CHAPTER 9 Strategy Review, Evaluation and Control

True/False
The Nature of Strategy Evaluation 1. If strategy implementation is successful, an enterprise can be lulled into complacency with success. Ans: F 2. Page: 300

Adequate, timely feedback is important to effective strategy evaluation. Ans: T Page: 300

3.

Too much emphasis on evaluating strategies may be expensive and counterproductive. Ans: T Page: 300

4.

Strategy evaluation should have a long-run focus and avoid a short-run focus, given that strategies are long term in nature. Ans: F Page: 300

5.

According to Richard Rumelt, consonance and consistency are based on a firms external assessment. Ans: F Page: 300

6.

According to Rumelt, consistency and feasibility are largely based on a firms internal assessment. Ans: T Page: 300

7.

Regardless of the size of the organization, a certain amount of management by wandering around at all levels is essential to effective strategy evaluation. Ans: T Page: 300

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8.

Falsification of reports can result from too great an insistence on attainment of objectives. Ans: T Page: 300

9.

Consistency, distinctiveness, advantage and feasibility are Richard Rumelts four criteria for evaluating a strategy. Ans: F Page: 300

10.

Most top managers feel an organizations well-being depends on evaluation of the strategic-management process. Ans: T Page: 300

11.

Strategy evaluation is becoming increasingly easier with the passage of time, given the technological advances. Ans: F Page: 301

12.

The decreasing time span for which planning can be done with any degree of certainty is a reason strategy evaluation is more difficult today. Ans: T Page: 301

13.

Consistency refers to the need for strategists to examine sets of trends as well as individual trends in evaluating strategies. Ans: F Page: 302

14.

The need for strategists to examine sets of trends as well as individual trends in evaluating strategies is referred to as consonance. Ans: T Page: 302

15.

The final broad test of strategy is consistency, that is, can the strategy be implemented consistently every year. Ans: F Page: 302

16.

Strategies may be inconsistent if policy problems and issues continue to be brought to the top for resolution. Ans: T Page: 302

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17.

Competitive advantages normally are the result of superiority in one of three areas: feasibility, consistency, or consonance. Ans: F Page: 302

18.

Because large companies have more at stake, it is more important for large organizations to conduct strategy evaluation than small companies. Ans: F Page: 303

19.

When empowered employees are held accountable for and pressured to achieve specific goals and are given wide latitude in their actions to achieve them, there can be dysfunctional behavior. Ans: T Page: 303

20.

Given that large amounts of money are at stake, strategy evaluation is primarily necessary for large, corporate companies, not small or not-for-profit ones. Ans: F Page: 303

21.

The end of the fiscal year is the best time of the year to do strategy evaluation. Ans: F Page: 304

22.

Strategy-evaluation activities should be performed on a periodic basis. Ans: F Page: 304

A Strategy-Evaluation Framework 23. Changes in the organizations management, marketing, finance, R&D and CIS strengths and weaknesses should all be the focus of a revised EFE matrix in strategy evaluation. Ans: F 24. Page: 305

In strategy evaluation, a revised IFE matrix should indicate how effective a firms strategies have been in response to key opportunities and threats. Ans: F Page: 305

25.

Strengths, weaknesses, opportunities and threats should continually be monitored for change because it is not really a question of whether these factors will change but rather when they will change and in what ways. Ans: T Page: 305 193

26.

Perhaps the most important part of preparing a revised External Factor Evaluation Matrix is determining how a firms position has changed relative to major competitors. Ans: T Page: 305

27.

Comparing expected results to actual results is an activity included in taking corrective action. Ans: F Page: 307

28.

Criteria for evaluating strategies should be measurable and easily verifiable. Ans: T Page: 307

29.

Financial ratios are the most commonly used criteria to evaluate strategies. Ans: T Page: 307

30.

Measuring organizational worth includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance and examining progress being made toward meeting stated objectives. Ans: F Page: 307

31.

Intuitive judgments are almost always involved in deriving quantitative criteria. Ans: T Page: 308

32.

Measuring organizational performance requires making changes to reposition a firm competitively for the future. Ans: F Page: 308

33.

Organizations need to be as objective as possible in considering qualitative factors in strategic management. Ans: F Page: 308

34.

Taking corrective actions does not necessarily mean that existing strategies will be abandoned, or even that new strategies must be formulated. Ans: T Page: 308

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35.

Most quantitative evaluation criteria are geared to long-term objectives rather than annual objectives. Ans: F Page: 308

36.

Corrective action in strategy evaluation is not needed when the firm is progressing satisfactorily toward achieving stated objectives. Ans: T Page: 308-309

37.

According to research, participation in strategy-evaluation activities is one of the best ways to overcome individuals resistance to change. Ans: T Page: 309

38.

Alvin Toffler argues that environments are becoming so dynamic and complex that they threaten people and organizations with future shock in his thoughtprovoking books entitled Future Shock and The Third Wave. Ans: T Page: 309

39.

When the type and speed of changes overpower an individual or organizations ability and capacity to adapt, future shock occurs. Ans: T Page: 309

40.

Often emotionally based, resistance to change is easily overcome by rational argument. Ans: F Page: 309

Published Sources of Strategy-Evaluation Information 41. Each year, Fortune publishes strategy evaluation research on both the United States and other countries. Ans: T 42. Page: 310

An excellent evaluation of corporations in America, published annually in the January issue of Forbes, is the Annual Report on American Industry. Ans: T Page: 310

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43.

Frances best company in 1999, according to Fortune, was BP Amoco in the petroleum refining industry. Ans: F Page: 312

Characteristics of an Effective Evaluation System 44. Advance warning, or predictions of results, may be more important than control reports. Ans: T 45. Page: 311

Strategy-evaluation activities must be economical, i.e., they should specifically relate to a firms objectives. Ans: F Page: 311

46.

Approximate information that is timely is generally more desirable as a basis for strategy evaluation than accurate information that does not depict the present. Ans: T Page: 311

47.

The basic idea behind strategy evaluation is to alert management to problems or potential problems before a situation becomes critical. Ans: T Page: 311-313

48.

The strategy-evaluation process should dominate decisions to be effective. Ans: F Page: 312

49.

The test of an effective evaluation system is its usefulness and complexity. Ans: F Page: 312

50.

Small organizations require a more elaborate and detailed strategy-evaluation system because they are still evolving. Ans: F Page: 312

51.

There is no one ideal strategy-evaluation system for all organizations. Ans: T Page: 312

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Contingency Planning 52. Alternative plans that can be put into effect if certain key events do not occur as expected are called contingency plans. Ans: T 53. Page: 313

Organizations should prepare contingency plans just for unfavorable events. Ans: F Page: 313

54.

High-priority areas are the only areas requiring the insurance of contingency plans. Ans: T Page: 313

55.

Strategies should try to cover all bases by planning for all possible contingencies. Ans: F Page: 313

56.

Contingency plans should be as simple as possible. Ans: T Page: 313

57.

Alternative strategies not selected for implementation should be discarded, as they have a tendency to contaminate the contingency plans. Ans: F Page: 314

58.

Identifying both beneficial and unfavorable events that could possibly derail the strategy or strategies is the first step of effective contingency planning. Ans: T Page: 314

Auditing 59. Independent auditors, government auditors and IRS auditors are the three groups of people who perform audits. Ans: F 60. Page: 314

Independent auditors basically are CPAs who provide their services to organizations for a fee. Ans: T Page: 314

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61.

Public accounting firms usually avoid strategy evaluation services. Ans: F Page: 315

62.

Two government agenciesIRS and GAOemploy government auditors responsible for making sure organizations comply with federal laws, statutes and policies. Ans: T Page: 315

63.

Moving environmental affairs from the line side of the organization to the staff side is required when instituting an environmental audit. Ans: F Page: 316

Using Computers to Evaluate Strategies 64. Business today has become so competitive that strategists are forced to extend planning horizons and to make decisions under greater degrees of uncertainty. Ans: T 65. Page: 316

Personal values, attitudes, morals, preferences, politics, personalities and emotions are not programmablean advantage of computer-based systems to evaluate and monitor strategy execution. Ans: F Page: 316

66.

In evaluating strategies, computers should be viewed as tools rather than as actual decision-making devices. Ans: T Page: 316

Multiple Choice
The Nature of Strategy Evaluation 67. Which of these is/are a basic activity of strategy evaluation? a. Reviewing the underlying internal and external factors that represent the bases of current strategies b. Measuring organizational performance c. Taking corrective actions d. All of the above e. Both b and c Ans: d Page: 300

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68.

Which of these is the cornerstone of effective strategy evaluation? a. Adequate and timely feedback b. Quality and quantity of managers c. Smaller ratio of top- to lower-level management d. Evaluation preceding implementation stage Ans: a Page: 300

69.

All of these are Richard Rumelts criteria to evaluate a strategy except a. advantage. b. consistency. c. feasibility. d. distinctiveness. c. consonance. Ans: d Page: 300

70.

The purpose of strategy evaluation is to a. increase the budget annually. b. alert management to problems or potential problems. c. make budget changes. d. evaluate employees performance. Ans: b Page: 300

71.

Strategy evaluation is becoming __________ with the passage of time. a. increasingly difficult b. much simpler c. very convenient d. an unnecessary activity Ans: a Page: 301

72.

All of the following are reasons strategy evaluation is more difficult today except a. a dramatic increase in the environments complexity. b. the increasing number of variables. c. the increase in the number of both domestic and world events affecting organizations. d. the decreasing difficulty of predicting the future with accuracy. e. the rapid rate of obsolescence of even the best plans. Ans: d Page: 301

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73.

A final broad test of strategy is its a. advantage. b. feasibility. c. consonance. d. consistency. e. distinctiveness. Ans: b Page: 302

74.

Competitive advantage normally is the result of superiority in all of these areas except a. resources. b. position. c. consistency. d. skills. Ans: c Page: 302

75.

In evaluating strategies, __________, one of Rumelts criteria for evaluating strategies, refers to the need for strategists to examine sets of trends. a. consistency b. consonance c. feasibility d. advantage Ans: b Page: 302

76.

When empowered employees are held accountable for and pressured to achieve specific goals and are given wide latitude in their actions to achieve them, there can be a. increased productivity. b. dysfunctional behavior. c. decreased number of complaints. d. decreased turnover. e. increased number of litigations. Ans: b Page: 303

77.

Strategy-evaluation activities should be performed a. on a periodic basis. b. at the onset of a problem. c. on a continuous basis. d. upon completion of major projects. Ans: c Page: 304

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78.

All of the following statements are true except a. strategy evaluation reviews conclusions reached during strategy formulation. b. strategy evaluation examines actions taken during strategy implementation. c. strategy evaluation should be performed at the end of specified periods. d. the three basic activities of strategy evaluation are appropriate for all sizes and kinds of organizations. Ans: c Page: 304

79.

What is the best type of strategy evaluation? a. Intense b. Informal c. Continuous d. Periodic Ans: c Page: 304

A Strategy-Evaluation Framework 80. When you discover major changes have occurred in the firms internal strategic position while conducting strategy evaluation, you should a. continue on the present strategic course. b. immediately discontinue all aspects of the present strategic course. c. take corrective actions. d. add additional funds to the present strategic plan. Ans: c 81. Page: 304

Changes in the organizations management, marketing, finance/accounting, R&D and CIS strengths and weaknesses should be the focus of a revised a. mission. b. IFE matrix. c. vision. d. EFE matrix. e. EPM matrix. Ans: b Page: 305

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82.

A revised __________ should indicate how effective a firms strategies have been in response to key opportunities and threats. a. IFE matrix b. mission c. EFE matrix d. vision e. CPM matrix Ans: c Page: 305

83.

Which of the following activities are included in reviewing underlying bases of the strategy phase of strategy-evaluation framework? a. Prepare a revised IFE matrix b. Compare a revised to an existing IFE matrix c. Prepare a revised EFE matrix d. Compare planned to actual progress e. Compare a revised to an existing EFE matrix Ans: d Page: 305

84.

How does a revised External Factor Evaluation Matrix compare to an existing External Factor Evaluation Matrix? a. The weightings may be different. b. The key factors may be different. c. The total weighted score may be different. d. All of the above Ans: d Page: 305

85.

Which of these is not an activity included in measuring the organizational performance phase of strategy evaluation? a. Examining progress being made toward stated objectives b. Taking corrective action c. Comparing expected results to actual results d. Evaluating individual performance Ans: b Page: 307

86.

Which of the following is not included in measuring organizational performance? a. Comparing results to competitors expectations b. Examining financial statements c. Investigating deviations from plans d. Evaluating individual performance e. Comparing expected results to actual results Ans: a Page: 307

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87.

Ineffectiveness and/or inefficiencies indicate the need for a. layoffs. b. consultants. c. some form of correction action. d. reductions in pay. c. more synergy. Ans: c Page: 307

88.

What is the basis for quantitative financial evaluation? a. Reduction in costs b. The EPS/EBIT Analysis c. Capital Asset Pricing Model d. Financial ratios e. Present value analysis Ans: d Page: 307

89.

___________ are perhaps the most commonly used criteria to evaluate strategies. a. Financial ratios b. Revised factor evaluation matrices c. Organizational performance variables d. Industry averages Ans: a Page: 307

90.

Which of these is not a key financial ratio? a. Market share b. Production quality c. Earnings per share d. Asset growth Ans: b Page: 307

91. c. d.

Corrective actions should a. strengthen an organizations competitive position in its industry. b. streamline asset holdings. reduce the staff size. all of the above. Ans: a Page: 308

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92.

__________ is/are corrective actions a firm could take during strategy evaluation. a. Revising the business mission b. Issuing stock c. Revising objectives d. All of the above Ans: d Page: 308

93.

______________ occur(s) when the nature, types and speed of changes overpower an individuals or organizations ability and capacity to adapt. a. Corporate downfall b. Corrective actions c. Future shock d. Corporate agility Ans: c Page: 309

94.

______________is/are the best way to overcome individuals resistance to change in strategy evaluation. a. Participation b. Command-and-control c. Laissez-faire system d. Rational argument e. Emotional reactions Ans: a Page: 309

95.

Corrective actions are __________ as a result of strategy evaluation. a. almost always needed b. definitely needed d. rarely needed e. none of the above Ans: a Page: 309

Published Sources of Strategy-Evaluation Information 96. In the important publication used to evaluate a firms strategy, the Fortune 50 includes what? a. The 50 highest-paid CEOs in several industries b. The 50 top manufacturing firms c. The 50 top political figures d. The 50 worst-performing companies of the year e. None of the above Ans: e Page: 309

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97.

All of the following are key attributes that serve as evaluative criteria except a. ability to react. b. quality of products or services. c. innovativeness. d. financial soundness. e. use of corporate assets. Ans: a Page: 310

98.

Which of these is not a key attribute in Fortunes strategy evaluation research on Americas Most Admired Companies? a. Quality of management b. Innovation c. Long-term investment value d. Amount of physical resources e. Use of corporate assets Ans: d Page: 312

99.

Which of these is Britains best company in petroleum refining? a. Total Fina b. Royal Dutch/ Shell Group c. Unilever d. Reuters Group Ans: b Page: 312

100.

Which of these is Frances best soaps and cosmetics company? a. Clinique b. Christian Dior c. LOreal d. Estee Lauder e. Lancome Ans: c Page: 312

101.

__________ is Germans best electronics company, according to Fortune. a. Siemens b. L.M. Cricsson c. ABB Asea Brown Boveri d. Vinci e. BASF Ans: a Page: 312

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Characteristics of an Effective Evaluation System 102. __________is not a characteristic of an effective evaluation system. a. Economical b. Timely c. Information-oriented d. Meaningful Ans: c 103. Page: 311

Controls need to be ____________ rather than ____________. a. action oriented; information oriented b. cultural; political c. qualitative; quantitative d. measurable; timely Ans: a Page: 311

104.

The strategy-evaluation process should foster a. mutual understanding. b. implementation. c. corporate culture. d. profit centers. e. contingency plans. Ans: a Page: 312

105.

______________ determine the final design of a firms strategy-evaluation and control system. a. Opportunities b. Threats c. External characteristics d. The organizations characteristics e. The competitions characteristics Ans: d Page: 312

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Contingency Planning 106. __________ is having alternative plans that can be put into effect if certain key events do not occur as expected. a. Corporate agility b. Scenario planning c. Strategy evaluation d. Contingency planning e. Forecasting Ans: d 107. Page: 313

Which of the following statements about contingency plans is not true? a. Contingency plans should be as simple as possible. b. Only high-priority areas require the insurance of contingency plans. c. Contingency planning makes managers more adaptable. d. Develop contingency plans for all contingent events. Ans: d Page: 314

Auditing 108. All of the following perform audits except a. external auditors. b. government auditors. c internal auditors. d. independent auditors. Ans: a 109. Page: 314

Who performs audits? a. Independent auditors b. Government auditors c. Internal auditors d. Marketing department auditor e. a, b & c Ans: e Page: 314

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110.

__________ are auditors specifically responsible for safeguarding the assets of a company. a. Independent auditors b. Government auditors c. Internal auditors d. External auditors Ans: c Page: 315

Using Computers to Evaluate Strategies 111. ___________ can allow diverse strategy-evaluation reports to be generated for different levels and types of managers. a. Strategists b. Networks c. Front-line employees d. Competitive analysis Ans: b 112. Page: 316

In strategy evaluation, computers need to be viewed as _________ rather than as _________. a. unreliable; essential b. essential; unreliable c. tools; actual decision-making devices d. decision-making devices; tools Ans: c Page: 316

Essay Questions
113. Explain why strategy evaluation can be a complex and sensitive undertaking. Strategy can be a complex and sensitive undertaking because too much emphasis on evaluating strategies may be expensive and counterproductive. No one likes to be evaluated too closely! The more managers attempt to evaluate the behavior of others, the less control they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure stated objectives are being achieved. Page: 300

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114.

Compare and contrast two of Rumelts four criteria for evaluating strategies. Rumelts four criteria for evaluating strategies are consistency, consonance, feasibility and advantage. Students should take their answers from Table 9-1 on page 302, which provides descriptions of each. Page: 302

115.

Describe each of the activities that comprise strategy evaluation. The activities that comprise strategy evaluation are: (1) reviewing the underlying bases of an organizations strategy, (2) measuring organizational performance and (3) taking corrective actions. Please refer to pages 305-309 for descriptions of each activity. Page: 304-309

116.

What are the most commonly used quantitative criteria to evaluate strategies? Give several examples of these criteria. Quantitative criteria commonly used to evaluate strategies are financial ratios, which strategists use to make three critical comparisons: (1) comparing the firms performance over different time periods, (2) comparing the firms performance to that of competitors and (3) comparing the firms performance to industry averages. Some particularly useful key financial ratios used as criteria for strategy evaluation are: (1) ROI, (2) ROE, (3) profit margin, (4) market share, (5) debt to equity, (6) earnings per share, (7) sales growth and (8) asset growth. Page: 307

117.

When faced with resistance to taking corrective actions, what can/should a manager do? Hussey and Langham offered the following insight on taking corrective actions: Resistance to change is often emotionally based and not easily overcome by rational argument. Resistance may be based on such feelings as loss of status, implied criticism of present competence, fear of failure in the new situation, annoyance at not being consulted, lack of understanding of the need for change, or insecurity in changing from well-known and fixed methods. It is necessary to overcome such resistance by creating situations of participation and full explanation when changes are envisaged. Page: 307-308

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118.

Identify some important guidelines for effective strategic management, as presented in the chapter. Please refer to the entire discussion on pages 311-313 under Characteristics of an Effective Evaluation System. Page: 311-313

119.

Describe the seven-step process of effective contingency planning in strategy evaluation. The suggested seven-step process of effective contingency planning is as follows: (1) Identify both beneficial and unfavorable events that could possibly derail the strategy or strategies, (2) specify trigger points and calculate about when contingent events are likely to occur, (3) assess the impact of each contingent event, (4) develop contingency plans, (5) assess the counter impact of each contingency plan, (6) determine early warning signals for key contingent events and monitor them and (7) for contingent events with reliable early warning signals, develop advance action plans to take advantage of the available lead time. Page: 314

120.

Individuals who perform audits can be divided into three groups. Identify these three groups and give an example of each. People who perform audits can be divided into three groups: independent auditors, government auditors and internal auditors. An example of an independent auditor is the CPAs at Arthur Andersen public accounting firm. The GAO and IRS are examples of government auditors. Employees within an organization who are responsible for safeguarding company assets, for assessing the efficiency of company operations and for ensuring the generally accepted business procedures are examples of internal auditors. Page: 314-315

121.

What are the advantages and disadvantages of using computers to evaluate strategies? Please refer to the discussion on pages 316-317 under Using Computers to Evaluate Strategies. Page: 316-317

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