1.

Good intuitive judgment is always needed to determine appropriate weights and ratings in the
input stage matrices.
Ans: T Page: 220

2. Both IE and BCG Matrices are called portfolio matrices.

Ans: T Page: 233

3. Strategy formulation is the managing of forces during the action, whereas strategy
implementation is the positioning of forces before the action.
Ans: F Page: 262

4. Conflict of any kind is avoidable in organizations.

Ans: F Page: 269

5. The most complex of all designs is a matrix structure.

Ans: T Page: 275

6. Market penetration can be defined as the subdividing of a market into distinct subsets of
customers according to needs and buying habits.
Ans: F Page: 307

7. A projected financial analysis can be used to forecast the impact of various implementation
decisions.
Ans: T Page: 318

8. A recommended approach for determining a firm’s worth is to base the analysis on the selling
price of a similar company.
Ans: T Page: 322

9. Because large companies have more at stake, it is more important for large organizations to
conduct strategy evaluation than small companies.
Ans: F Page: 339

10. The strategic management process should be completely open because participation and
openness enhance understanding, commitment, and communication within the firm.
Ans T: Page 354

Multiple Choice
11. Which stage in the strategy-formulation framework focuses on generating feasible alternative
strategies?
a. Input
b. Output
c. Decision
d. Throughput
e. Matching

12. Which strategy formulation technique reveals the relative attractiveness of alternative
strategies and thus provides an objective basis for selecting specific strategies?
a. SWOT
b. SPACE
c. QSPM
d. IFE
e. CPM

13. Which section of the SWOT Matrix involves matching internal strengths with external
opportunities?
a. The WT cell
b. The SW cell
c. The WO cell
d. The ST cell
e. The SO cell

14. The two internal dimensions represented on the axes of the SPACE Matrix are _____.
a. environmental stability and industry strength
b. industry strength and internationalization
c. internationalization and competitive advantage
d. competitive advantage and financial strength
e. financial strength and environmental stability

15. An organization that has a low relative market share position and competes in a slow-growth
industry is referred to as a _____.
a. dog
b. question mark
c. star
d. cash cow
e. cowboy

16. For companies located in Quadrant III of the Grand Strategy Matrix, the first strategy
recommended is _____.
a. extensive cost and asset reduction
b. asset expansion
c. employee expansion
d. immediate liquidation of assets
e. divestiture

17. Through which tactic is it possible to achieve similar results using different means or paths?
a. Generalization
b. Satisficing
c. Focus on higher-order issues
d. Equifinality
e. Specialization

18. What are guidelines, methods, procedures, rules, forms and administrative practices known
as?
a. Long-term objectives
b. Policies
c. Annual objectives
d. Strategies
e. Goals

19. Which approach for managing and resolving conflict involves exchanging members of
conflicting parties of that each can gain an appreciation of the others point of view?
a. Avoidance
b. Resistance
c. Compliance
d. Diffusion
e. Confrontation
20. Which approach for managing and resolving conflict involves playing down differences
between conflicting parties while accentuating similarities and common interests?
a. Avoidance
b. Resistance
c. Compliance
d. Diffusion
e. Confrontation

21. What type of organizational structure do most small businesses follow?

a. Divisional structure by product
b. Functional structure
c. Divisional structure by customer
d. Process type structure
e. Matrix structure
Ans: b Page: 271

22. A divisional structure by geographic area is most appropriate when _____.

a. organizations have similar branch facilities located in widely dispersed areas

b. an organization offers only a limited number of products or services

c. strict control and attention to product lines are needed

d. an organization has many skilled managers
e. the firm serves one geographic area
Ans: a Page: 273

23. What action involves reconfiguring or redesigning work, jobs and processes for the
purpose of improving costs, quality, service and speed?
a. Restructuring
b. Downsizing
c. Reengineering
d. Delayering
e. Benchmarking
Ans: c Page: 280

24. A change strategy that attempts to convince people the change is to their personal
advantage is _____.
a. diffusion
b. force
c. educative
d. rational
e. compromise
Ans: d Page: 283-284

25. Which strategy could be best defined as an effective, multi-method technique of

studying and altering a firm’s culture?
a. Benchmarking
b. Delivering
c. Triangulation
d. Process management
e. Educative change strategy
Ans: c Page: 287

26. Which two variables are of central importance to strategy implementation?

a. Diversification and budgeting.
b. Marketing penetration and competition.
c. Competition and collaboration.
d. Product development and market development.
e. Market segmentation and product positioning.
Ans: e Page: 307

27. Which variable would be considered part of the product element of the marketing mix?
a. Advertising
b. Packaging
c. Payment terms
d. Inventory levels and location
e. Publicity
Ans: b Page 308

28. Multidimensional scaling is used to determine _____.

a. the size of a new building
b. the size of a new department
c. the amount of high-tech equipment a firm needs
d. product positioning
e. market segmentation
Ans: d Page: 311

29. What is the most widely used technique for determining the best combination of debt
and stock?
a. Debt-to-stock ratio
b. Earnings per share/earnings before interest and tax analysis
c. Gross profit analysis
d. Capital asset pricing model
e. Present value analysis
Ans: b Page: 313

30. After completing an EPS/EBIT analysis, what conclusions would you make if the debt
line is above the stock line throughout the range of EBIT on the graph?
a. Debt appears to be the best financing alternative.
b. Stock would be the best financing alternative.
c. A combination of debt and stock is probably the best financial alternative.
d. Dividends must be considered before conclusions can be made.
e. The company should be privately owned.
Ans: a Page: 313
31. The first step in preparing a projected statements is to _____.
a. prepare the projected balance sheet
b. take an inventory of goods
c. estimate increases in debt
d. prepare the projected income statement
e. calculate the projected net income
Ans: d Page: 318

32. Which method of determining a firm’s net worth divides the market price of the firm’s
stock by the annual earnings per share and multiplies this number by the firm’s average
net income for the past five years?
a. Debt/equity method
b. Current ratio method
c. Price-earnings ratio method
d. Long-term asset method
e. Outstanding shares method
Ans: c Page: 322

33. The attitude ofU.S. firms toward research and development is best described by which
of the following?
a. The veil of secrecy is being lifted, resulting in more collaboration.

b. Firms are more cutthroat than ever and less cooperative with each other.

c. Firms are less interested in working with universities.

d. Firms are spending less in total research and development expenditures.
e. Firms are less involved with research consortia than ever.
Ans: a Page: 327

34. The purpose of strategy evaluation is to _____.

a. increase the budget annually
b. alert management to problems or potential problems
c. make budget changes
d. evaluate employees’ performance
e. improve R&D programs
Ans: b Page: 336

35. What is important because organizations face dynamic environments in which key
external and internal factors often change quickly and dramatically?
a. Strategy formulation
b. Strategy evaluation
c. Strategy simplification
d. Strategy modification
e. Strategy implementation
Ans: b Page: 337
36. In evaluating strategies, which one of Rumelt’s criteria for evaluating strategies, refers
to the need for strategists to examine sets of trends?
a. Consistency
b. Consonance
c. Feasibility
d. Advantage
e. Empowerment
Ans: b Page: 338

37. Strategy evaluation is based on _____.

a. empirical data
b. qualitative criteria
c. objective data
d. qualitative and quantitative criteria
e. intuition
Ans: d Page: 343

38. What is the best way to overcome individuals’ resistance to change in strategy
evaluation?
a. Participation
b. Command-and-control
c. Laissez-faire system
d. Rational argument
e. Emotional reactions
Ans: a Page: 344

39. What factor determines the final design of a firm’s strategy-evaluation and control
system?
a. Opportunities
b. Threats
c. External characteristics
d. The organization’s characteristics
e. The competition’s characteristics
Ans: d Page: 349

40. What permits quick response to change, prevents panic in crisis situations, and makes
managers more adaptable?
a. Auditing
b. Implementing a balanced scorecard
c. Contingency planning
d. Taking corrective actions
e. Measuring performance
Ans: c Page: 351
Essay Questions
41. Explain the benefits and limitations of developing a Boston Consulting Group Matrix.
The BCG Matrix has one major benefit: draws attention to the cash flow, investment characteristics and
needs of an organization’s various divisions.
The BCG Matrix has some limitations:
1) Viewing every business as either a star, cash cow, dog or question mark is an oversimplification; many
businesses fall right in the middle of the BCG Matrix and thus are not easily classified,
2) the BCG Matrix does not reflect whether or not various divisions or their industries are growing over
time; that is, the matrix has no temporal qualities, but rather it is a snapshot of an organization as any
given point in time; and
3) other variables besides relative market share position and industry growth rate in sales are important in
making strategic decisions about various divisions.

42. Describe the tactics that have been used by politicians that can also aid strategists.
Equifinality—It is often possible to achieve similar results using different means or paths. Strategists
should recognize that achieving a successful outcome is more important than imposing the method of
achieving it. It may be possible to generate new alternatives that give equal results but with far greater
potential for gaining commitment.
Satisfying—Achieving satisfactory results with an acceptable strategy is far better than failing to achieve
optimal results with an unpopular strategy.
Generalization—Shifting focus from specific issues to more general ones may increase strategists’
options for gaining organizational commitment.
Focus on Higher-Order Issues—By raising an issue to a higher level, many short-term interests can be
postponed in favor of long-term interests. For instance, by focusing on issues of survival, the auto and
steel industries were able to persuade unions to make concessions on wage increases.
Provide Political Access on Important Issues—Strategy and policy decisions with significant negative
consequences for middle managers will motivate intervention behavior from them. If middle managers do
not have an opportunity to take a position on such decisions in appropriate political forums, they are
capable of successfully resisting the decisions after they are made. Providing such political access
provides strategists with information that otherwise might not be available and that could be useful in
managing intervention behavior.
Page 246

43. There are three major approaches for minimizing and resolving conflict in an organization.
Define these three approaches and give an example of each.
Various approaches for managing and resolving conflict can be classified into three categories:
avoidance, diffusion and confrontation. Avoidance includes such actions as ignoring the problem in hopes
the conflict will resolve itself, or physically separating the conflicting individuals. Diffusion can include
playing down differences between conflicting parties while accentuating similarities and common
interests, compromising so there is neither a clear winner nor loser, resorting to majority rule, appealing to
a higher authority, or redesigning present positions. Confrontation is exemplified by exchanging members
of conflicting parties so each can gain an appreciation of the other’s point of view, or holding a meeting at
which conflicting parties present their views and work through their differences.
Student answers will vary on the examples given for each approach.
Page: 269-270

44. There are four basic ways a divisionally structured firm could be organized. What are these
four ways? Give an example of each.
The four basic ways a divisionally structured firm could be organized are 1) by geographic area. An
example of this would be any organization with similar branch facilities located in widely dispersed areas;
2) by product or service. Huffy is an example of divisional structure by product; 3) by customer. Book
publishing companies often organize their activities around customer groups as college, secondary
schools and private commercial schools; and 4) by process. An example of this is a manufacturing
business organized into six divisions: electrical work, glass cutting, welding, grinding, painting and
foundry work. Each division would be responsible for generating revenues and profits.
Page: 273-274

45. Compare and contrast restructuring and reengineering.

Restructuring involves reducing the size of the firm in terms of number of employees, number of divisions
or units and number of hierarchical levels in the firm’s organizational structure. Restructuring is concerned
primarily with shareholder well-being rather than employee well-being.
In contrast, reengineering is concerned more with employee and customer well-being than shareholder
well-being. Reengineering involves reconfiguring or redesigning work, jobs and processes for the purpose
of improving cost, quality, service and speed. Whereas restructuring is concerned with eliminating or
establishing, shrinking or enlarging, and moving organizational departments and divisions, the focus of
reengineering is changing the way work is actually carried out. Reengineering is characterized by many
tactical decisions, whereas restructuring is characterized by strategic decisions.
Page: 255-257

46. What are the five steps required for effective product positioning? Give an example of a
product-positioning matrix for an organization of your choice.
There are five steps required for effective product positioning. These five steps are as follows: (1) select
key criteria that effectively differentiate products or services in the industry, (2) diagram a two-dimensional
product-positioning map with specified criteria on each axis, (3) plot major competitors’ products or
services in the resultant four-quadrant matrix, (4) identify areas in the positioning map where the
company’s products or services could be most competitive in the given target market and look for niches
and (5) develop a marketing plan to position the company’s products or services appropriately.
Student examples of product-positioning matrices will vary.
Page: 311

47. Explain how to perform a projected financial analysis.

The steps to performing a projected financial analysis are as follows: (1) prepare the projected income
statement before the balance sheet and start by forecasting sales as accurately as possible; (2) use the
percentage-of-sales method to project CGS and the expense items in the income statement; (3) calculate
the projected net income; (4) subtract from the net income any dividends to be paid and add the
remaining net income to Retained Earnings; (5) project the balance sheet items, beginning with retained
earnings and then forecasting stockholders’ equity, long-term liabilities, total liabilities, total assets, fixed
assets and current assets—in that order; and (6) list comments on the projected statements.
Page: 318-320

48. What are the most commonly used quantitative criteria to evaluate strategies? Give several
examples of these criteria.
Quantitative criteria commonly used to evaluate strategies are financial ratios, which strategists use to
make three critical comparisons: (1) comparing the firm’s performance over different time periods, (2)
comparing the firm’s performance to that of competitors’ and (3) comparing the firm’s performance to
industry averages. Some particularly useful key financial ratios used as criteria for strategy evaluation
are: (1) ROI, (2) ROE, (3) profit margin, (4) market share, (5) debt to equity, (6) earnings per share, (7)
sales growth and (8) asset growth.
Page: 342-343

49. Describe the seven-step process of effective contingency planning in strategy evaluation.
The suggested seven-step process of effective contingency planning is as follows: (1) Identify both
beneficial and unfavorable events that could possibly derail the strategy or strategies; (2) specify trigger
points and calculate about when contingent events are likely to occur; (3) assess the impact of each
contingent event; (4) develop contingency plans; (5) assess the counter impact of each contingency plan;
(6) determine early warning signals for key contingent events and monitor them; and (7) for contingent
events with reliable early warning signals, develop advance action plans to take advantage of the
available lead time.
Page: 351-352

50. Discuss the three challenges that strategists face today.

The three challenges that strategists face today are 1) deciding whether the process of strategic
management should be more of an art or a science; 2) deciding whether strategies should be visible or
hidden from stakeholders; or 3) deciding whether the process should be more top-down or bottom-up in
the firm.
Page: 353-355