Chapter 6

Chapter 06
Strategic Management: How Exceptional Managers Realize a

Grand Design
True / False Questions

1. Managers must be willing to make large, painful decisions to suddenly alter strategy.
True
False
2. In a world of rapid and discontinuous change, the ability to please nonmanagerial

employees has been called the golden trait among managers.
True
False
3. A business plan is a document with the purpose of outlining a proposed firm's profit
and loss statements for its first operating cycle.
True
False
4. Formal business plans can be dangerous to the survival of new businesses; many who
try them fail because of the resources required to write and agree upon the plan.
True
False
5. A strategy is a large-scale action plan that sets direction for an organization.

True
False
6. Strategic management is the process of involving nonmanagerial employees in the

formulation and implementation of strategies and strategic goals.
True
False
7. An organization should adopt strategic management and strategic planning to

encourage new ideas.
True
False
8. Bad planning is usually a result of top managers' inability to gather enough

information.
True
False
9. Planning is usually a straightjacket for new ideas, since it effectively blocks peripheral
vision in favor of a predetermined course.
True
False
6-1
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
10. A sustainable competitive advantage is the ability of an organization to produce goods

or services more effectively than its competitors and outperform them.
True
False
11. Ford's Sync in-dash communications platform, despite its high level of technology, has
been unable to provide the company with a distinct competitive advantage.
True
False
12. Harvard Business School professor Michael Porter is a leading authority on

competitive strategy.
True
False
13. Strategic conservation attempts to achieve sustainable competitive advantage by

preserving what is distinctive about a company.
True
False
14. Strategic positioning can be achieved by performing similar activities to rivals, but in
different ways.
True
False
15. A strategic position may be based on serving the few needs of a few customers.
True
False
16. Good strategy allows a company to be everything to everyone.

True
False
17. Strategic planning is appropriate for large companies, but does not help the
performance of small companies.
True
False
18. Management of a small company in an industry that is not very competitive should
not engage in strategic planning because the small gains in performance may not be
worth the effort.
True
False
19. Organizations may turn to the strategic-management process after a crisis.

True
False
20. The first step of the strategic-management process is to establish the grand strategy.
True
False
21. The strategic-management process has five steps and a feedback loop.
True
False
6-2
22. A vision will be demoralizing to employees if it describes a future state that appears
beyond the reach of the organization.
True
False
23. Many good mission statements include descriptions of an organization's customers, as

well as its major products or services.
True
False
24. According to Burt Nanus, good vision statements are useful because they help people
to consider all interesting elements in their environments.
True
False
25. A good vision statement should describe a company's major strengths and
competitive advantage in its industry.
True
False
26. A mission statement should be ambitious.

True
False
27. After the assessment of current organizational performance, the subsequent

explanation of how its mission is to be accomplished is called a comprehensive
strategy.
True
False
28. A defensive strategy is sometimes called a retrenchment strategy.

True
False
29. A development strategy is the common grand strategy that involves expansion.
True
False
30. A continuity strategy is the common grand strategy that involves little or no
significant change.
True
False
31. Alaska Airline was profitable in 2011, prompting is to decide to remain a "smallish,
specialized, regional airline in a world of global giants," which is an example of a
stability strategy.
True
False
32. A grand strategy can be established using tools like SWOT analysis and forecasting.
True
False
6-3
33. Strategy formulation is the process of choosing among different strategies and
altering them to best fit the organization's needs.
True
False
34. The starting point in establishing a grand strategy is usually an analysis of Porter's
competitive forces.
True
False
35. Strategy actualization is the term for putting strategic plans into effect.
True
False
36. A common challenge to strategy implementation is resistance by people within the

organization.
True
False
37. One of the ways to keep a strategic plan on track is to make it very comprehensive,
covering as many scenarios for the future as you can.
True
False
38. The primary purpose of competitive intelligence is to challenge the thinking of

employees to make them better equipped to produce novel ideas for business.
True
False
39. SWOT analysis helps management to develop a realistic understanding of the

organization in relation to internal and external environments.
True
False
40. Obsolete technology and outdated facilities are examples of organizational threats.
True
False
41. Guthrie Community College has done a SWOT analysis and discovered that the
number of college-bound high-school juniors in its state has grown by nearly 20% in
the past few years. This is a strength for Guthrie.
True
False
42. Organizational threats are the environmental factors that hinder an organization's
ability to achieve a competitive advantage.
True
False
43. Forecasting is a strategic-planning tool used to make long-term strategy.

True
False
6-4
44. Two types of forecasting are trend analysis and competitive intelligence.
True
False
45. Contingency planning is a hypothetical extension of a past series of events into the
future.
True
False
46. Too little or unreliable historical data may result in erroneous trend analyses.
True
False
47. Contingency planning can also be called scenario analysis.

True
False
48. The use of hedging to manage the cost of aviation fuel is an example of trend
analysis.
True
False
49. In Porter's model for industry analysis, there are three primary competitive forces in a
firm's environment.
True
False
50. Kraft Macaroni & Cheese is now challenged by new competitors such as Annie's and
other store brands, which Porter's model for industry analysis calls the threat of new
entrants.
True
False
51. In a cost-leadership strategy, an organization targets a wide market and offers

products or services of unique and superior value compared to competitors.
True
False
52. Luxury carmaker Rolls-Royce has a focused-differentiation strategy.

True
False
53. A single-product strategy can be described as focused but vulnerable.

True
False
54. A small florist most likely follows a diversification strategy.

True
False
55. General Electric sells lighting products and is also involved in plastics, broadcasting,
and financial services. GE uses a related diversification strategy.
True
False
6-5
56. Burberry makes outerwear, accessories like umbrellas, and children's clothing, which
is called a related diversification strategy.
True
False
57. Synergy is one of the benefits of a single-product strategy.

True
False
58. The BCG matrix is a means of evaluating strategic business units on the basis of both
their business growth rates and their profitability.
True
False
59. Cash cows in the BCG matrix have slow growth but high market share.
True
False
60. Execution is tactical in nature, rather than part of a company's strategy.

True
False
61. A company must be able to execute three core processes of business including
people, products, and administration.
True
False
62. Insisting on realism is among the leader behaviors that help a manager successfully
execute a strategy.
True
False
63. Managers who execute well insist on constant optimism.

True
False
Multiple Choice Questions

64. A ______ represents an "educated guess" about what must be done in the long term
for survival or the prosperity of the organization or its principal parts.
A.
B.
C.
D.
E.
trend analysis
mission
strategy
forecast
contingency plan
6-6
65. "Find out what customers want, then provide it to them as cheaply and quickly as
possible" is Walmart's
A.
B.
C.
D.
E.
growth plan.
technical plan.
synergy.
strategy.
forecast.
66. Effective strategic management involves

A.
B.
C.
D.
E.
only top management.

only top and middle management.
only middle and lower management levels.
only lower management level.
managers from all parts of the organization.
67. Which of the following would be considered a reason for adopting strategic
management and strategic planning?
A.
B.
C.
D.
E.
To enhance employee loyalty.

To keep corporate taxes at a minimum.
To develop independent work from the staff.
To provide develop a sustainable competitive advantage.
To increase market dominance with repeat purchase.
68. Which of the following statements about strategic planning and strategic
management is true?
A. Strategic planning is rarely used in the current environment of fast change because
it does not allow for flexibility.
B. Strategic management is a process completed by top managers.
C. Both should be implemented because they can provide direction and momentum.
D. Middle managers need not understand strategies; they simply follow them.
E. Strategic planning is used to accomplish tactical goals.
69. Which of the following is not a typical cause of bad planning?
A.
B.
C.
D.
E.
Information overload.
Inadequate planning budgets.
Ineffective group dynamics.
Poor assessment of an organization's capabilities.
Faulty assumptions about the future.
6-7
70. Which of the following is not an area in which a company needs to get and stay ahead
in order to sustain a competitive advantage?
A.
B.
C.
D.
E.
Talented employees
Quality
Effectiveness
Being responsive to customers
Innovating
71. __________ means performing different activities from rivals or performing similar ones
in different ways.
A.
B.
C.
D.
E.
Competitive planning
Distinctive positioning
Collaborative planning
Strategic segmentation
Strategic positioning
72. Which of the following statements about strategy and strategic positioning is false?
A. Many customers with broad needs can be a source of strategic position.
B. A company has to choose not only what strategy to follow but what strategy not to
follow.
C. Few customers with broad needs can be a source of strategic position.
D. Strategy involves creating a "fit" among activities.
E. Few customers with narrow needs can be a source of strategic position.
73. Consumers can use a national company called Service Magic to receive bids from
quality providers of a variety of services, including home remodel, landscaping,
plumbing, and housecleaning. Service Magic charges service providers for the leads it
provides to them monthly. Which of the following is the source of Service Magic's
strategic position?
A.
B.
C.
D.
E.
Low-profit margin and many customers.

Broad needs and few customers.
Broad needs and many customers.
High-profit margin and many customers.
High-profit margin and few customers.
74. A small firm is likely to benefit significantly from strategic planning

A.
B.
C.
D.
E.
regardless of the nature of its industry or market.

when it is in a very competitive industry.
when it is in a very new industry.
when it is in a very stable industry.
when it has a very small market.
6-8
75. Anne runs a small bakery on the main street of a resort town. Though hers was the
only bakery around, the business had been suffering during the economic slowdown,
and she was contemplating whether she should attempt strategic planning. Anne
should be aware of what research finding regarding strategic planning?
A. Only large firms show performance gains from strategic planning.
B. Only small firms show performance gains from strategic planning.
C. Performance gains from strategic planning are equal among small and large firms.
D. Both small and large firms benefit from strategic planning, but small firms get a
larger boost in performance.
E. Both small and large firms benefit from strategic planning, but the small
improvement in performance may not be worth the effort for small firms.
76. Milo owns and manages a small bike repair store. In order to determine if strategic
planning will be likely to help his business, Milo should primarily assess
A.
B.
C.
D.
E.
how many competitors he has.

foot traffic by his location.
his profitability in the prior six months.
industry trends.
how much he intends to grow in the next five years.
77. Which of the following best represents a currently popular strategy among big
companies like Apple, Google, and Amazon?
A.
Become involved in the community.
B.
Seek niches where there is less competition.
C. Get consumers tightly connected to the company's ecosystem.
D. Offer personal or emotional connections to customers.
E.
Discourage price comparisons.
78. Which of the following steps of the strategic-management process is the source of its
feedback loop?
A.
B.
C.
D.
E.
Carry out the strategic plan.

Maintain strategic control.
Establish the grand strategy.
Establish the mission and vision.
Formulate the strategic plans.
79. Which of the following is not a stage in the strategic-management process?

A.
B.
C.
D.
E.
Conduct a trend analysis.

Carry out the strategic plans.
6-9
80. Which of the following should be included in a good vision statement?

A.
B.
C.
D.
E.
Firm's attitude toward its employees.

Geographical areas in which the firm will compete.
Firm's basic technology.
Firm's standards of excellence and high ideals.
Firm's major products or services.
81. Which of the following is a question that should be answered by a company's mission
statement?
A.
B.
C.
D.
E.
Will it inspire enthusiasm and encourage commitment?

Does it set standards of excellence?
Is it appropriate for the organization?
Is it well articulated?
Who is our customer?
82. The common grand strategies are

A.
star, question mark, cash cow, and dog.
B. cost-leadership, differentiation, cost focus, and focused differentiation.
C.
growth, stability, and defensive.
D. strengths, weaknesses, opportunities, and threats.
E.
defender, prospector, analyzer, and reactor.
83. Computer technology corporation Dell recently acquired Quest software, an IT
management software provider, in order to expand upon its software expertise and
offerings. Dell is pursuing a(n) ______ strategy.
A.
B.
C.
D.
E.
escalation
growth
stability
merger
defensive
84. High Peaks Skate and Snowboard is a small shop that provides equipment for Utah
snowboarders in winter months. It has decided to increase advertising during this
period in the Salt Lake Tribune and the Park Record in Park City, as well as to sponsor
a new on-mountain competition. It is following which strategy?
A.
B.
C.
D.
E.
Inducement
Defensive
Growth
Stability
Enhancement
6-10
85. Faisal has been running a commercial real estate business for nearly 30 years. As he
approaches retirement, he is content to simply lease the commercial space he
currently has, rather than make new deals to develop additional properties. Faisal is
using which grand strategy?
A.
B.
C.
D.
E.
Stability
Retrenchment
Inducement
Defensive
Growth
86. A grand strategy that involves reduction in the organization's efforts is the ______
strategy.
A.
B.
C.
D.
E.
retrenchment
reorganization
downsizing
growth
stability
87. An Iowa ethanol production company has been suffering from a combination of lower
demand for gasoline (into which its product is mixed) and higher corn prices (which is
the largest input cost). It has responded by selling off land, buildings, and some of its
reserve product inventory. This is a variation of which of these grand strategies?
A.
B.
C.
D.
E.
Right-size
Growth
Stability
Defensive
Reorganization
88. Recently ConocoPhillips, America's third-biggest oil company, spun off its refineries,
pipelines, and chemicals division to form a new company called Phillips 66. Now
ConocoPhillips will concentrate on its upstream operations. This is a variation of which
of these grand strategies?
A.
B.
C.
D.
E.
Right-size
Growth
Stability
Defensive
Reorganization
6-11
89. A fine luggage maker was struggling with heavy debt and a sharp decline in
customers, and it eventually declared bankruptcy. The company followed which grand
strategy?
A.
B.
C.
D.
E.
Growth
Stability
Defensive
Reduction
Reactive
90. After film manufacturer Kodak failed to reinvent itself and declared bankruptcy in
2012, it decided to focus on its business of making inkjet printers as part of a ______
strategy.
A.
B.
C.
D.
E.
growth
stability
defensive
reorganization
reactor
91. The process of choosing among different strategies and altering them to best fit the
organization is called
A.
B.
C.
D.
E.
strategy formulation.
contingency planning.
strategic control.
strategy implementation.
trend analysis.
92. Actively selling strategic plans to middle and supervisory managers, rather than just
announcing them, is helpful for
A.
B.
C.
D.
E.
situation analysis.
strategic control.
93. ______ consists of monitoring the execution of strategy and making adjustments, if
necessary.
A.
B.
C.
D.
E.
Mission translation
Strategic control
Strategy implementation
Contingency planning
SWOT analysis
6-12
94. Which of the following is not one of Bryan Barry's recommendations to keep a
strategic plan on track?
A.
B.
C.
D.
E.
Keep moving.
Engage people.
Keep it simple.
Avoid compromise.
Stay focused.
95. Gaining information about one's competitors' activities so that you can anticipate their
moves and react appropriately is called
A.
B.
C.
D.
E.
strategic forecasting.
corporate espionage.
trend analysis.
competitive intelligence.
96. Which of the following is not a likely source of information for competitive
intelligence?
A.
B.
C.
D.
E.
Competitors' press releases

Industry gossip
Competitors' annual reports
Competitor's customer records
Sales visits to customers
97. Rafaela is interested in learning more about what one of her competitors is doing so
that she can anticipate its upcoming moves and react quickly. Which of the following
would you suggest to her for this purpose?
A. Go through the competitor's trash on its property.
B. Pose as an applicant for a job with the competitor.
C.
Use investor information.
D. Call the competitor, explain who you are, and ask directly.
E. Pay the competitor's customers for information.
98. Careful monitoring of an organization's internal and external environment to detect
early signs of opportunities and threats that may influence the firm's plans is called
A.
B.
C.
D.
E.
forecasting.
trend analysis.
environmental scanning.
6-13
99. A situational analysis is also known as

A.
B.
C.
D.
E.
strategic control.
SWOT analysis.
trend analysis.
forecasting.
100 When analyzing the "S" in a SWOT analysis, a manager might take note of
.
A.
B.
C.
D.
E.
a decrease in the size of the market.

competitors' new products.
high turnover of employees.
strong financial resources of the firm.
lifting of governmental regulations.
101 When analyzing the "W" in SWOT analysis, a manager might take note of
.
A.
B.
C.
D.
E.
a decrease in consumer demand.

a competitor's bankruptcy.
good financial resources of the firm.
institution of a tariff on foreign competitors.
102 When analyzing the "O" in SWOT analysis, a manager might take note of
.
A.
B.
C.
D.
E.
favorable government regulations.

absenteeism among employees.
good morale among workers.
high service levels.
good financial position.
103 When analyzing the "T" in SWOT analysis, a manager might take note of
.
A.
B.
C.
D.
E.
the firm's cash flow problems.

a competitor's new product.
employee absenteeism.
strong corporate culture.
6-14
104 Analysis of changing demographics of the U.S. population would be part of the
.
assessment of a company's
A.
strengths.
B.
weaknesses.
C.
opportunities.
D.
threats.
E. opportunities or threats depending on the outcome of the analysis.
105 A manager assessing the organization's access to capital is involved in analysis of
.
A.
strengths.
B.
weaknesses.
C.
opportunities.
D.
threats.
E. strengths or weaknesses depending on the outcome of the assessment.
106 Amanda has just determined that her employees will require extensive training if they
.
are to acquire the necessary technological expertise to produce a new product line.
She has discovered one of her firm's
A.
B.
C.
D.
E.
strengths.
weaknesses.
opportunities.
threats.
market challenges.
107 The skills and capabilities that give the organization advantages in executing
.
strategies in pursuit of its mission are known as
A.
B.
C.
D.
E.
organizational strengths.
organizational opportunities.
organizational threats.
organizational weaknesses.
competitive strategies.
108 Environmental factors that the organization may exploit for a competitive advantage
.
are known as
A.
B.
C.
D.
E.
6-15
109 Alexis has prepared a report that details how prices for several raw materials her firm
.
uses in production have risen by up to 30% in the last year. Her report would be an
input into the __________ part of a SWOT analysis.
A.
B.
C.
D.
E.
strengths
weaknesses
opportunities
threats
structure
110 A vision or projection of the future is called a(n)

.
A.
B.
C.
D.
E.
trend.
forecast.
contingency.
strategy.
opportunity.
111 A time-series forecast, which is used to predict long-term trends, cyclic patterns, and
.
seasonal variations, is one type of
A.
B.
C.
D.
E.
organizational strength.
trend analysis.
balanced scorecard.
112 Creation of alternative hypothetical but equally likely future conditions is called
.
A.
B.
C.
D.
E.
trend analysis.
balancing the scorecard.
forecasting.
113 Which of the following is not one of the forces that affects industry competition,
.
according to Porter's model for industry analysis?
A.
B.
C.
D.
E.
Threats of new entrants.

Threats of substitute products and services.
Bargaining power of buyers.
Threats of government interference.
Bargaining power of suppliers.
6-16
114 Oil companies must be aware of other firms' development of ethanol products since
.
this is an example of which one force in Porter's model for industry analysis?
A.
B.
C.
D.
E.

Rivalry among competitors.
115 Porter's competitive strategies include

.
A.
prospector, defender, analyzer, and reactor.
B.
growth, stability, and retrenchment.
C. cost leadership, differentiation, cost focus, and focused differentiation.
D. strengths, weaknesses, opportunities, and threats.
E.
stars, questions marks, cash cows, and dogs.
116 An organization is developing a low-cost line of environmentally friendly cleaning
.
products that it intends to distribute internationally. Here, the organization is following
a ______ strategy.
A.
B.
C.
D.
E.
cost leadership
differentiation
cost focus
retrenchment
focused-differentiation
117 An organization that is offering unique, superior products or services to a wide market
.
is pursuing a strategy of
A.
B.
C.
D.
E.
cost leadership.
differentiation.
cost focus.
diversification.
focused differentiation.
118 An example of a firm that pursues a differentiation strategy is

.
A.
B.
C.
D.
E.
Cartier.
Lexus.
Bic.
A regional discount gas station chain.
Home Depot.
6-17
119 Timex Group USA makes inexpensive but reliable watches sold throughout the United
.
States and is an example of an organization pursuing a _________ strategy.
A.
B.
C.
D.
E.
cost-leadership
differentiation
cost-focus
retrenchment
120 An organization that keeps costs and prices low in targeting a narrow market is
.
pursuing a strategy of
A.
B.
C.
D.
E.
cost leadership.
differentiation.
cost focus.
stability.
121 An organization that offers unique, superior products or services to a narrow market is
.
A.
B.
C.
D.
E.
cost leadership.
differentiation.
cost focus.
diversification.
122 Which of the following carmakers pursues a focused-differentiation strategy?

.
A.
B.
C.
D.
E.
Ferrari
Ford
Volkswagen
Honda
Kia
123 The benefit of the single-product strategy for a company is

.
A.
B.
C.
D.
E.
synergy.
focus.
isolated systems.
differentiation.
lower costs.
6-18
124 Time Warner runs different divisions specializing in television, music, and publishing.
.
Time Warner is using a(n) ______ strategy.
A.
B.
C.
D.
E.
stability
defensive
diversification
differentiation
infiltration
125 Which of the following is most likely to use a diversification strategy?

.
A.
B.
C.
D.
E.
A tax preparation business

A flower shop
A lawn service
A grocery store
A shoe store
126 __________ refers to the idea that the economic value of separate, related businesses
.
under one ownership and management is greater together than the businesses are
worth separately.
A.
B.
C.
D.
E.
Structural benefit
Synergy
Selective function
Alignment
Consolidation
127 Which of the following strategy tools suggests that an organization will do better in
.
fast-growing markets in which it has a high market share rather than in slow-growing
markets in which it has a low market share?
A.
B.
C.
D.
E.
SWOT analysis
Porter's model for industry analysis
Porter's competitive strategies
The BCG matrix
Trend analysis
128 Daniel is assessing his company's portfolio of products. One of them is the best.
selling brand of mayonnaise, although this is now a slow-growing market. If Daniel
uses the BCG matrix, he would classify this product as a
A.
B.
C.
D.
E.
star.
cloud.
question mark.
cash cow.
dog.
6-19
129 Apple's iPad has a very high percentage of the market for tablet computers, and this
.
is also a quickly growing market. Thus, using the BCG matrix, the iPad would be
classified as a
A.
B.
C.
D.
E.
star.
cloud.
question mark.
cash cow.
dog.
130 A recent survey found that the top concern among CEOs worldwide is
.
A.
B.
C.
D.
E.
profit growth.
customer loyalty.
excellence in execution.
stimulating innovation.
finding qualified employees.
131 According to Bossidy and Charan, effective ______ requires managers to build a
.
foundation for it within three core process: people, strategy, and operations.
A.
B.
C.
D.
E.
tactical planning
strategy
follow-through
execution
controlling
132 According to Bossidy and Charan, which business process is most important for
.
effective execution?
A.
B.
C.
D.
E.
Strategy
People
Alignment
Operations
Research
133 Which of the following is not a question that Bossidy and Charan believe a strong
.
strategic plan must address?
A.
B.
C.
D.
E.
How will deviations from the plan be handled?

What is the assessment of the external environment?
What are the critical issues facing the business?
Can the business execute the strategy?
Are the short term and long term balanced?
6-20
134 Which of the following is not a behavior of a leader who executes?

.
A.
B.
C.
D.
E.
Reward the doers.

Insist on realism.
Follow through.
Know yourself.
Respect others' limitations.
135 Bossidy and Charan believe that to excel at execution, a leader should
.
A.
be hands-off once the strategy is set.
B.
micromanage the tactics.
C. empower employees to take over the execution.
D. probe for weaknesses in the substance and details.
E. let the plan run its course before attempting to revise it.
Essay Questions
136 Define strategic positioning. Explain the three principles that underlie strategic
.
positioning.
6-21
137 Describe the strategic management process. Explain what the "feedback loop" is and
.
why it is important.
138 Name the three common grand strategies and provide an example of how a company
.
might use each.
139 Explain strategy implementation, including the role of resistance.

.
140 Define competitive intelligence and explain how you might go about obtaining it
.
legally.
6-22
141 What are the fundamental differences in examining internal and external
.
environments when conducting a situation analysis?
142 Give examples of what managers might look at in performing each element of a
.
SWOT analysis.
143 Define forecasting and discuss its importance. Describe the two types of forecasting
.
described in the text.
144 Describe what determines competitiveness within a particular industry using Porter's
.
model for industry analysis. Provide an example for at least three of the five forces in
the model.
6-23
145 Describe Porter's four competitive strategies and explain how they differ from each
.
other. Provide an example of a firm that might use each.
146 Explain the positive and negative aspects of pursuing a single-product strategy versus
.
a diversification one. Provide an example of a company that uses each type of
strategy.
147 Explain the three core processes of business and how they relate to execution.
.
148 List at least five of the seven essential types of leader behaviors that are needed to
.
fuel the engine of execution.
6-24
6-25
Chapter 06 Strategic Management: How Exceptional Managers

Realize a Grand Design Answer Key
True / False Questions

1.
Managers must be willing to make large, painful decisions to suddenly alter

strategy.
TRUE
One of the lessons of successful managers is that they must be willing to make
large, painful decisions to suddenly alter strategy.
AACSB: Analytic
Blooms: Understand
Learning Objective: 06-01 Am I really managing if I don't have a strategy?
Level of Difficulty: 2 Medium
Topic: The Dynamics of Strategic Planning
2.
In a world of rapid and discontinuous change, the ability to please nonmanagerial

employees has been called the golden trait among managers.
FALSE
Because of fast-spreading world conditions, such as the threat of products
becoming commodities, rapidly increasing productivity, and global overcapacity,
managers must be able to make difficult decisions. The writer Geoffrey Colvin puts
it as, "The future will demand ever more people with the golden trait, the fortitude
to accept and even seek psychic pain."
AACSB: Analytic
Blooms: Understand
3.
A business plan is a document with the purpose of outlining a proposed firm's profit
and loss statements for its first operating cycle.
FALSE
A business plan is a document that outlines a proposed firm's goals, the strategy
for achieving them, and the standards for measuring success.
AACSB: Analytic
Blooms: Remember
6-26

Level of Difficulty: 1 Easy
4.
Formal business plans can be dangerous to the survival of new businesses; many
who try them fail because of the resources required to write and agree upon the
plan.
FALSE
Evidence suggests that firms with formal business plans are more apt to survive.
For example, research examined 396 entrepreneurs in Sweden and found that a
greater number of firms that failed never had a formal business plan.
AACSB: Analytic
Blooms: Understand
5.
A strategy is a large-scale action plan that sets direction for an organization.

TRUE
A strategy is a large-scale action plan that sets the direction for an organization.
AACSB: Analytic
Blooms: Remember
6.
Strategic management is the process of involving nonmanagerial employees in the

formulation and implementation of strategies and strategic goals.
FALSE
Strategic management is a process that involves managers from all parts of the
organization in the formulation and the implementation of strategies and strategic
goals.
AACSB: Analytic
Blooms: Remember
6-27
7.
An organization should adopt strategic management and strategic planning to

encourage new ideas.
TRUE
An organization should adopt strategic management and strategic planning for
three reasons: They can (1) provide direction and momentum, (2) encourage new
ideas, and above all (3) develop a sustainable competitive advantage.
AACSB: Analytic
Blooms: Understand
8.
Bad planning is usually a result of top managers' inability to gather enough

information.
FALSE
Bad planning usually results from faulty assumptions about the future, poor
assessment of an organization's capabilities, ineffective group dynamics, and
information overload.
AACSB: Analytic
Blooms: Understand
9.
Planning is usually a straightjacket for new ideas, since it effectively blocks

peripheral vision in favor of a predetermined course.
FALSE
Some people object that planning can foster rigidity, that it creates blinders that
block out peripheral vision and reduces creative thinking and action. Actually, far
from being a straitjacket for new ideas, strategic planning can help encourage
them by stressing the importance of innovation in achieving long-range success.
AACSB: Analytic
Blooms: Understand
6-28
10.
A sustainable competitive advantage is the ability of an organization to produce

goods or services more effectively than its competitors and outperform them.
TRUE
A sustainable competitive advantage is the ability of an organization to produce
goods or services more effectively than its competitors do, thereby outperforming
them.
AACSB: Analytic
Blooms: Remember
11.
Ford's Sync in-dash communications platform, despite its high level of technology,
has been unable to provide the company with a distinct competitive advantage.
FALSE
"Right now (using Sync)," says an automotive analyst, "Ford has redefined this
market, and it has made it very difficult for anybody to enter the space and
compete." In other words, Sync is a distinct competitive advantage for the car
company, at least so far.
AACSB: Analytic
Blooms: Understand
12.
Harvard Business School professor Michael Porter is a leading authority on

competitive strategy.
TRUE
Certainly Michael Porter's status as a leading authority on competitive strategy is
unchallenged. The Strategic Management Society, for instance, voted him the most
influential living strategist.
AACSB: Analytic
Blooms: Remember
6-29
13.
Strategic conservation attempts to achieve sustainable competitive advantage by

FALSE
Strategic positioning attempts to achieve sustainable competitive advantage by
AACSB: Analytic
Blooms: Remember
14.
Strategic positioning can be achieved by performing similar activities to rivals, but

in different ways.
TRUE
Strategic positioning means performing different activities from rivals, or
performing similar activities in different ways.
AACSB: Analytic
Blooms: Understand
15.
A strategic position may be based on serving the few needs of a few customers.
FALSE
Strategic position emerges from three sources: Few needs and many customers,
broad needs and few customers, and lastly, broad needs and many customers.
AACSB: Analytic
Blooms: Understand
16.
Good strategy allows a company to be everything to everyone.

FALSE
Strategy requires trade-offs in competing. Some strategies are incompatible. Thus
a company has to choose not only what strategy to follow but what strategy not to
follow.
AACSB: Analytic
Blooms: Understand
6-30
17.
Strategic planning is appropriate for large companies, but does not help the
performance of small companies.
FALSE
One analysis of several studies found that strategic planning was appropriate not
just for large firms. Companies with fewer than 100 employees could benefit as
well, although the improvement in financial performance was small.
AACSB: Analytic
Blooms: Understand
18.
Management of a small company in an industry that is not very competitive should

not engage in strategic planning because the small gains in performance may not
be worth the effort.
TRUE
Research results indicate that for small companies strategic planning is probably
not worth the effort unless the company is in a highly competitive industry where
small differences in performance may affect the firm's survival potential.
AACSB: Analytic
Blooms: Understand
19.
Organizations may turn to the strategic-management process after a crisis.

TRUE
When is a good time to begin the strategic-management process? Often it's
touched off by some crisis, such as the one Toyota faced regarding claims of
uncontrolled acceleration problems in its automobiles.
AACSB: Analytic
Blooms: Understand
Learning Objective: 06-02 What's the five-step recipe for the strategic-management process?
Topic: The Strategic-Management Process
20.
The first step of the strategic-management process is to establish the grand

strategy.
FALSE
The first step of the strategic-management process is to establish the mission and
the vision.
AACSB: Analytic
6-31
Blooms: Remember
21.
The strategic-management process has five steps and a feedback loop.

TRUE
The strategic-management process has five steps, plus a feedback loop (see Figure
6.1).
AACSB: Analytic
Blooms: Remember
22.
A vision will be demoralizing to employees if it describes a future state that

appears beyond the reach of the organization.
FALSE
A vision should be positive and inspiring, and it should stretch the organization and
its employees to achieve a desired future state that appears beyond its reach.
AACSB: Analytic
Blooms: Understand
23.
Many good mission statements include descriptions of an organization's customers,

as well as its major products or services.
TRUE
Mission statements may include information about customers and products or
services.
AACSB: Analytic
Blooms: Understand
6-32
24.
According to Burt Nanus, good vision statements are useful because they help
people to consider all interesting elements in their environments.
FALSE
Burt Nanus says that a good vision statement helps align people's energies in a
common direction, and prevents people from being overwhelmed by immediate
problems because the vision statement helps distinguish what is truly important
from what is merely interesting.
AACSB: Analytic
Blooms: Understand
25.
A good vision statement should describe a company's major strengths and

competitive advantage in its industry.
FALSE
Descriptions of major strengths and competitive advantage should be included in a
mission statement. See Table 6.1.
AACSB: Analytic
Blooms: Understand
26.
A mission statement should be ambitious.

FALSE
Good vision statements are typically ambitious. See Table 6.1.
AACSB: Analytic
Blooms: Understand
27.
After the assessment of current organizational performance, the subsequent

explanation of how its mission is to be accomplished is called a comprehensive
strategy.
FALSE
A grand strategy, after an assessment of current organizational performance,
explains how the organization's mission is to be accomplished.
AACSB: Analytic
Blooms: Remember
6-33

28.
A defensive strategy is sometimes called a retrenchment strategy.

TRUE
A defensive strategy or a retrenchment strategy, is a grand strategy that involves
reduction in the organization's efforts.
AACSB: Analytic
Blooms: Remember
29.
A development strategy is the common grand strategy that involves expansion.

FALSE
A growth strategy is a grand strategy that involves expansion, as in sales revenues,
market share, number of employees, or number of customers or (for nonprofits)
clients served.
AACSB: Analytic
Blooms: Remember
30.
A continuity strategy is the common grand strategy that involves little or no

significant change.
FALSE
A stability strategy is a grand strategy that involves little or no significant change.
AACSB: Analytic
Blooms: Remember
6-34
31.
Alaska Airline was profitable in 2011, prompting is to decide to remain a "smallish,

specialized, regional airline in a world of global giants," which is an example of a
stability strategy.
TRUE
Example: Alaska Airlines, which enjoyed a profitable year in 2011, following a
decade in which other carriers went bankrupt, decided to remain a "smallish,
specialized, regional airline in a world of global giants," says one report, and to
avoid cross-continental alliances and megamergers. Its stability strategy is simply
to focus on lowering the cost per available seat mile.
AACSB: Analytic
Blooms: Understand
32.
A grand strategy can be established using tools like SWOT analysis and
forecasting.
TRUE
Among the strategic-planning tools and techniques used to establish a grand
strategy are (1) SWOT analysis and (2) forecasting.
AACSB: Analytic
Blooms: Understand
33.
Strategy formulation is the process of choosing among different strategies and

TRUE
AACSB: Analytic
Blooms: Remember
6-35
34.
The starting point in establishing a grand strategy is usually an analysis of Porter's

competitive forces.
FALSE
Among the techniques used in strategy formulation, rather than a grand strategy,
is Porter's competitive forces and strategies.
AACSB: Analytic
Blooms: Understand
35.
Strategy actualization is the term for putting strategic plans into effect.
FALSE
Putting strategic plans into effect is strategy implementation.
AACSB: Analytic
Blooms: Remember
36.
A common challenge to strategy implementation is resistance by people within the

organization.
TRUE
Often implementation means overcoming resistance by people who feel the plans
threaten their influence or livelihood. This is particularly the case when the plans
must be implemented rapidly, since delay is the easiest kind of resistance there is.
AACSB: Analytic
Blooms: Understand
37.
One of the ways to keep a strategic plan on track is to make it very comprehensive,
covering as many scenarios for the future as you can.
FALSE
To keep a strategic plan on track, you need to engage people, keep it simple, stay
focused, and keep moving toward your vision of the future.
AACSB: Analytic
Blooms: Understand
6-36
38.
The primary purpose of competitive intelligence is to challenge the thinking of

employees to make them better equipped to produce novel ideas for business.
FALSE
Practicing competitive intelligence means gaining information about one's
competitors' activities so that you can anticipate their moves and react
appropriately. If you are a manager, one of your worst nightmares is that a
competitor will surprise you with a service or product.
AACSB: Analytic
Blooms: Understand
Learning Objective: 06-03 How can competitive intelligence; SWOT; and forecasting help me establish my
strategy?
Topic: Establishing the Grand Strategy
39.
SWOT analysis helps management to develop a realistic understanding of the

organization in relation to internal and external environments.
TRUE
SWOT analysis should provide a realistic understanding of the organization in
relation to its internal and external environments so you can better formulate
strategy in pursuit of the firm's mission.
AACSB: Analytic
Blooms: Understand
strategy?
40.
Obsolete technology and outdated facilities are examples of organizational threats.

FALSE
Does your organization have obsolete technology? outdated facilities? a shaky
marketing operation? These are examples of organizational weaknesses, the
drawbacks that hinder an organization in executing strategies in pursuit of its
mission.
AACSB: Analytic
Blooms: Understand
strategy?
6-37
41.
Guthrie Community College has done a SWOT analysis and discovered that the
number of college-bound high-school juniors in its state has grown by nearly 20%
in the past few years. This is a strength for Guthrie.
FALSE
The increased number of college-bound high-school juniors represents an
opportunity for Guthrie because it is an environmental factor that the organization
may exploit for competitive advantage.
AACSB: Analytic
Blooms: Apply
strategy?
Level of Difficulty: 3 Hard
42.
Organizational threats are the environmental factors that hinder an organization's

ability to achieve a competitive advantage.
TRUE
Organizational threats are environmental factors that hinder an organization's
achieving a competitive advantage.
AACSB: Analytic
Blooms: Remember
strategy?
43.
Forecasting is a strategic-planning tool used to make long-term strategy.

TRUE
Once they've analyzed their organization's Strengths, Weaknesses, Opportunities,
and Threats, planners need to do forecasting for making long-term strategy. A
forecast is a vision or projection of the future.
AACSB: Analytic
Blooms: Understand
strategy?
44.
Two types of forecasting are trend analysis and competitive intelligence.

FALSE
Two types of forecasting are trend analysis and contingency planning.
AACSB: Analytic
Blooms: Remember
6-38
strategy?
45.
Contingency planning is a hypothetical extension of a past series of events into the

future.
FALSE
A trend analysis is a hypothetical extension of a past series of events into the
future.
AACSB: Analytic
Blooms: Remember
strategy?
46.
Too little or unreliable historical data may result in erroneous trend analyses.
TRUE
The basic assumption of a trend analysis is that the picture of the present can be
projected into the future. This is not a bad assumption, if you have enough
historical data, but it is always subject to surprises. And if your data are unreliable,
they will produce erroneous trend projections.
AACSB: Analytic
Blooms: Understand
strategy?
47.
Contingency planning can also be called scenario analysis.

TRUE
Contingency planning, also known as scenario planning and scenario analysis, is
the creation of alternative hypothetical but equally likely future conditions.
AACSB: Analytic
Blooms: Remember
strategy?
6-39
48.
The use of hedging to manage the cost of aviation fuel is an example of trend
analysis.
FALSE
In the past several years, Southwest Airlines has been able to effectively use
hedging to hold down its costs for aviation fuel. This is an example of contingency
planning.
AACSB: Analytic
Blooms: Understand
strategy?
49.
In Porter's model for industry analysis, there are three primary competitive forces
in a firm's environment.
FALSE
Strategic-management expert Michael Porter suggested in his Porter's model for
industry analysis that business-level strategies originate in five primary competitive
forces in the firm's environment: (1) threats of new entrants, (2) bargaining power
of suppliers, (3) bargaining power of buyers, (4) threats of substitute products or
services, and (5) rivalry among competitors.
AACSB: Analytic
Blooms: Remember
Learning Objective: 06-04 How can four techniques-Porter's competitive forces; competitive strategies;
diversification and synergy; and the BCG matrix-help me formulate strategy?
Topic: Formulating Strategy
50.
Kraft Macaroni & Cheese is now challenged by new competitors such as Annie's and
other store brands, which Porter's model for industry analysis calls the threat of
new entrants.
TRUE
New competitors can take away customers from existing organizations, which is
called the threat of new entrants in the model. Example: Kraft Macaroni & Cheese
is a venerable, well-known brand but is threatened from the low end by store
brands, such as Walmart's brand, and from the high end by Annie's Creamy
Macaroni and Cheese with Real Aged Wisconsin Cheddar.
AACSB: Analytic
Blooms: Understand
6-40
51.
In a cost-leadership strategy, an organization targets a wide market and offers

products or services of unique and superior value compared to competitors.
FALSE
The cost-leadership strategy is to keep the costs, and hence prices, of a product or
service below those of competitors and to target a wide market. The differentiation
strategy is to offer products or services that are of unique and superior value
compared with those of competitors but to target a wide market.
AACSB: Analytic
Blooms: Remember
52.
Luxury carmaker Rolls-Royce has a focused-differentiation strategy.

TRUE
The focused-differentiation strategy is to offer products or services that are of
unique and superior value compared to those of competitors and to target a narrow
market. Some luxury cars, like the Rolls-Royce, Ferrari, and Lamborghini, are so
expensive that only a few car buyers can afford them.
AACSB: Analytic
Blooms: Understand
53.
A single-product strategy can be described as focused but vulnerable.

TRUE
In a single-product strategy, a company makes and sells only one product within its
market. This allows you to focus your manufacturing and marketing efforts just on
that product. The risk, of course, is that you are vulnerable if a rival gets the jump
on you, or if an act of God intervenes, and your entire business may go under.
AACSB: Analytic
Blooms: Understand
6-41
54.
A small florist most likely follows a diversification strategy.

FALSE
A single-product strategy is followed by the small florist who sells only one product
within its market.
AACSB: Analytic
Blooms: Understand
55.
General Electric sells lighting products and is also involved in plastics,

broadcasting, and financial services. GE uses a related diversification strategy.
FALSE
Unrelated diversification means operating several businesses under one ownership
that are not related to one another. GE, which began by making lighting products,
diversified into such unrelated areas as plastics, broadcasting, and financial
services.
AACSB: Analytic
Blooms: Understand
56.
Burberry makes outerwear, accessories like umbrellas, and children's clothing,

which is called a related diversification strategy.
TRUE
An example of a related diversification strategy is the famous British raincoat
maker Burberry. It started by making and marketing outerwear clothing but since
then has expanded into related business lines, including accessories such as
umbrellas, children's clothing, and even fragrances, which it sells in its own stores.
AACSB: Analytic
Blooms: Understand
6-42
57.
Synergy is one of the benefits of a single-product strategy.

FALSE
Synergy is characteristic of a related diversification strategy. The concept of
synergy is that the economic value of separate, related businesses under one
ownership and management is greater together than the businesses are worth
separately.
AACSB: Analytic
Blooms: Understand
58.
The BCG matrix is a means of evaluating strategic business units on the basis of
both their business growth rates and their profitability.
FALSE
The BCG matrix is a means of evaluating strategic business units on the basis of (1)
their business growth rates and (2) their share of the market.
AACSB: Analytic
Blooms: Understand
59.
Cash cows in the BCG matrix have slow growth but high market share.
TRUE
Cash cows in the BCG matrix have slow growth but high market share, and income
from them finances stars and question marks.
AACSB: Analytic
Blooms: Understand
60.
Execution is tactical in nature, rather than part of a company's strategy.

FALSE
Execution is not simply tactics; it is a central part of any company's strategy. It
consists of using questioning, analysis, and follow-through to mesh strategy with
reality, align people with goals, and achieve results promised.
AACSB: Analytic
Blooms: Remember
6-43
Learning Objective: 06-05 How does effective execution help managers during the strategic-management
process?
Topic: Implementing & Controlling Strategy: Execution
61.
A company must be able to execute three core processes of business including

people, products, and administration.
FALSE
A company's overall ability to execute is a function of effectively executing
according to three processes: people, strategy, and operations.
AACSB: Analytic
Blooms: Remember
process?
62.
Insisting on realism is among the leader behaviors that help a manager

successfully execute a strategy.
TRUE
Bossidy and Charan propose that there are seven essential types of leader
behaviors that are needed to fuel the engine of execution. Insisting on realism is
among them. Many people want to avoid or shade reality, hiding mistakes or
avoiding confrontations. Making realism a priority begins with the leaders being
realistic themselves, and making sure realism is the goal of all dialogues in the
organization.
AACSB: Analytic
Blooms: Understand
process?
63.
Managers who execute well insist on constant optimism.

FALSE
Bossidy and Charan propose that there are seven essential types of leader
behaviors that are needed to fuel the engine of execution. Insisting on realism is
among them. Many people want to avoid or shade reality, hiding mistakes or
avoiding confrontations. Making realism a priority begins with the leaders being
realistic themselves, and making sure realism is the goal of all dialogues in the
organization.
AACSB: Analytic
Blooms: Understand
process?
6-44
Multiple Choice Questions

64.
A ______ represents an "educated guess" about what must be done in the long term
for survival or the prosperity of the organization or its principal parts.
A.
B.
C.
D.
E.
trend analysis
mission
strategy
forecast
contingency plan
A strategy is a large-scale action plan that sets the direction for an organization. It
represents an "educated guess" about what must be done in the long term for the
survival or the prosperity of the organization or its principal parts.
AACSB: Analytic
Blooms: Understand
65.
"Find out what customers want, then provide it to them as cheaply and quickly as
possible" is Walmart's
A.
B.
C.
D.
E.
growth plan.
technical plan.
synergy.
strategy.
forecast.
A strategy is a large-scale action plan that sets the direction for an organization. An
example is "Find out what customers want, then provide it to them as cheaply and
quickly as possible," the strategy of Walmart.
AACSB: Analytic
Blooms: Understand
6-45
66.
Effective strategic management involves

A.
B.
C.
D.
E.
only top management.

only top and middle management.
only middle and lower management levels.
only lower management level.
managers from all parts of the organization.
Strategic management is a process that involves managers from all parts of the
organization in the formulation and the implementation of strategies and strategic
goals. Precisely because middle and first-line managers are the ones who will be
asked to understand and implement the strategies, they should also help to
formulate them.
AACSB: Analytic
Blooms: Remember
67.
Which of the following would be considered a reason for adopting strategic

management and strategic planning?
A.
B.
C.
D.
E.
To enhance employee loyalty.

To keep corporate taxes at a minimum.
To develop independent work from the staff.
To provide develop a sustainable competitive advantage.
To increase market dominance with repeat purchase.
There are three reasons why an organization should adopt strategic management
and strategic planning: (1) to provide direction and momentum, (2) to encourage
new ideas, and above all (3) to develop a sustainable competitive advantage.
AACSB: Analytic
Blooms: Remember
6-46
68.
Which of the following statements about strategic planning and strategic

management is true?
A. Strategic planning is rarely used in the current environment of fast change
because it does not allow for flexibility.
B. Strategic management is a process completed by top managers.
C. Both should be implemented because they can provide direction and
momentum.
D. Middle managers need not understand strategies; they simply follow them.
E.
Strategic planning is used to accomplish tactical goals.
There are three reasons why an organization should adopt strategic management
and strategic planning: (1) to provide direction and momentum, (2) to encourage
new ideas, and above all (3) to develop a sustainable competitive advantage.
AACSB: Analytic
Blooms: Understand
69.
Which of the following is not a typical cause of bad planning?

A.
B.
C.
D.
E.
Information overload.
Inadequate planning budgets.
Ineffective group dynamics.
Poor assessment of an organization's capabilities.
Faulty assumptions about the future.
Bad planning usually results from faulty assumptions about the future, poor
assessment of an organization's capabilities, ineffective group dynamics, and
information overload.
AACSB: Analytic
Blooms: Understand
6-47
70.
Which of the following is not an area in which a company needs to get and stay
ahead in order to sustain a competitive advantage?
A.
B.
C.
D.
E.
Talented employees
Quality
Effectiveness
Being responsive to customers
Innovating
Sustainable competitive advantage occurs when an organization is able to get and

stay ahead in four areas: (1) in being responsive to customers, (2) in innovating, (3)
in quality, and (4) in effectiveness.
AACSB: Analytic
Blooms: Understand
71.
__________ means performing different activities from rivals or performing similar

ones in different ways.
A.
B.
C.
D.
E.
Competitive planning
Distinctive positioning
Collaborative planning
Strategic segmentation
Strategic positioning
According to Porter, strategic positioning attempts to achieve sustainable

competitive advantage by preserving what is distinctive about a company. "It
means," he says, "performing different activities from rivals, or performing similar
activities in different ways."
AACSB: Analytic
Blooms: Understand
6-48
72.
Which of the following statements about strategy and strategic positioning is

false?
A. Many customers with broad needs can be a source of strategic position.
B. A company has to choose not only what strategy to follow but what strategy not
to follow.
C. Few customers with broad needs can be a source of strategic position.
D.
Strategy involves creating a "fit" among activities.
E. Few customers with narrow needs can be a source of strategic position.
Three key principles underlie strategic positioning: (1) strategy is the creation of a
unique and valuable position which emerges from three sources (few needs and
many customers, broad needs and few customers, broad needs and many
customers). (2) Strategy requires trade-offs in competing; a company has to choose
not only what strategy to follow but what strategy not to follow. (3) Strategy
involves creating a "fit" among activities.
AACSB: Analytic
Blooms: Understand
73.
Consumers can use a national company called Service Magic to receive bids from
quality providers of a variety of services, including home remodel, landscaping,
plumbing, and housecleaning. Service Magic charges service providers for the leads
it provides to them monthly. Which of the following is the source of Service Magic's
strategic position?
A.
B.
C.
D.
E.
Low-profit margin and many customers.

Broad needs and few customers.
Broad needs and many customers.
High-profit margin and many customers.
High-profit margin and few customers.
According to Porter, strategic positioning attempts to achieve sustainable

competitive advantage by preserving what is distinctive about a company. "It
means," he says, "performing different activities from rivals, or performing similar
activities in different ways."
AACSB: Analytic
Blooms: Apply
6-49
74.
A small firm is likely to benefit significantly from strategic planning

A.
B.
C.
D.
E.
regardless of the nature of its industry or market.

when it is in a very competitive industry.
when it is in a very new industry.
when it is in a very stable industry.
when it has a very small market.
Researchers conclude that "it may be that the small improvement in performance
is not worth the effort involved in strategic planning unless a firm is in a very
competitive industry where small differences in performance may affect the firm's
survival potential."
AACSB: Analytic
Blooms: Understand
75.
Anne runs a small bakery on the main street of a resort town. Though hers was the
only bakery around, the business had been suffering during the economic
slowdown, and she was contemplating whether she should attempt strategic
planning. Anne should be aware of what research finding regarding strategic
planning?
A. Only large firms show performance gains from strategic planning.
B. Only small firms show performance gains from strategic planning.
C. Performance gains from strategic planning are equal among small and large
firms.
D. Both small and large firms benefit from strategic planning, but small firms get a
larger boost in performance.
E. Both small and large firms benefit from strategic planning, but the small
improvement in performance may not be worth the effort for small firms.
One analysis of several studies found that strategic planning was appropriate not
just for large firms. Companies with fewer than 100 employees could benefit as
well, although the improvement in financial performance was small. Nevertheless,
the researchers concluded, "it may be that the small improvement in performance
is not worth the effort involved in strategic planning unless a firm is in a very
competitive industry where small differences in performance may affect the firm's
survival potential."
AACSB: Analytic
Blooms: Apply
6-50
76.
Milo owns and manages a small bike repair store. In order to determine if strategic
planning will be likely to help his business, Milo should primarily assess
A.
B.
C.
D.
E.
how many competitors he has.

foot traffic by his location.
his profitability in the prior six months.
industry trends.
how much he intends to grow in the next five years.
Strategic planning is not likely to result in a significant improvement unless Milo is

in a highly competitive industry.
AACSB: Analytic
Blooms: Apply
77.
Which of the following best represents a currently popular strategy among big
companies like Apple, Google, and Amazon?
A.
B.
C.
D.
E.
Become involved in the community.

Seek niches where there is less competition.
Get consumers tightly connected to the company's ecosystem.
Offer personal or emotional connections to customers.
Discourage price comparisons.
With big companies, especially big-tech companies such as Amazon, Google, or

Apple, the strategy is to get consumers tied not just to a brand or device or
platform but to make them captive of the company's ecosystem and to get them
connected "as tightly as possible so they and their content are locked into one
system," says analyst Michael Gartenberg.
AACSB: Analytic
Blooms: Understand
6-51
78.
Which of the following steps of the strategic-management process is the source of

its feedback loop?
A.
B.
C.
D.
E.
Carry out the strategic plan.

The feedback loop, which provides an opportunity to revise actions, originates at

the final step of the strategic-management process, to maintain strategic control
(see Figure 6.1).
AACSB: Analytic
Blooms: Understand
79.
Which of the following is not a stage in the strategic-management process?

A.
B.
C.
D.
E.
Conduct a trend analysis.

The steps of the strategic-management process are establishing the mission and
vision, establishing the grand strategy, formulating the strategic plans, carrying out
the strategic plans and maintaining strategic control (see Figure 6.1).
AACSB: Analytic
Blooms: Remember
80.
Which of the following should be included in a good vision statement?

A.
B.
C.
D.
E.
Firm's attitude toward its employees.

Geographical areas in which the firm will compete.
Firm's basic technology.
Firm's standards of excellence and high ideals.
Firm's major products or services.
Good vision statements should set standards of excellence and reflect high ideals
(see Table 6.1).
AACSB: Analytic
6-52
Blooms: Understand
81.
Which of the following is a question that should be answered by a company's

mission statement?
A.
B.
C.
D.
E.
Will it inspire enthusiasm and encourage commitment?

Does it set standards of excellence?
Is it appropriate for the organization?
Is it well articulated?
Who is our customer?
Good mission statements should answer the question, "Who is our customer?" (see
Table 6.1).
AACSB: Analytic
Blooms: Understand
82.
The common grand strategies are

A.
star, question mark, cash cow, and dog.
B. cost-leadership, differentiation, cost focus, and focused differentiation.
C.
growth, stability, and defensive.
D.
strengths, weaknesses, opportunities, and threats.
E.
defender, prospector, analyzer, and reactor.
Three common grand strategies are growth, stability, and defensive.
AACSB: Analytic
Blooms: Remember
6-53
83.
Computer technology corporation Dell recently acquired Quest software, an IT

management software provider, in order to expand upon its software expertise and
offerings. Dell is pursuing a(n) ______ strategy.
A.
B.
C.
D.
E.
escalation
growth
stability
merger
defensive
A growth strategy is a grand strategy that involves expansion, as in expanding

sales revenues, market share, number of employees, or number of customers or
(for nonprofits) clients served. In a variation of this strategy, it can acquire similar
or complementary businesses.
AACSB: Analytic
Blooms: Apply
84.
High Peaks Skate and Snowboard is a small shop that provides equipment for Utah
snowboarders in winter months. It has decided to increase advertising during this
period in the Salt Lake Tribune and the Park Record in Park City, as well as to
sponsor a new on-mountain competition. It is following which strategy?
A.
B.
C.
D.
E.
Inducement
Defensive
Growth
Stability
Enhancement
A growth strategy is a grand strategy that involves expansion, as in expanding

sales revenues, market share, number of employees, or number of customers or
(for nonprofits) clients served. In a variation of this strategy, it can increase its
promotion and marketing efforts to try to expand its market share.
AACSB: Analytic
Blooms: Apply
6-54
85.
Faisal has been running a commercial real estate business for nearly 30 years. As
he approaches retirement, he is content to simply lease the commercial space he
currently has, rather than make new deals to develop additional properties. Faisal is
using which grand strategy?
A.
B.
C.
D.
E.
Stability
Retrenchment
Inducement
Defensive
Growth

AACSB: Analytic
Blooms: Apply
86.
A grand strategy that involves reduction in the organization's efforts is the ______
strategy.
A.
B.
C.
D.
E.
retrenchment
reorganization
downsizing
growth
stability

reduction in the organization's efforts.
AACSB: Analytic
Blooms: Remember
6-55
87.
An Iowa ethanol production company has been suffering from a combination of

lower demand for gasoline (into which its product is mixed) and higher corn prices
(which is the largest input cost). It has responded by selling off land, buildings, and
some of its reserve product inventory. This is a variation of which of these grand
strategies?
A.
B.
C.
D.
E.
Right-size
Growth
Stability
Defensive
Reorganization

reduction in the organization's efforts. In a variation of this strategy, it can sell off
(liquidate) assets like land, buildings, inventories, and the like.
AACSB: Analytic
Blooms: Apply
88.
Recently ConocoPhillips, America's third-biggest oil company, spun off its refineries,
pipelines, and chemicals division to form a new company called Phillips 66. Now
ConocoPhillips will concentrate on its upstream operations. This is a variation of
which of these grand strategies?
A.
B.
C.
D.
E.
Right-size
Growth
Stability
Defensive
Reorganization

reduction in the organization's efforts. In a variation of this strategy, it can divest
part of its business, as in selling off entire divisions or subsidiaries.
AACSB: Analytic
Blooms: Apply
6-56
89.
A fine luggage maker was struggling with heavy debt and a sharp decline in
customers, and it eventually declared bankruptcy. The company followed which
grand strategy?
A.
B.
C.
D.
E.
Growth
Stability
Defensive
Reduction
Reactive

reduction in the organization's efforts. In a variation of this strategy, it can declare
bankruptcy.
AACSB: Analytic
Blooms: Apply
90.
After film manufacturer Kodak failed to reinvent itself and declared bankruptcy in
2012, it decided to focus on its business of making inkjet printers as part of a ______
strategy.
A.
B.
C.
D.
E.
growth
stability
defensive
reorganization
reactor

reduction in the organization's efforts. In variations of this strategy, it can declare
bankruptcy or gradually phase out product lines or services.
AACSB: Analytic
Blooms: Understand
6-57
91.
The process of choosing among different strategies and altering them to best fit the
organization is called
A.
B.
C.
D.
E.
strategic control.
trend analysis.

AACSB: Analytic
Blooms: Remember
92.
Actively selling strategic plans to middle and supervisory managers, rather than
just announcing them, is helpful for
A.
B.
C.
D.
E.
situation analysis.
strategic control.
Often strategy implementation means overcoming resistance by people who feel

the plans threaten their influence or livelihood. Thus, top managers can't just
announce the plans; they have to actively sell them to middle and supervisory
managers.
AACSB: Analytic
Blooms: Understand
6-58
93.
______ consists of monitoring the execution of strategy and making adjustments, if

necessary.
A.
B.
C.
D.
E.
Mission translation
Strategic control
Strategy implementation
Contingency planning
SWOT analysis
Strategic control consists of monitoring the execution of strategy and making

adjustments, if necessary.
AACSB: Analytic
Blooms: Remember
94.
Which of the following is not one of Bryan Barry's recommendations to keep a

strategic plan on track?
A.
B.
C.
D.
E.
Keep moving.
Engage people.
Keep it simple.
Avoid compromise.
Stay focused.
To keep a strategic plan on track, suggests Bryan Barry, you need to do the
following: Engage people. Keep it simple. Stay focused. Keep moving.
AACSB: Analytic
Blooms: Understand
6-59
95.
Gaining information about one's competitors' activities so that you can anticipate
their moves and react appropriately is called
A.
B.
C.
D.
E.
strategic forecasting.
corporate espionage.
trend analysis.
Practicing competitive intelligence means gaining information about one's

competitors' activities so that you can anticipate their moves and react
appropriately.
AACSB: Analytic
Blooms: Remember
strategy?
96.
Which of the following is not a likely source of information for competitive

intelligence?
A.
B.
C.
D.
E.
Competitors' press releases

Industry gossip
Competitors' annual reports
Competitor's customer records
Sales visits to customers
Gaining competitive intelligence isn't always easy, but there are several avenues
and, surprisingly, most of them are public sources including the public prints and
advertising, investor information, and informal sources. A competitor's customer
records are not available publicly, nor would they yield much information about
upcoming plans.
AACSB: Analytic
Blooms: Understand
strategy?
6-60
97.
Rafaela is interested in learning more about what one of her competitors is doing
so that she can anticipate its upcoming moves and react quickly. Which of the
following would you suggest to her for this purpose?
A.
B.
C.
D.
E.
Go through the competitor's trash on its property.

Pose as an applicant for a job with the competitor.
Use investor information.
Call the competitor, explain who you are, and ask directly.
Pay the competitor's customers for information.
Gaining competitive intelligence isn't always easy, but there are several avenues
and, surprisingly, most of them are public sources including the public prints and
advertising, investor information, and informal sources such as trade show gossip
and tidbits from salespeople.
AACSB: Analytic
Blooms: Apply
strategy?
98.
Careful monitoring of an organization's internal and external environment to detect

early signs of opportunities and threats that may influence the firm's plans is
called
A.
B.
C.
D.
E.
forecasting.
trend analysis.
environmental scanning.
Environmental scanning is careful monitoring of an organization's internal and

external environments to detect early signs of opportunities and threats that may
influence the firm's plans.
AACSB: Analytic
Blooms: Remember
strategy?
6-61
99.
A situational analysis is also known as

A.
B.
C.
D.
E.
strategic control.
SWOT analysis.
trend analysis.
forecasting.
SWOT analysis, also known as a situational analysis, is a search for the strengths,
weaknesses, opportunities, and threats affecting the organization.
AACSB: Analytic
Blooms: Remember
strategy?
100. When analyzing the "S" in a SWOT analysis, a manager might take note of
A.
B.
C.
D.
E.
a decrease in the size of the market.

competitors' new products.
strong financial resources of the firm.
lifting of governmental regulations.
Strengths of a company can include financial resources and requirements, which

are an internal factor.
AACSB: Analytic
Blooms: Apply
strategy?
101. When analyzing the "W" in SWOT analysis, a manager might take note of
A.
B.
C.
D.
E.
a decrease in consumer demand.

a competitor's bankruptcy.
good financial resources of the firm.
institution of a tariff on foreign competitors.
High turnover of employees is an internal matter that is a weakness.

AACSB: Analytic
Blooms: Apply
strategy?
6-62

102. When analyzing the "O" in SWOT analysis, a manager might take note of
A.
B.
C.
D.
E.
favorable government regulations.

absenteeism among employees.
good morale among workers.
good financial position.
A manager may be able to discover an opportunity in favorable government

regulations.
AACSB: Analytic
Blooms: Apply
strategy?
103. When analyzing the "T" in SWOT analysis, a manager might take note of
A.
B.
C.
D.
E.
the firm's cash flow problems.

a competitor's new product.
employee absenteeism.
strong corporate culture.
A competitor's new product may be a threat if it is likely to capture market share.

AACSB: Analytic
Blooms: Apply
strategy?
6-63
104. Analysis of changing demographics of the U.S. population would be part of the
assessment of a company's
A.
B.
C.
D.
E.
strengths.
weaknesses.
opportunities.
threats.
opportunities or threats depending on the outcome of the analysis.
Changing demographics may be either an opportunity or a threat in the

environment. For example, the aging population may help some firms but hurt
others.
AACSB: Analytic
Blooms: Apply
strategy?
105. A manager assessing the organization's access to capital is involved in analysis of

A.
strengths.
B.
weaknesses.
C.
opportunities.
D.
threats.
E. strengths or weaknesses depending on the outcome of the assessment.
Access to capital may be either an internal strength or weakness, since some firms
have this and others don't.
AACSB: Analytic
Blooms: Apply
strategy?
6-64
106. Amanda has just determined that her employees will require extensive training if
they are to acquire the necessary technological expertise to produce a new product
line. She has discovered one of her firm's
A.
B.
C.
D.
E.
strengths.
weaknesses.
opportunities.
threats.
market challenges.
The lack of technological expertise is a weakness of the organization.

AACSB: Analytic
Blooms: Apply
strategy?
107. The skills and capabilities that give the organization advantages in executing
strategies in pursuit of its mission are known as
A.
B.
C.
D.
E.
Organizational strengths are the skills and capabilities that give the organization
special competencies and competitive advantages in executing strategies in
pursuit of its mission.
AACSB: Analytic
Blooms: Remember
strategy?
6-65
108. Environmental factors that the organization may exploit for a competitive
advantage are known as
A.
B.
C.
D.
E.
Organizational opportunities are environmental factors that the organization may

exploit for competitive advantage.
AACSB: Analytic
Blooms: Remember
strategy?
109. Alexis has prepared a report that details how prices for several raw materials her
firm uses in production have risen by up to 30% in the last year. Her report would
be an input into the __________ part of a SWOT analysis.
A.
B.
C.
D.
E.
strengths
weaknesses
opportunities
threats
structure
Rising costs for raw materials in an external threat to a company.

AACSB: Analytic
Blooms: Apply
strategy?
110. A vision or projection of the future is called a(n)

A.
B.
C.
D.
E.
trend.
forecast.
contingency.
strategy.
opportunity.
A forecast is a vision or projection of the future.

AACSB: Analytic
Blooms: Remember
6-66
strategy?
111. A time-series forecast, which is used to predict long-term trends, cyclic patterns,
and seasonal variations, is one type of
A.
B.
C.
D.
E.
organizational strength.
trend analysis.
balanced scorecard.
An example of trend analysis is a time-series forecast, which predicts future data

based on patterns of historical data. Time-series forecasts are used to predict longterm trends, cyclic patterns (as in the up-and-down nature of the business cycle),
and seasonal variations (as in Christmas sales versus summer sales).
AACSB: Analytic
Blooms: Understand
strategy?
112. Creation of alternative hypothetical but equally likely future conditions is called
A.
B.
C.
D.
E.
trend analysis.
balancing the scorecard.
forecasting.
Contingency planning, also known as scenario planning and scenario analysis, is

the creation of alternative hypothetical but equally likely future conditions.
AACSB: Analytic
Blooms: Remember
strategy?
6-67
113. Which of the following is not one of the forces that affects industry competition,
according to Porter's model for industry analysis?
A.
B.
C.
D.
E.

Threats of government interference.
Strategic-management expert Michael Porter suggested in his Porter's model for

industry analysis that business-level strategies originate in five primary competitive
forces in the firm's environment: (1) threats of new entrants, (2) bargaining power
of suppliers, (3) bargaining power of buyers, (4) threats of substitute products or
services, and (5) rivalry among competitors.
AACSB: Analytic
Blooms: Remember
114. Oil companies must be aware of other firms' development of ethanol products since
this is an example of which one force in Porter's model for industry analysis?
A.
B.
C.
D.
E.

Rivalry among competitors.
In an example of the threats of substitute products or services, oil companies might

worry that Brazil is close to becoming energy self-sufficient because it is able to
meet its growing demand for vehicle fuel by substituting ethanol derived from
sugarcane for petroleum.
AACSB: Analytic
Blooms: Understand
6-68
115. Porter's competitive strategies include

A.
prospector, defender, analyzer, and reactor.
B.
growth, stability, and retrenchment.
C. cost leadership, differentiation, cost focus, and focused differentiation.
D.
strengths, weaknesses, opportunities, and threats.
E.
stars, questions marks, cash cows, and dogs.
Porter's four competitive strategies (also called four generic strategies) are (1) cost
leadership, (2) differentiation, (3) cost-focus, and (4) focused-differentiation.
AACSB: Analytic
Blooms: Remember
116. An organization is developing a low-cost line of environmentally friendly cleaning

products that it intends to distribute internationally. Here, the organization is
following a ______ strategy.
A.
B.
C.
D.
E.
cost leadership
differentiation
cost focus
retrenchment
service below those of competitors and to target a wide market.
AACSB: Analytic
Blooms: Apply
6-69
117. An organization that is offering unique, superior products or services to a wide

market is pursuing a strategy of
A.
B.
C.
D.
E.
cost leadership.
differentiation.
cost focus.
diversification.
The differentiation strategy is to offer products or services that are of unique and
superior value compared to those of competitors but to target a wide market.
AACSB: Analytic
Blooms: Remember
118. An example of a firm that pursues a differentiation strategy is

A.
B.
C.
D.
E.
Cartier.
Lexus.
Bic.
A regional discount gas station chain.
Home Depot.
The differentiation strategy is to offer products or services that are of unique and
superior value compared to those of competitors but to target a wide market.
Because products are expensive, managers may have to spend more on R&D,
marketing, and customer service. This is the strategy followed by Ritz-Carlton
hotels and the makers of Lexus automobiles.
AACSB: Analytic
Blooms: Understand
6-70
119. Timex Group USA makes inexpensive but reliable watches sold throughout the
United States and is an example of an organization pursuing a _________ strategy.
A.
B.
C.
D.
E.
cost-leadership
differentiation
cost-focus
retrenchment
service below those of competitors and to target a wide market.
AACSB: Analytic
Blooms: Understand
120. An organization that keeps costs and prices low in targeting a narrow market is
A.
B.
C.
D.
E.
cost leadership.
differentiation.
cost focus.
stability.
The cost-focus strategy is to keep the costs, and hence prices, of a product or
service below those of competitors and to target a narrow market.
AACSB: Analytic
Blooms: Remember
6-71
121. An organization that offers unique, superior products or services to a narrow

market is pursuing a strategy of
A.
B.
C.
D.
E.
cost leadership.
differentiation.
cost focus.
diversification.

market.
AACSB: Analytic
Blooms: Remember
122. Which of the following carmakers pursues a focused-differentiation strategy?

A.
B.
C.
D.
E.
Ferrari
Ford
Volkswagen
Honda
Kia

market.
AACSB: Analytic
Blooms: Understand
6-72
123. The benefit of the single-product strategy for a company is

A.
B.
C.
D.
E.
synergy.
focus.
isolated systems.
differentiation.
lower costs.
Making just one product allows you to focus your manufacturing and marketing
efforts just on that product. This means that your company can become savvy
about repairing defects, upgrading production lines, scouting the competition, and
doing highly focused advertising and sales.
AACSB: Analytic
Blooms: Understand
124. Time Warner runs different divisions specializing in television, music, and
publishing. Time Warner is using a(n) ______ strategy.
A.
B.
C.
D.
E.
stability
defensive
diversification
differentiation
infiltration
Diversification strategy means operating several businesses in order to spread the

risk. Major entertainment/media companies follow this strategy.
AACSB: Analytic
Blooms: Understand
6-73
125. Which of the following is most likely to use a diversification strategy?

A.
B.
C.
D.
E.
A tax preparation business

A flower shop
A lawn service
A grocery store
A shoe store
Diversification strategy means operating several businesses in order to spread the

risk. A grocery store sells food, toiletries, pharmaceuticals, cards, flowers, and often
more.
AACSB: Analytic
Blooms: Apply
126. __________ refers to the idea that the economic value of separate, related
businesses under one ownership and management is greater together than the
businesses are worth separately.
A.
B.
C.
D.
E.
Structural benefit
Synergy
Selective function
Alignment
Consolidation
Synergy is the economic value of separate, related businesses under one

ownership, and management is greater together than the businesses are worth
separately.
AACSB: Analytic
Blooms: Remember
6-74
127. Which of the following strategy tools suggests that an organization will do better in
fast-growing markets in which it has a high market share rather than in slowgrowing markets in which it has a low market share?
A.
B.
C.
D.
E.
SWOT analysis
Porter's model for industry analysis
Porter's competitive strategies
The BCG matrix
Trend analysis
In general, the BCG matrix suggests that an organization will do better in fastgrowing markets in which it has a high market share rather in slow-growing
markets in which it has a low market share. These concepts are illustrated in Figure
6.4.
AACSB: Analytic
Blooms: Understand
128. Daniel is assessing his company's portfolio of products. One of them is the bestselling brand of mayonnaise, although this is now a slow-growing market. If Daniel
uses the BCG matrix, he would classify this product as a
A.
B.
C.
D.
E.
star.
cloud.
question mark.
cash cow.
dog.
In the BCG matrix, cash cows have slow growth but high market share, and income
from them often finances stars and question marks.
AACSB: Analytic
Blooms: Apply
6-75
129. Apple's iPad has a very high percentage of the market for tablet computers, and
this is also a quickly growing market. Thus, using the BCG matrix, the iPad would be
classified as a
A.
B.
C.
D.
E.
star.
cloud.
question mark.
cash cow.
dog.
In the BCG matrix, stars have high growth and high market share, and are definite
keepers.
AACSB: Analytic
Blooms: Apply
130. A recent survey found that the top concern among CEOs worldwide is
A.
B.
C.
D.
E.
profit growth.
customer loyalty.
excellence in execution.
stimulating innovation.
finding qualified employees.
How important is execution to organizational success in today's global economy? A

survey of 769 global CEOs from 40 countries revealed that "excellence in
execution" was their most important concern, more important than "profit growth,"
"customer loyalty," "stimulating innovation," and "finding qualified employees."
AACSB: Analytic
Blooms: Understand
process?
6-76
131. According to Bossidy and Charan, effective ______ requires managers to build a
foundation for it within three core process: people, strategy, and operations.
A.
B.
C.
D.
E.
tactical planning
strategy
follow-through
execution
controlling
Bossidy and Charan outline how organizations and managers can improve the
ability to execute. Effective execution requires managers to build a foundation for
execution within three core processes found in any business: people, strategy, and
operations.
AACSB: Analytic
Blooms: Remember
process?
132. According to Bossidy and Charan, which business process is most important for
effective execution?
A.
B.
C.
D.
E.
Strategy
People
Alignment
Operations
Research
A company's overall ability to execute is a function of effectively executing

according to three processes: people, strategy, and operations. Because all work
ultimately entails some human interaction, effort, or involvement, Bossidy and
Charan believe that the people process is the most important.
AACSB: Analytic
Blooms: Understand
process?
6-77
133. Which of the following is not a question that Bossidy and Charan believe a strong
strategic plan must address?
A.
B.
C.
D.
E.
How will deviations from the plan be handled?

What is the assessment of the external environment?
What are the critical issues facing the business?
Can the business execute the strategy?
Are the short term and long term balanced?
According to Bossidy and Charan, a strong strategic plan addresses nine questions,
among them: What is the assessment of the external environment? What are the
critical issues facing the business? Can the business execute the strategy? Are the
short term and long term balanced?
AACSB: Analytic
Blooms: Understand
process?
134. Which of the following is not a behavior of a leader who executes?

A.
B.
C.
D.
E.
Reward the doers.

Insist on realism.
Follow through.
Know yourself.
Respect others' limitations.
According to Bossidy and Charan, there are seven essential leader behaviors that
fuel the engine of execution. Rather than understand their limitations, you should
expand people's capabilities.
AACSB: Analytic
Blooms: Understand
process?
6-78
135. Bossidy and Charan believe that to excel at execution, a leader should
A.
B.
C.
D.
E.
be hands-off once the strategy is set.

micromanage the tactics.
empower employees to take over the execution.
probe for weaknesses in the substance and details.
let the plan run its course before attempting to revise it.
Bossidy and Charan point out, "The leader who boasts of her hands-off style or puts
her faith in empowerment is not dealing with the issues of the day. Leading for
execution is not about micromanaging. Leaders who excel at execution immerse
themselves in the substance of execution and even some of the key details. They
use their knowledge of the business to constantly probe and question. They bring
weaknesses to light and rally their people to correct them."
AACSB: Analytic
Blooms: Understand
process?
Essay Questions
136. Define strategic positioning. Explain the three principles that underlie strategic
positioning.
Strategic positioning attempts to achieve sustainable competitive advantage by

preserving what is distinctive about a company. It means, according to Porter,
"performing different activities from rivals, or performing similar activities in
different ways."
Three key principles underlie strategic positioning:
Strategy is the creation of a unique and valuable position, which emerges from
three sources: few needs, many customers; broad needs, few customers; or broad
needs, many customers.
Strategy requires trade-offs in competing. A company has to choose not only what
strategy to follow but what strategy not to follow.
Strategy involves creating a "fit" among activities. "Fit" has to do with the ways a
company's activities interact and reinforce one another.
AACSB: Analytic
Blooms: Understand
6-79

137. Describe the strategic management process. Explain what the "feedback loop" is
and why it is important.
The strategic management process involves five steps:

1.
2.
3.
4.
5.

The feedback loop comes out of strategic control. Through control, managers
monitor progress and take corrective action early and rapidly when things go awry,
returning to earlier steps to fix problems.
AACSB: Analytic
Blooms: Understand
138. Name the three common grand strategies and provide an example of how a
company might use each.
There are the three common grand strategies:

1. A growth strategy is a grand strategy that involves expansionas in sales
revenues, market share, number of employees, or number of customers or (for
nonprofits) clients served. Examples: It can improve an existing product or service
to attract more buyers. It can increase its promotion and marketing efforts to try to
expand its market share. It can expand into new products or services. It can acquire
similar or complementary businesses.
2. A stability strategy is a grand strategy that involves little or no significant
change. Examples: It can go for a no-change strategy (if, for example, it has found
that too-fast growth leads to foul-ups with orders and customer complaints). It can
go for a little-change strategy (if, for example, the company has been growing at
breakneck speed and feels it needs a period of consolidation).
3. A defensive strategy, or a retrenchment strategy, is a grand strategy that
involves reduction in the organization's efforts. Examples: It can reduce costs, as by
freezing hiring or tightening expenses. It can sell off (liquidate) assetsland,
buildings, inventories, and the like. It can gradually phase out product lines or
services. It can declare bankruptcy.
AACSB: Analytic
Blooms: Apply
6-80
139. Explain strategy implementation, including the role of resistance.
Putting strategic plans into effect is strategy implementation. Strategy

implementation is the stage of the strategic management process where managers
determine possible roadblocks within the organization and see if the right people
and control systems are available to execute the plans. Resistance may be
encountered when people feel the plans threaten their livelihoods or their
influence. This is especially true when plans are being implemented quickly, as
delays (a form of resistance) can easily be constructed and these delays may
heavily damage a plan. Thus, top managers can't just announce the plans; they
have to actively sell them to middle and supervisory managers.
AACSB: Analytic
Blooms: Understand
140. Define competitive intelligence and explain how you might go about obtaining it
legally.
Competitive intelligence means gaining information about one's competitors'

activities so that one can anticipate their moves and react appropriately. Gaining
competitive intelligence isn't always easy, but there are several avenues and most
of them are public sources including (1) the public prints and advertising, (2)
investor information like corporate annual reports, and (3) informal sources such as
trade show gossip and information from company salespeople.
AACSB: Analytic
Blooms: Understand
strategy?
6-81
141. What are the fundamental differences in examining internal and external
environments when conducting a situation analysis?
SWOT analysis, also called a situation analysis, looks at internal strengths and
weaknesses and external opportunities and threats. The internal environment looks
at organizational strengthsthe skills and capabilities that give the organization
special competencies and competitive advantages in executing strategies in
pursuit of its mission, and organizational weaknessesthe drawbacks that hinder
an organization in executing strategies in pursuit of its missionare also part of the
internal environment.
The external environment includes organizational opportunitiesenvironmental
factors that the organization may exploit for competitive advantage. It also
includes organizational threatsenvironmental factors that hinder an
organization's achieving a competitive advantage.
AACSB: Analytic
Blooms: Understand
strategy?
142. Give examples of what managers might look at in performing each element of a
SWOT analysis.
SWOT analysisalso known as a situational analysisis a search for the strengths,

weaknesses, opportunities, and threats affecting the organization.
Examples of a firm's strengths and weaknesses: work processes, organization,
culture, staff, product quality, production capacity, image, financial resources and
requirements, service levels, other internal matters.
Examples of a firm's opportunities and threats: market segment analysis, industry
and competition analysis, impact of technology on organization, product analysis,
governmental impacts, other external matters (see Figure 6.2).
AACSB: Analytic
Blooms: Apply
strategy?
6-82
143. Define forecasting and discuss its importance. Describe the two types of
forecasting described in the text.
Forecasting is developing a vision or projection of the future, which is a necessary

component of strategic planning. The two types are trend analysis and contingency
planning. Trend analysis is a hypothetical extension of a past series of events into
the future. Contingency planning is the creation of alternative hypothetical but
equally likely future conditions.
AACSB: Analytic
Blooms: Understand
strategy?
144. Describe what determines competitiveness within a particular industry using

Porter's model for industry analysis. Provide an example for at least three of the
five forces in the model.
Competitiveness within a particular industry originates in the five primary

competitive forces in the firm's environment:
1. Threats of new entrants: for Kraft, new entrants might be store brands or
Annie's.
2. Bargaining power of suppliers: companies without multiple suppliers are at the
mercy of the one.
3. Bargaining power of buyers: customers who use the Internet to shop around are
more able to negotiate a better price.
4. Threats of substitute products or services: for big oil companies, firms making
ethanol provide a substitute product.
5. Rivalry among competitors: for Coca-Cola, Pepsi is an established rival.
AACSB: Analytic
Blooms: Apply
6-83
145. Describe Porter's four competitive strategies and explain how they differ from each
other. Provide an example of a firm that might use each.
Porter identified two "wide" strategies (cost-leadership and differentiation) that

deal with broad markets, and two "narrow" strategies (cost-focus and focuseddifferentiation) that target specific markets.
1. Cost-leadership focuses on keeping costs and prices low for a wide market, and
examples are Dell, Timex, Home Depot, and Bic.
2. Differentiation stresses offering unique and superior products and services to a
wide market and examples include Ritz-Carlton, Lexus, and PepsiCo.
3. Cost-focus emphasizes keeping low costs and prices, but to a narrow market and
examples include low-cost products sold at discount store and discount regional
gas station chains.
4. Focused-differentiation stresses unique and superior products to a narrow market
and examples include Rolls Royce, Cartier, Turnbull & Asser, and niche books.
AACSB: Analytic
Blooms: Apply
146. Explain the positive and negative aspects of pursuing a single-product strategy
versus a diversification one. Provide an example of a company that uses each type
of strategy.
In a single-product strategy, a company makes and sells only one product within its
market. Making just one product allows you to focus your manufacturing and
marketing efforts just on that product. This means that your company can become
savvy about repairing defects, upgrading production lines, scouting the
competition, and doing highly focused advertising and sales. The risk, of course, is
that if you do not focus on all aspects of the business, if a rival gets the jump on
you, or if an act of God intervenes (for a florist, roses suffer a blight right before
Mother's Day), your entire business may go under. The single-product strategy is
seen all the time as you drive past the small retail businesses in a small town:
There may be one shop that sells only flowers, one that sells only security systems,
and so on.
Diversification is operating several businesses in order to spread the risk.
Diversification may be related or unrelated. Related diversification has three
advantages: reduced riskbecause if one product is weak, others may take up the
slack, management efficienciesbecause administration is spread over several
businesses, and synergy, that the sum is greater than the parts. You see the
diversification strategy at the small retailer level when you drive past a store that
sells gas and food and souvenirs and rents DVD movies.
AACSB: Analytic
Blooms: Apply
6-84
147. Explain the three core processes of business and how they relate to execution.
A company's overall ability to execute is a function of effectively executing in terms

of its people processes, strategic processes, and operational processes.
People process: An effective leader tries to evaluate talent by linking people to
particular strategic milestones, developing future leaders, dealing with
nonperformers, and transforming the mission and operations of the human
resource department.
Strategic processes: A good strategic plan addresses nine questions. In considering
whether the organization can execute the strategy, a leader must take a realistic
and critical view of its capabilities and competencies.
Operations processes: The strategy process defines where an organization wants to
go, and the people process defines who's going to get it done. Operations or the
operating plan provides the path for people to follow. The operating plan should
address all the major activities in which the company will engage and then define
short-term objectives for these activities, to provide targets for people at which to
aim.
AACSB: Analytic
Blooms: Understand
process?
148. List at least five of the seven essential types of leader behaviors that are needed to
fuel the engine of execution.
The seven essential types of leader behaviors are:

1.
2.
3.
4.
5.
6.
7.
Know your people and your business: engage intensely with your employees.
Insist on realism: don't let others avoid reality.
Set clear goals and priorities: focus on a few rather than many goals.
Follow through: establish accountability and check on results.
Reward the doers: show top performers that they matter.
Expand people's capabilities: develop the talent.
Know yourself: do the hard work of understanding who you are.
AACSB: Analytic
Blooms: Understand
process?
6-85
6-86

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Chapter 06

Strategic Management: How Exceptional Managers Realize a

True / False Questions

2. In a world of rapid and discontinuous change, the ability to please nonmanagerial

5. A strategy is a large-scale action plan that sets direction for an organization.

6. Strategic management is the process of involving nonmanagerial employees in the

7. An organization should adopt strategic management and strategic planning to

8. Bad planning is usually a result of top managers' inability to gather enough

10. A sustainable competitive advantage is the ability of an organization to produce goods

12. Harvard Business School professor Michael Porter is a leading authority on

13. Strategic conservation attempts to achieve sustainable competitive advantage by

16. Good strategy allows a company to be everything to everyone.

19. Organizations may turn to the strategic-management process after a crisis.

23. Many good mission statements include descriptions of an organization's customers, as

26. A mission statement should be ambitious.

27. After the assessment of current organizational performance, the subsequent

28. A defensive strategy is sometimes called a retrenchment strategy.

36. A common challenge to strategy implementation is resistance by people within the

38. The primary purpose of competitive intelligence is to challenge the thinking of

39. SWOT analysis helps management to develop a realistic understanding of the

43. Forecasting is a strategic-planning tool used to make long-term strategy.

47. Contingency planning can also be called scenario analysis.

51. In a cost-leadership strategy, an organization targets a wide market and offers

52. Luxury carmaker Rolls-Royce has a focused-differentiation strategy.

53. A single-product strategy can be described as focused but vulnerable.

54. A small florist most likely follows a diversification strategy.

57. Synergy is one of the benefits of a single-product strategy.

60. Execution is tactical in nature, rather than part of a company's strategy.

63. Managers who execute well insist on constant optimism.

Multiple Choice Questions

66. Effective strategic management involves

only top management.

To enhance employee loyalty.

Low-profit margin and many customers.

74. A small firm is likely to benefit significantly from strategic planning

regardless of the nature of its industry or market.

how many competitors he has.

Carry out the strategic plan.

79. Which of the following is not a stage in the strategic-management process?

Conduct a trend analysis.

80. Which of the following should be included in a good vision statement?

Firm's attitude toward its employees.

Will it inspire enthusiasm and encourage commitment?

82. The common grand strategies are

Competitors' press releases

99. A situational analysis is also known as

a decrease in the size of the market.

a decrease in consumer demand.

favorable government regulations.

the firm's cash flow problems.

110 A vision or projection of the future is called a(n)

Threats of new entrants.

Bargaining power of buyers.

115 Porter's competitive strategies include

118 An example of a firm that pursues a differentiation strategy is

122 Which of the following carmakers pursues a focused-differentiation strategy?

123 The benefit of the single-product strategy for a company is

125 Which of the following is most likely to use a diversification strategy?

A tax preparation business

How will deviations from the plan be handled?

134 Which of the following is not a behavior of a leader who executes?

Reward the doers.

139 Explain strategy implementation, including the role of resistance.

Chapter 06 Strategic Management: How Exceptional Managers