CHAPTER 9Strategy Review, Evaluation and Control

True/False

The Nature of Strategy Evaluation

1. Most strategists believe that an organization’s well being depends on evaluation of the strategic-management process.

Ans: T Page: 337

2. Adequate, timely feedback is important to effective strategy evaluation.

Ans: T Page: 337

3. Too much emphasis on evaluating strategies may be expensive and counterproductive.

Ans: T Page: 337

4. Strategy evaluation should have a long-run focus and avoid a short-run focus.

Ans: F Page: 327

5. According to Richard Rumelt, consonance and consistency are based on a firm’s external assessment.

Ans: F Page: 337

6. According to Rumelt, consistency and feasibility are largely based on a firm’s internal assessment.

Ans: T Page: 337

7. Consistency, distinctiveness, advantage and feasibility are Richard Rumelt’s four criteria for evaluating a strategy.

Ans: F Page: 337

8. Strategy evaluation is becoming increasingly easier with the passage of time, given the technological advances.

Ans: F Page: 337

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9. The decreasing time span for which planning can be done with any degree of certainty is a reason strategy evaluation is more difficult today.

Ans: T Page: 337

10. Strategies may be inconsistent if policy problems and issues continue to be brought to the top for resolution.

Ans: T Page: 338

11. Competitive advantages normally are the result of superiority in one of three areas: feasibility, consistency, or consonance.

Ans: F Page: 338

12. Regardless of the size of the organization, a certain amount of management by wandering around at all levels is essential to effective strategy evaluation.

Ans: T Page: 339

13. 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

14. The end of the fiscal year is the best time to do strategy evaluation.

Ans: F Page: 339

A Strategy-Evaluation Framework

15. Changes in the organization’s management, marketing, finance, R&D and CIS strengths and weaknesses should all be the focus of a revised EFE matrix in strategy evaluation.

Ans: F Page: 340

16. In strategy evaluation, a revised IFE matrix should indicate how effective a firm’s strategies have been in response to key opportunities and threats.

Ans: F Page: 340

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17. Strengths, weaknesses, opportunities and threats should continually be monitored for change because it is not really a question of whether these factors will change but rather when they will change and in what ways.

Ans: T Page: 341

18. When taking corrective action, you need to compare expected results to actual results.

Ans: F Page: 342

19. Criteria for evaluating strategies should be measurable and easily verifiable.

Ans: T Page: 343

20. Specific financial ratios are rarely used criteria to evaluate strategies.

Ans: F Page: 343

21. Measuring organizational performance includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance and examining progress being made toward meeting stated objectives.

Ans: T Page: 343

22. Intuitive judgments are almost always involved in deriving quantitative criteria.

Ans: T Page: 343

23. Most quantitative evaluation criteria are geared to long-term objectives rather than annual objectives.

Ans: F Page: 343

24. Measuring organizational performance requires making changes to reposition a firm competitively for the future.

Ans: F Page: 344

25. Taking corrective actions does not necessarily mean that existing strategies will be abandoned, or even that new strategies must be formulated.

Ans: T Page: 344

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26. Corrective action in strategy evaluation is necessary to keep an organization on track toward achieving stated objectives.

Ans: T Page: 344

27. Alvin Toffler argues that environments are becoming so dynamic and complex that they threaten people and organizations with future shock in his thought-provoking books entitled Future Shock and The Third Wave.

Ans: T Page: 344

28. Future shock occurs when the type and speed of changes overpower an individual or organization’s ability and capacity to adapt.

Ans: T Page: 344

29. According to research, participation in strategy-evaluation activities is one of the best ways to overcome individuals’ resistance to change.

Ans: T Page: 344-345

The Balanced Scorecard

30. The basic form of a Balanced Scorecard is the same for all organizations and industries.

Ans: F Page: 346

31. The Balanced Scorecard Approach deals with the question, “How satisfied are the firm’s customers.”

Ans: T Page: 346

Published Sources of Strategy-Evaluation Information

32. Each year, Fortune publishes strategy evaluation research on both the United States and other countries.

Ans: T Page: 346

Characteristics of an Effective Evaluation System

33. Strategy-evaluation activities must be meaningful, i.e., they should specifically relate to a firm’s objectives.

Ans: T Page: 349

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34. Timely approximate information generally more desirable as a basis for strategy evaluation than accurate information that does not depict the present.

Ans: T Page: 349

35. The test of an effective evaluation system is its usefulness and complexity.

Ans: F Page: 349

36. Small organizations require a more elaborate and detailed strategy-evaluation system because they are still evolving.

Ans: F Page: 349

37. There is no one ideal strategy-evaluation system for all organizations.

Ans: T Page: 349

Contingency Planning

38. Contingency plans are alternative plans that can be put into effect if certain key events do not occur as expected.

Ans: T Page: 350

39. Organizations should prepare contingency plans just for unfavorable events.

Ans: F Page: 350

40. Strategies should try to cover all bases by planning for all possible contingencies.

Ans: F Page: 350

41. Contingency plans should be as simple as possible.

Ans: T Page: 350

42. Alternative strategies not selected for implementation should be discarded, as they have a tendency to contaminate the contingency plans.

Ans: F Page: 350

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43. Identifying both beneficial and unfavorable events that could possibly derail the strategy or strategies is the first step of effective contingency planning.

Ans: T Page: 351

Auditing

44. Independent auditors, government auditors and IRS auditors are the three groups of people who perform audits.

Ans: F Page: 352

45. Independent auditors are basically CPAs who provide their services to organizations for a fee.

Ans: T Page: 352

46. Public accounting firms usually avoid strategy evaluation services.

Ans: F Page: 352

47. Two government agencies—IRS and GAO—employ government auditors responsible for making sure organizations comply with federal laws, statutes and policies.

Ans: T Page: 352

48. Moving environmental affairs from the line side of the organization to the staff side is required when instituting an environmental audit.

Ans: F Page: 353

49. The strategic management process should be completely open because participation and openness enhance understanding, commitment, and communication within the firm.

Ans T: Page 354

50. Increased education and diversity of the workforce at all levels are reasons why the top-down approach should be favored in organizations.

Ans: F Page: 354

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Multiple Choice

The Nature of Strategy Evaluation

51. Which of these is/are a basic activity of strategy evaluation?a. Reviewing the underlying internal and external factors that represent the

bases of current strategiesb. Measuring organizational performancec. Taking corrective actionsd. All of the above.e. Both b and c

Ans: d Page: 336

52. The purpose of strategy evaluation is toa. 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

53. What is the cornerstone of effective strategy evaluation?a. Adequate and timely feedbackb. Quality and quantity of managersc. Smaller ratio of top- to lower-level managementd. Evaluation preceding implementation stagee. Taking corrective actions

Ans: a Page: 337

54. All of these are Richard Rumelt’s criteria to evaluate a strategy except:a. advantage.b. consistency.c. feasibility.d. distinctiveness.e. consonance.

Ans: d Page: 337

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55. What is happening to strategy evaluation with the passage of time?a. increasingly difficultb. much simplerc. very convenientd. an unnecessary activitye. less important

Ans: a Page: 337

56. All of the following are reasons strategy evaluation is more difficult today except:a. a dramatic increase in the environment’s complexity.b. the increasing number of variables.c. the increase in the number of both domestic and world events affecting

organizations.d. the decreasing difficulty of predicting the future with accuracy.e. the rapid rate of obsolescence of even the best plans.

Ans: d Page: 337

57. Which of the following is not a reason for the increasing difficulty of evaluating strategies?a. Product life cycles are longer today than ever. b. Domestic and world economies are less stable than ever.c. Product development cycles are longer than ever.d. Technological advancement is more rapid.e. Change is occurring more frequently than ever.

Ans: a Page: 337

58. What is important because organizations face dynamic environments in which key external and internal factors often change quickly and dramatically?a. Strategy formulationb. Strategy evaluationc. Strategy simplificationd. Strategy modificatione. Strategy implementation

Ans: b Page: 337

59. A final broad test of strategy is itsa. advantage.b. feasibility.c. consonance.d. consistency.e. distinctiveness.

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Ans: b Page: 33860. Competitive advantage normally is the result of superiority in resources, skills and

a. employees.b. position.c. consistency.d. feasibility.e. governance.

Ans: b Page: 338

61. What term refers to the need for strategists to examine sets of trends, as well as individual trends in evaluating strategies?a. Consistencyb. Consonancec. Synergyd. Feasibilitye. Advantage

Ans: b Page 338

62. In evaluating strategies, which one of Rumelt’s criteria for evaluating strategies, refers to the need for strategists to examine sets of trends?a. consistencyb. consonancec. feasibilityd. advantagee. empowerment

Ans: b Page: 338

63. If success for one organizational department means failure for another department, then strategies may bea. synergistic.b. advantageous.c. inconsonantd. failures.e. inconsistent.

Ans: e Page: 338

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64. When empowered employees are held accountable for and pressured to achieve specific goals and are given wide latitude in their actions to achieve them, there can be a. increased productivity.b. dysfunctional behavior.c. decreased number of complaints.d. decreased turnover.e. increased number of litigations.

Ans: b Page: 339

65. Strategy-evaluation activities should be performeda. on a periodic basis.b. at the onset of a problem.c. on a continuous basis.d. upon completion of major projects.e. every two years.

Ans: c Page: 339

A Strategy-Evaluation Framework

66. Corrective actions are not needed whena. changes have occurred in the firm’s internal strategic position.b. external and internal factors have not significantly changed.c. the firm is not progressing satisfactorily toward achieving stated

objectives.d. competitive factors are on the rise.e. the industry is slowing down.

Ans: b Page: 340

67. When you discover major changes have occurred in the firm’s internal strategic position while conducting strategy evaluation, you shoulda. continue on the present strategic course.b. immediately discontinue all aspects of the present strategic course.c. take corrective actions. d. add additional funds to the present strategic plan.e. copy the actions of major competitors.

Ans: c Page: 340

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68. Changes in the organization’s management, marketing, finance/accounting, R&D and CIS strengths and weaknesses should be the focus of a reviseda. mission.b. IFE matrix.c. vision.d. EFE matrix.e. EPM matrix.

Ans: b Page: 340

69. A revised __________ should indicate how effective a firm’s strategies have been in response to key opportunities and threats.a. IFE matrix b. missionc. EFE matrixd. visione. CPM matrix

Ans: c Page: 340

70. Which of the following is not included in measuring organizational performance?a. Comparing results to competitors’ expectations.b. Examining progress being made toward meeting stated objectives.c. Investigating deviations from plans.d. Evaluating individual performance.e. Comparing expected results to actual results.

Ans: a Page: 342-343

71. Ineffectiveness and/or inefficiencies indicate the need fora. layoffs.b. consultants.c. some form of correction action.d. reductions in pay.e. more synergy.

Ans: c Page: 343

72. What is the basis for quantitative financial evaluation?a. Reduction in costsb. The EPS/EBIT Analysisc. Capital Asset Pricing Modeld. Financial ratiose. Present value analysis

Ans: d Page: 343

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73. Which of these is not a key financial ratio?a. Market shareb. Production qualityc. Earnings per shared. Asset growthe. Return on equity

Ans: b Page: 343

74. Strategy evaluation is based ona. empirical data.b. qualitative criteria.c. objective data.d. qualitative and quantitative criteria.e. intuition.

Ans: d Page: 343

75. Financial ratios are used to compare a firm’s performance over different time periods, compare the firm’s performance to industry averages, and compare a firm’s performance witha. overall business standards.b. the performance of international firms.c. the performance of suppliers.d. non-financial ratios.e. the performance of competitors.

Ans: e Page: 343

76. Most quantitative criteria are geared to objectives rather than objectives.a. top-management; employee b. short-term; annualc. annual; long-termd. environmental; communitye. profit; social

Ans: c Page: 343

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77. What corrective actions should a firm take during strategy evaluation?a. Revising the business missionb. Issuing stockc. Revising objectivesd. Selling a divisione. All of the above

Ans: e Page: 344

78. What occurs when the nature, types and speed of changes overpower an individual’s or organization’s ability and capacity to adapt?a. Corporate downfallb. Corrective actionsc. Future shockd. Corporate agilitye. Measuring performance

Ans: c Page: 344

79. Corrective actions shoulda. strengthen an organization’s competitive position in its industry.b. streamline asset holdings.c. reduce the staff size.d. involve abandoning existing strategies.e. all of the above.

Ans: a Page: 344

80. What is the best way to overcome individuals’ resistance to change in strategy evaluation?a. Participationb. Command-and-controlc. Laissez-faire systemd. Rational argumente. Emotional reactions

Ans: a Page: 344

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81. An organization’s ability to adapt successfully to changing circumstances refers to itsa. corporate agility.b. future shock.c. dynamism.d. revision power.e. liquidity.

Ans: a Page: 344

82. Corrective action should do all of the following except:a. capitalize upon internal strengths.b. avoid external opportunities.c. avoid external threats.d. improve internal weaknesses.e. strengthen an organization’s competitive position.

Ans: b Page: 345

The Balanced Scorecard

83. Which of the following is not a component of the Balanced Scorecard?a. Social responsibilityb. Financial performancec. Customer knowledged. Internal business processese. Learning and growth

Ans: a Page: 346

84. What aims to balance long term with short term concerns, financial with non-financial concerns, and internal with external concerns.a. Contingency planningb. The Balanced Scorecard approachc. Taking corrective actiond. Measuring performancee. reviewing Bases of Strategy

Ans: b Page: 346

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Published Sources of Strategy-Evaluation Information

85. In the important publication used to evaluate a firm’s strategy, the Fortune 50 includes all of the following except:a. the top retailers.b. the top transportation companies.c. the top utilities.d. the top banks.e. the top hospitals.

Ans: e Page: 346

86. Which of these is not a key attribute in Fortune’s strategy evaluation research on “America’s Most Admired Companies”?a. Quality of managementb. Innovationc. Long-term investment valued. Amount of physical resourcese. Use of corporate assets

Ans: d Page: 346-347

Characteristics of an Effective Evaluation System

87. What is not a characteristic of an effective evaluation system?a. Economicalb. Timelyc. Information-orientedd. Meaningfule. Provide a true picture of what is happening

Ans: c Page: 349

88. Controls need to be _________ rather than__________.a. action oriented; information orientedb. cultural; politicalc. qualitative; quantitatived. measurable; timelye. universal; diverse

Ans: a Page: 349

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89. The strategy-evaluation process should foster a. mutual understanding.b. implementation.c. corporate culture.d. profit centers.e. contingency plans.

Ans: a Page: 349

90. What factor determines the final design of a firm’s strategy-evaluation and control system?a. Opportunitiesb. Threatsc. External characteristicsd. The organization’s characteristicse. The competition’s characteristics

Ans: d Page: 349

91. Familiarity with local environments usually makes gathering and evaluating information much easier for organizations than for ones.a. non-profit; for-profitb. for-profit; non-profitc. large; smalld. small; largee. foreign; domestic

Ans: d Page: 349

Contingency Planning

92. What activity is defined as having alternative plans that can be put into effect if certain key events do not occur as expected?a. Corporate agilityb. Scenario planningc. Strategy evaluationd. Contingency planninge. Forecasting

Ans: d Page: 350

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93. Which of the following statements about contingency plans is not true?a. Contingency plans should be as simple as possible.b. Only high-priority areas require the insurance of contingency plans.c. Contingency plans should be developed for favorable and unfavorable

events.d. Develop contingency plans for all contingent events.e. Contingency plans minimize the impact of potential threats.

Ans: d Page: 350

94. What permits quick response to change, prevents panic in crisis situations, and makes managers more adaptable.a. Auditingb. Implementing a balanced scorecardc. Contingency planningd. Taking corrective actionse. Measuring performance

Ans: c Page: 351

Auditing

95. What term refers to a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria, and communicating the results to interested users? a. Auditingb. Innovationc. R&Dd. Strategic Managemente. Accounting

Ans: a Page: 352

96. Which type of auditors are specifically responsible for safeguarding the assets of a company?a. Independent auditorsb. Government auditorsc. Internal auditorsd. External auditorse. Research auditors

Ans: c Page: 352

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The Environmental Audit

97. Product design, manufacturing, transportation, customer use, packaging, product disposal and corporate rewards should reflect considerations to develop constructive relations with employees, consumers, suppliers and distributors.a. profitb. unionc. top-managementd. environmentale. customer

Ans: d Page: 352

Twenty-First-Century Challenges in Strategic Management

98. Most strategy literature advocates that strategic management is a. more of a science than an art.b. more of an art than a science.c. based on analysis rather than research.d. based on intuition rather than analysis.e. based on creativity rather than intuition.

Ans: a Page: 353

99. All of the following are reasons to be completely open with the strategy process except:a. managers, employees and other stakeholders can readily contribute to the

process.b. investors, creditors and other stakeholders have greater basis for

supporting a firm that is open.c. visibility promotes democracy whereas secrecy promotes autocracy.d. participation and openness enhances understanding, commitment and

communication within the firm.e. openness limits rival firms from imitating or duplicating the firm’s

strategies.

Ans: e Page: 354

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100. Which of the following is not a reason why some firms prefer to conduct strategic-planning in secret?a. Dissemination of a firm’s strategies may translate into competitive

intelligence for rival firms. b. It enhances understanding, commitment and communication within the

firm.c. It limits criticism, second-guessing and hindsight.d. Participants in a visible strategy process become more attractive to rival

firms, who may lure them away.e. Secrecy limits rival firms from imitating or duplicating the firm’s

strategies.

Ans: b Page: 354

Essay Questions

101. Explain why strategy evaluation can be a complex and sensitive undertaking.

Strategy can be a complex and sensitive undertaking because too much emphasis on evaluating strategies may be expensive and counterproductive. No one likes to be evaluated too closely! The more managers attempt to evaluate the behavior of others, the less control they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure stated objectives are being achieved.

Page: 337

102. Discuss some of the reasons why strategy evaluation is becoming increasingly difficult with the passage of time.

Possible answers include: Domestic and world economies were more stable in years past; Product life cycles were longer; product development cycles were longer; technological advancement was slower; change occurred less frequently; there were fewer competitors; foreign companies were weak; and there were more regulated industries. Other reasons include: 1) A dramatic increase in the environment’s complexity; 2) The increasing difficulty of predicting the future with accuracy; 3) The increasing number of variables; 4) The rapid rate of obsolescence of even the best plans; 5) The increase in the number of both domestic and world events affecting organizations; and 6) The decreasing time span for which planning can be done with any degree of certainty.

Page: 337

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103. Compare and contrast two of Rumelt’s four criteria for evaluating strategies.

Rumelt’s four criteria for evaluating strategies are consistency, consonance, feasibility and advantage. Students should take their answers from Table 9-1 on page 338, which provides descriptions of each.

Page: 338

104. Describe each of the activities that comprise strategy evaluation.

The activities that comprise strategy evaluation are: (1) reviewing bases of an organization’s strategy, (2) measuring organizational performance and (3) taking corrective actions. Please refer to pages 340-342 for descriptions of each activity.

Page: 340-342

105. 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

106. Discuss the different perspectives and concerns of the Balanced Scorecard.

The Balanced Scorecard is a process that allows firms to evaluate strategies from four perspectives: financial performance, customer knowledge, internal business processes, and learning and growth. It aims to balance long-term concerns with short-term concerns, financial with non-financial concerns, and internal with external concerns.

Page: 346

107. Identify some important guidelines for effective strategic management, as presented in the chapter.

Please refer to the entire discussion on pages 349 under Characteristics of an Effective Evaluation System.

Page: 349

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108. 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

109. Individuals who perform audits can be divided into three groups. Identify these three groups and give an example of each.

People who perform audits can be divided into three groups: independent auditors, government auditors and internal auditors. An example of an independent auditor is the CPAs at Arthur Andersen public accounting firm. The GAO and IRS are examples of government auditors. Employees within an organization who are responsible for safeguarding company assets, for assessing the efficiency of company operations and for ensuring the generally accepted business procedures are examples of internal auditors.

Page: 352

110. 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

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