investment in the company.

E) is a leverage ratio.

Answer: D Difficulty: Difficult Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

10 .

39) The quick ratio is also known as the A) key profitability ratio.

B) EPS. C) acid test.

D) asset turnover.

E) key activity ratio.

Answer: C Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 40) All of the following ratios represent activity ratios EXCEPT A) accounts payable period.

B) days of inventory.

C) net working capital turnover.

D) earnings per share.

E) days of cash.

Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 41) Which financial ratio measures the utilization of all of the company's assets?

A) days of inventory B) asset turnover C) inventory turnover D) fixed asset turnover E) average collection period Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

11 .

42) Which financial ratio indicates the number of days of cash on hand, at present sales levels?

A) days of inventory B) fixed asset turnover C) days of cash D) average collection period E) inventory turnover Answer: C Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 43) Which financial ratio measures the utilization of plant and equipment?

A) days of inventory B) asset turnover C) average collection period D) fixed asset turnover E) inventory turnover Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 44) Which financial indicator measures the ratio of sales to fixed assets?

A) days of inventory B) asset turnover C) average collection period D) fixed asset turnover E) inventory turnover Answer: D Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

12 .

45) Which financial indicator is calculated as the ratio of annual credit sales to accounts receivable?

A) days of cash B) average collection period C) accounts receivable turnover D) inventory turnover E) net working capital turnover Answer: C Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 46) "Times interest earned" is an example of a(n) A) leverage ratio.

B) liquidity ratio.

C) activity ratio.

D) asset management ratio.

E) profitability ratio.

Answer: A Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 47) Which financial ratio measures the extent to which borrowed funds have been used to finance the company's assets?

A) debt to asset ratio B) debt to equity ratio C) long-term debt to capital structure D) times interest earned E) current liabilities to equity Answer: A Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

13 .

48) Which financial ratio indicates the ability of the company to meet its annual interest costs?

A) debt to asset ratio B) debt to equity ratio C) times interest earned D) long-term debt to capital structure E) coverage of fixed charges Answer: C Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 49) Which financial ratio is a measure of the ability of the company to meet all of its fixedcharge obligations?

A) debt to asset ratio B) debt to equity ratio C) times interest earned D) long-term debt to capital structure E) coverage of fixed charges Answer: E Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 50) All of the following ratios reflect leverage ratios EXCEPT A) debt to asset ratio.

B) times interest earned.

C) coverage of fixed charges.

D) price/earnings ratio.

E) debt to equity ratio.

Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

14 .

51) Which financial indicator shows the current market's evaluation of a stock, based on its earnings?

A) debt to asset ratio B) price/earnings ratio C) coverage of fixed charges D) debt to equity ratio E) times interest earned Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 52) Inventory turnover and asset turnover are both examples of which type of financial ratio?

A) liquidity ratio B) profitability ratio C) activity ratio D) leverage ratio E) revenue ratio Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 53) Fixed asset turnover is what type of financial ratio?

A) liquidity ratio B) profitability ratio C) leverage ratio D) activity ratio E) revenue ratio Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

15 .

54) Which two basic statements provide most of the financial data needed for analysis?

A) statement of retained earnings and income statement B) sources and uses of working capital and the balance sheet C) non-operating gains and losses and statement of financial position D) historical income statement and balance sheet E) statement of financial position and statement of owner's equity Answer: D Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 55) Which financial indicator is calculated by the ratio of market price per share to earnings per share?

A) return on investment B) price/earnings ratio C) return on equity D) dividend yield on common stock E) dividend payout ratio Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 56) Which financial indicator is calculated by the ratio of annual dividends per share to annual earnings per share?

A) dividend payout ratio B) dividend yield on common stock C) price/earnings ratio D) return on investment E) return on equity Answer: A Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

16 .

57) Which financial ratio indicates the percentage of profit that is paid out as dividends?

A) return on equity B) dividend payout ratio C) dividend yield on common stock D) price/earnings ratio E) debt to asset ratio Answer: B Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 58) Which financial indicator is calculated by the ratio of annual dividends per share to current market price per share?

A) return on equity B) dividend payout ratio C) dividend yield on common stock D) price/earnings ratio E) debt to equity ratio Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 59) Which financial ratio indicates the dividend rate of return to common shareholders at the current market price?

A) return on equity B) dividend yield on common stock C) price/earnings ratio D) dividend payout ratio E) earnings per share Answer: B Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

17 .

60) Between 1997 and 1999, what percent of the mergers used the pooling approach to account for the value of the companies' stocks?

A) 95% B) 80% C) 55% D) 40% E) 20% Answer: D Difficulty: Difficult Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 61) Converting categories on financial statements from dollar terms to percentages results in A) inflation-adjusted statements.

B) diverse rates of returns.

C) common-size statements.

D) constant dollar denominations.

E) equivalency comparison.

Answer: C Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 62) To get a proper picture of the position of the organization, common-size statements and ratios should be compared to A) the organization's future historical performance.

B) the leading competitor in the industry.

C) the financial performance of the overall U.S. gross domestic product (GDP).

D) the direct competitor least like the organization.

E) industry-wide average trends.

Answer: E Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

18 .

63) The formula that predicts the likelihood of a corporation going bankrupt is called A) the return on investment.

B) the CAPM. C) the index of sustainable growth.

D) operating cash flow.

E) the Z-value.

Answer: E Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 64) The Z-value uses ________ ratios and weights them according to their importance to a corporation's financial strength.

A) 2 B) 3 C) 4 D) 5 E) 6 Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 65) All of the following ratios are used in the calculation of a company's Z-value EXCEPT A) working capital/total assets.

B) retained earnings/total assets.

C) current assets/current liabilities.

D) market value of equity/total liabilities.

E) sales/total assets.

Answer: C Difficulty: Difficult Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

19 .

66) At what Z-value level is a firm considered healthy?

A) below 1.81 B) above 3.0 C) above 5.0 D) between 6.0 and 10.0 E) above 100 Answer: B Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 67) At what Z-value level is a firm considered in serious trouble?

A) below 1.81 B) above 1.81 C) greater than 5.0 D) between 2.2 and 3.1 E) between 3.2 and 4.1 Answer: A Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 68) The formula that indicates if a company embarking on a growth strategy will need to take on debt to fund this growth is called A) the return on investment.

B) the CAPM. C) the index of sustainable growth.

D) operating cash flow.

E) the Z-value.

Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

20 .

69) What benefit does converting sales and profits to constant dollars in times of inflation offer when analyzing a case?

A) It is helpful in predicting the future potential of the organization.

B) It contributes to determining the risk factors when computing the Z-value.

C) It shows the true performance of the corporation adjusted for inflation to make them comparable over years.

D) It is easier for the financial analyst to judge the effectiveness of management's decisionmaking.

E) It provides a method that is familiar and easy to understand.

Answer: C Difficulty: Difficult Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 70) To adjust for general inflation in the United States, what index does the text suggest?

A) Dow-Jones Industrial Average B) New York Stock Exchange Index C) Wilshire 5000 Equity Index D) Consumer Price Index E) NASDAQ Series Answer: D Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 71) Dollars adjusted for inflation to make them comparable over various years are known as A) consumer dollars.

B) constant dollars.

C) consumer inflation.

D) constant inflation.

E) earning dollars.

Answer: B Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

21 .

72) ________ is used worldwide and measures the total output of goods and services within a country's borders.

A) CPI B) Prime interest rate C) GDP D) Z-Value E) The Index of sustainable growth Answer: C Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 73) Which of the following is not true of case analysis?

A) Case discussion focuses on critical analysis.

B) A solution is satisfactory if it resolves important problems and if it is likely to be implemented successfully.

C) Case analysis helps build analytic and decision-making skills.

D) A solution is satisfactory if it reflects what the company actually did.

E) Case discussion focuses on logical development of thought.

Answer: D Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 74) Ratio analysis is helpful in assessing the company's overall situation and pinpointing some problem areas.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 75) Ratios are only useful for large firms where their ratios may be compared with industry averages.

Answer: FALSE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

22 .

76) One of the most important categories of financial ratios is the group of liquidity ratios.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 77) An important liquidity ratio is Earnings per Share (EPS).

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 78) Key liquidity ratios include the current ratio, quick ratio, and cash ratio.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 79) The debt to asset ratio measures the extent to which borrowed funds have been used to finance the company's assets.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 80) In case analysis, it is best to make an exhibit that includes all the financial ratios.

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 81) When conducting a financial analysis, select and discuss those financial ratios that have an impact on the company's problems.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

23 .

82) A typical financial analysis would compare the firm under study with industry standards.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 83) A typical financial analysis of a firm would include a study of the operating statements for five or so years.

Answer: TRUE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 84) Common-size statements are income statements and balance sheets in which the dollar figures have been converted into percentages.

Answer: TRUE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 85) If a firm's trends in common-size statements are generally in line with those of the rest of the industry, problems are less likely than if the firm's trends are worse than the industry average.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 86) If the corporation being studied appears to be in poor financial condition, use Altman's Bankruptcy Formula to calculate its Z-value.

Answer: TRUE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 87) The Z-value formula combines five ratios by weighting them according to their importance to a corporation's financial strength.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 24 .

88) A Z-value above 3.0 indicates significant credit problems for a firm.

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 89) The index of sustainable growth indicates how much of the growth rate of sales can be sustained by internally generated funds.

Answer: TRUE Difficulty: Difficult Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 90) One way to adjust for inflation for global operations outside the United States is to use the U.S. Consumer Price Index (CPI).

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 91) Constant dollars are dollars adjusted for inflation to make them comparable over various years.

Answer: TRUE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 92) The public interest rate is the rate of interest banks charge on their lowest risk loans.

Answer: FALSE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 93) The gross domestic product (GDP) is used only in the United States to measure the total output of goods and services within the country's borders.

Answer: FALSE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

25 .

94) The amount of change from one year to the next in GDP indicates how much that country's economy is growing.

Answer: TRUE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 95) In case analysis, how the company actually dealt with the case problem is the most important part of the solution.

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking 96) Inventory turnover and days of inventory are profitability ratios.

Answer: FALSE Difficulty: Easy Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 97) The debt-to-asset ratio measures the funds provided by creditors versus the funds provided by owners.

Answer: FALSE Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 98) It is recommended that a financial analysis include a comparison of trends in one category with trends in related categories.

Answer: TRUE Difficulty: Difficult Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Analytical thinking

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99) What ratios are recommended for financial ratio analysis?

Answer: Some of the most important financial ratios recommended are liquidity ratios, profitability ratios, activity ratios, and leverage ratios. A review of key financial ratios can help to assess a company's overall situation and pinpoint some problem areas. It is important to compare a company's ratios with industry averages and to calculate only those ratios that are appropriate for the company.

Difficulty: Difficult Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 100) In performing a basic financial analysis, what five steps should be taken?

Answer: At a minimum, in performing a basic financial analysis, the following five steps should be taken.

1. Scrutinize historical income statements and balance sheets.

2. Compare historical statements over time.

3. Calculate changes that occur in individual categories from year to year.

4. Determine the change as a percentage (as well as an absolute amount).

5. Adjust for inflation.

Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 101) What are common-size statements?

Answer: Common-size statements are income statements and balance sheets in which the dollar figures have been converted into percentages. These statements are used to identify trends in each of the categories. To get a proper picture. However, you need to make comparisons with industry data, if available, to see whether fluctuations are merely reflecting industry-wide trends.

Common size statements are especially helpful in developing scenarios and pro forma statements because they provide a series of historical relationships from which you can estimate the future with your scenario assumptions for each year.

Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

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102) What is the Z-value?

Answer: If the corporation being studied appears to be in poor financial condition, Altman's Bankruptcy formula should be used to calculate its likelihood of going bankrupt. The Z-value formula combines five ratios by weighting them according to their importance to a corporation's financial strength. Scores below 1.81 indicate significant credit problems, whereas a score above 3.0 indicates a healthy firm. Scores between 1.81 and 3.0 indicate question marks.

Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge 103) What are constant dollars and why are they important?

Answer: Constant dollars are dollars adjusted for inflation to make them comparable over various years. One way to adjust for inflation in the United States is to use the Consumer Price Index. Adjusting for inflation is especially important for companies operating in the emerging economies, like China and Russia.

Difficulty: Moderate Learning Obj.: 13.3: Employ the strategic audit as a method of organizing and analyzing case information AACSB: Application of knowledge

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