SAMPLE COMPREHENSIVE EXAM

CHAPTERS 1 – 5

True/False

1. A vision statement answers the question, “What is our business?,” whereas a mission statement answers, “What do we want to become?”

Ans: F Page: 10-11

2. The changes that occurred at Disney after Robert Iger took over as CEO exemplifies the fact that more and more organizations are centralizing the strategic-management process.

Ans: F Page: 16

3. In multidivisional organizations, each division should develop a mission statement independent of the parent company.

Ans: F Page: 63

4. According to Vern McGinnis, to be effective, all a mission statement need to do is define what the organization is and what the organization aspired to be.

Ans: F Page: 63

5. It is predicted that, by 2025, over 18% of the population in the United States will be over 65 years old.

Ans: T Page 88

6. The first step for using Porter’s Five-Forces Model is to evaluate the relative strength of each competitive force.

Ans: F Page 101

7. Metaphors are handed-down narratives of some wonderful event that is based on history but has been embellished with fictional detail.

Ans: F Page 127

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8. Benchmarking is an analytical tool used to determine whether a firm’s value chain activities are competitive compared to rivals.

Ans: T Page 157

9. Since a combination strategy is not risky, many organizations pursue a combination of two or more strategies simultaneously.

Ans: F Page: 171

10. Most companies favor related diversification strategies in order to exploit common use of a well-known brand name.

Ans: T Page 180

Multiple Choice

11. What can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives?a. Strategy formulationb. Strategy evaluationc. Strategy implementationd. Strategic managemente. Strategic leading

Ans: d Page: 5

12. During what stage of strategic management are a firm’s specific internal strengths and weaknesses determined?a. Formulationb. Implementationc. Evaluationd. Feedbacke. Goal-setting

Ans: a Page: 5

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13. Anything that a firm does especially well compared to rival firms is referred to as _____.a. competitive advantageb. comparative advantagec. opportunity costd. sustainable advantagee. an external opportunity

Ans: a Page: 8

14. The trends in newspaper circulation in the United States provide support for which statement?a. Sustainable competitive advantage is easy to maintain.b. Several firms can have similar competitive advantages.c. Some products are relatively immune to changes in the external

environmentd. Most competitive advantages are hard to sustaine. Competition is generally good for companies and consumers

Ans: d Page 9

15. In which phase of strategic management are annual objectives especially important?a. Formulationb. Controlc. Evaluationd. Implementatione. Management

Ans: d Page: 13

16. Principles of conduct that guide decision-making are known as _____.a. human rightsb. the Constitutionc. business ethicsd. nonprofit organization policiese. social responsibility requirements

Ans: c Page: 20

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17. Which of these basic questions should a vision statement answer?a. What is our business?b. Who are our employees?c. Why do we exist?d. What do we want to become?e. Who are our competitors?

Ans: d Page 56

18. What is the first step in the comprehensive strategic-management model?a. Developing vision and mission statementsb. Performing external auditsc. Performing internal auditsd. Measuring and evaluating performancee. Establishing long-term objectives

Ans: a Page 59

19. According to the comprehensive strategic-management model, which step needs to be completed immediately following the establishment of long-term objectives?a. Developing vision and mission statementsb. Performing external auditsc. Performing internal auditsd. Generating, evaluating, and selecting strategiese. Measuring and evaluating performance

Ans: d Page 59

20. What is the best time to develop a mission statement?a. Before a business is openedb. When the firm is successfulc. When the firm is in financial troubled. When the firm is in legal troublee. When the firm encounters competition

Ans: b Page: 63

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21. A proactive environmental policy is likely to lead to _____.a. higher cleanup costsb. conservation of energyc. reduced customer loyaltyd. numerous liability suitse. higher medical costs

Ans: b Page: 65

22. Which of these examples of a mission statement’s focus area is not effective?a. AT&T focuses on communication rather than telephones.b. Exxon/Mobil focuses on oil and gas rather than energy.c. Union Pacific focuses on transportation rather than railroads.d. Universal Studios focuses on entertainment rather than movies.e. Starbucks focuses on the café experience rather than coffee.

Ans: b Page: 66

23. Which type of trend is exemplified by the increasing numbers of two-income households in America?a. Socialb. Economicc. Culturald. Technologicale. Historical

Ans: b Page: 85

24. In general, what happens to American goods in overseas markets when there is a strong dollar?a. Less expensiveb. More attractivec. Cheaperd. More expensivee. Desirable

Ans: d Page: 86

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25. It is predicted that the United States will have how many racial or ethnic majorities by the year 2075? a. Noneb. Onec. Twod. Threee. Five

Ans: a Page: 88

26. Who is the largest exporter to the United States?a. Mexicob. Chinac. Canadad. United Kingdome. Japan

Ans: b Page: 89

27. The term that refers to the EU’s effort to end competitive tax breaks among member countries is _____.a. double taxationb. taxation biasc. equity taxationd. tax reconciliatione. tax harmonization

Ans: e Page: 90

28. According to Porter, what is usually the most powerful of the five competitive forces?a. Potential development of substitute productsb. Bargaining power of suppliersc. Bargaining power of consumersd. Rivalry among competing firmse. Potential entry of new competitors

Ans: d Page: 101

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29. A standardized, detailed set of techniques and behaviors that manage anxieties, but seldom produce intended, technical consequences of practical results are called _____.a. folktalesb. ritesc. metaphorsd. ritualse. values

Ans: d Page: 119

30. What are historical narratives describing the unique accomplishments of a group and its leaders, usually in heroic terms? a. Ritesb. Sagasc. Storiesd. Mythse. Folktales

Ans: b Page: 119

31. Which function of management includes areas such as job design, job specification, job analysis and unity of command?a. Planningb. Organizingc. Motivatingd. Staffinge. Controlling

Ans: b Page: 124

32. Which of the following is the process of influencing people to accomplish specific objectives?a. Staffingb. Motivatingc. Planningd. Controllinge. Organizing

Ans: b Page: 126

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33. Which decision concerns determining the best capital structure for the firm and includes examining various methods by which the firm can raise capital?a. Investmentb. Dividendsc. Financingd. Capital budgetinge. Implementation

Ans: c Page: 133

34. What category of ratios measures how effectively a firm can maintain its economic position in the growth of the economy and industry?a. Profitabilityb. Liquidityc. Leveraged. Activitye. Growth

Ans: e Page: 135

35. Budget Rent-a-Car opening car rental shops in Wal-Mart stores is an example of which type of strategy?a. Forward integrationb. Backward integrationc. Horizontal integrationd. Related diversificatione. Unrelated diversification

Ans: a Page 173

36. Advanced Medical Optics using acquisitions to obtain all medical aspects of eye care, from laser surgery to contacts to implants for all ages is an example of which type of strategy?a. Forward integrationb. Backward integrationc. Horizontal integrationd. Market developmente. Product development

Ans: d Page 173

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37. In which situation would horizontal integration be an especially effective strategy?a. When an organization can gain monopolistic characteristics in a particular

area or region without being challenged by the federal government for “tending substantially” to reduce competition.

b. When an organization competes in a slowing industry.c. When decreased economies of scale provide major competitive

advantages.d. When an organization has neither the capital nor human talent needed to

successfully manage an expanded organization.e. When competitors are succeeding due to managerial expertise or having

particular resources an organization possesses.

Ans: a Page: 177

38. Win-Dixie closing one-third of its stores and eliminating 22,000 jobs in an attempt to emerge from bankruptcy would be an example of _____.a. divestitureb. backward integrationc. liquidationd. retrenchmente. forward integration

Ans: d Page: 184

39. According to Porter, which strategy offers products or services to a small range of customers at the lowest price available on the market?a. Low-costb. Best-valuec. Low-cost focusd. Best-value focuse. Differentiation

Ans: c Page: 188

40. Which strategy would be most appropriate when the distinctive competencies of two or more firms complement each other especially well?a. Conglomerate diversificationb. Divestiturec. Joint ventured. Retrenchmente. Integration

Ans: c Page: 196

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Essay Questions

41. Explain the relationship between strategic management and competitive advantage for firms. How can a firm achieve sustained competitive advantage?

Ans: Strategic management is all about gaining and maintaining competitive advantage. Competitive advantage is anything a firm does especially well compared to rival firms. When a firm can do something that rival firms cannot do, or owns something that rival firms desire, that can represent a competitive advantage. Getting and keeping competitive advantage is essential for long-term success of an organization. A firm must strive to achieve sustained competitive advantage by (1) continually adapting to changes in external trends and events and internal capabilities, competencies and resources, and by (2) effectively formulating, implementing and evaluating strategies that capitalize upon those factors.

Page: 8-9

42. List 10 major benefits of strategic management, as stated by Greenley.

There are 14 benefits stated by Greenley. Students are to list any 10 of the following: (1) it allows for identification, prioritization and exploitation of opportunities, (2) it provides an objective view of management problems, (3) it represents a framework for improved coordination and control of activities, (4) it minimizes the effects of adverse conditions and changes, (5) it allows major decisions to better support established objectives, (6) it allows more effective allocation of time and resources to identified opportunities, (7) it allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions, (8) it creates a framework for internal communication among personnel, (9) it helps integrate the behavior of individuals into a total effort, (10) it provides a basis for clarifying individual responsibilities, (11) it encourages forward thinking, (12) it provides a cooperative, integrated and enthusiastic approach to tackling problems and opportunities, (13) it encourages a favorable attitude toward change, and (14) it gives a degree of discipline and formality to the management of a business.

Page: 16-17

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43. Compare and contrast vision statement with mission statement.

Many organizations develop both a mission statement and a vision statement. Whereas the mission statement answers the question, “What is our business,” the vision statement answers the question, “What do we want to become?” When employees and managers together shape or fashion the vision and mission statements for a firm, the resultant documents can reflect the personal visions managers and employees have in their hearts and minds about their own futures. Shared vision creates a commonality of interests that can lift workers out of the monotony of daily work and put them into a new world of opportunity and challenge.

Page: 60

44. Explain the process of developing a mission statement.

A widely used approach to developing a mission statement is first to select several articles about mission statements and ask all managers to read these as background information. Then ask managers themselves to prepare a mission statement for the organization. A facilitator or committee of top managers should then merge these statements into a single document and distribute this draft mission statement to all managers. A request for modifications, additions and deletions is needed next, along with a meeting to revise the document. To the extent all managers have input into and support the final mission statement document, organizations can more easily obtain managers’ support for other strategy formulation, implementation and evaluation activities.

Page: 61

45. Discuss the process of performing an external audit.

To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal and technological trends. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a blackboard. A prioritized list of these factors could be obtained by requesting that all managers to rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat.

Page: 83-84

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46. List five steps that comprise an effective framework for conducting an EFE Matrix. Explain the details involved in performing any one of the steps.

The EFE Matrix can be developed in five steps: 1) list key external factors as identified in the external-audit process with a total of from 10 to 20 factors, including both opportunities and threats that affect the firm and its industry; 2) assign to each factor a weight that ranges from 0.0 to 1.0; 3) assign a 1 to 4 rating to each key external factor to indicate how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor; 4) multiply each factor’s weight by its rating to determine a weighted score; and 5) sum the weighted scores for each variable to determine the total weighted score for the organization.

Page: 109-111

47. Explain the resource-based view and its relation to strategic management.

The resource-based view (RBV) approach to competitive advantage contends that internal resources are more important than external factors for a firm in achieving and sustaining competitive advantage, in contrast to the I/O theory. According to this view, organizational performance is determined by physical resources, human resources and organizational resources. RBV theory asserts that resources are actually what help a firm exploit opportunities and neutralize threats. The theory also asserts that in order to maintain a competitive advantage, a resource must either be rare, not easily substitutable, or hard to imitate. The RBV has continued to grow in popularity and continues to seek a better understanding of the relationship between resources and sustained competitive advantage.

Page: 125

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48. Discuss what needs to be completed, besides the calculation and interpretation of ratios, to complete an effective financial ratio analysis.

The analysis should be conducted on three separate fronts:

1. How has each ratio changed over time? This information provides a means of evaluating historical trends. It is important to note whether each ratio has been increasing, decreasing, or nearly constant historically. For example, a 10 percent profit margin could be bad if the trend has been down 20 percent each of the last three years. But a 10 percent profit margin could be excellent if the trend has been up, up, up. Therefore, calculate the percentage change in each ratio from one year to the next to assess historical financial performance on that dimension. Identify and examine large percent changes in a financial ratio from one year to the next. 2. How does each ratio compare to industry norms? A firm’s inventory turnover ratio may appear impressive at first glance, but may pale when compared to industry standards or norms. Industries can differ dramatically on certain ratios. For example grocery companies such as Kroger have a high inventory turnover whereas automobile dealerships have a lower turnover. Therefore, comparison of a firm’s ratios within its particular industry can be essential in determining strength/weakness. 3. How does each ratio compare with key competitors? Oftentimes competition is more intense between several competitors in a given industry or location than across all rival firms in the industry. When this is true, financial ratio analysis should include comparison to those key competitors. For example, if a firm’s profitability ratio is trending up over time and compares favorably to the industry average, but it is trending down relative to its leading competitor, there may be reason for concern.

Page: 145

49. Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and 13.

Chapter 7 bankruptcy is a liquidation procedure used only when a corporation sees no hope of being able to operate successfully or to obtain the necessary creditor agreement. Chapter 9 bankruptcy applies to municipalities. Chapter 11 bankruptcy allows organizations to reorganize and come back after filing a petition for protection. Chapter 12 bankruptcy provides special relief to family farmers with debt equal to or less than $1.5 million. Chapter 13 bankruptcy is a reorganization plan similar to Chapter 11, but it is available only to small businesses owned by individuals with unsecured debts of less than $100,000 and secured debts of less than $350,000.

Page: 185

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50. Discuss Michael Porter’s five generic strategies.

According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership, differentiation and focus. Porter calls these bases generic strategies. Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-sensitive. Two alternative types of cost leadership strategies can be defined. Type 1 is a low-cost strategy that offers products or services to a wide range of customers at the lowest price available on the market. Type 2 is best-value strategy that offers products or services to a wide range of customers at the best price-value available on the market.; the best value strategy aims to offer customers a range of products or services at the lowest price available compared to a rival’s products with similar attributes. Differentiation is a strategy aimed at producing products and services considered unique industrywide and directed at consumers who are relatively price-insensitive. A low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the market. A best-value focus strategy offers products or services to a small range of customers at the best price-value available on the market.

Page: 188

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