Chapter 3 – Foundations of Planning

Chapter Three: Foundations of Planning

True/False

1. Planning is concerned with defining an organization’s goals and objectives and how to
integrate and coordinate activities.
(True; Easy; p. 88)

2. In informal planning, the organization's objectives are rarely verbalized.

(True; Moderate; p. 88)

3. Planning is exactly what is needed in order to more effectively manage a chaotic

environment.
(True; Moderate; p. 89)

4. Without planning, there can be no effective control.

(True; Moderate; p. 89)

5. In informal planning, the organization's objectives are written down and communicated
to employees.
(False; Moderate; p. 88)

6. Planning minimizes waste and redundancy.

(True; Easy; p. 89)

7. Uncertainty and change produce a need for more effective planning in today’s
business environment.
(True; Moderate; p. 89)

8. Planning can completely replace the need for intuition and creativity.
(False; Moderate; p. 89)

9. Strategic plans describe how an organization’s overall objectives are to be achieved.

(False; Easy; p. 92)

10. Short-term plans describe how an organization’s overall objectives are to be achieved.
(False; Easy; p. 93)

11. Long term plans describe what an organization plans to do within the next two to three
years.
(False; Easy; p. 93)

12. Well-thought out formal plans eliminate the need to rely on intuition and creativity.
Apple Computer is a prime example of this concept.
(False; Moderate; p. 93)

13. Organizations with formal plans will always outperform those organizations without
formal plans.
(False; Challenging; p. 91)

61
Part II - Planning

14. Tactical plans form a basis for strategic plans.

(False; Challenging; p. 92)

15. It appears that specific plans are always preferable to directional, or loosely guided
plans, because specific plans have clearly defined objectives.
(True; Easy; p. 93)

16. Standing plans are flexible plans, with clearly defined objectives and that leave no
room for misinterpretation.
(False; Moderate; p. 94)

17. The objectives in MBO should be concise statements of financial accomplishments.

(False; Easy; p. 94)

18. MBO uses goals to control employees.

(False; Challenging; p. 94)

19. Feedback favorably affects performance.

(True; Moderate; p. 96)

20. An organization's objectives and strategies define its purpose.

(False; Moderate; p. 99)

21. Identifying the scope of an organization's products or services will force it to define its
mission.
(False; Challenging; p. 99)

22. In order to fulfill the grand strategy, managers will seek to position their units so that
they can gain a relative advantage over their competition.
(True; Challenging; p. 105)

23. Porter's three competitive strategies are cost-leadership, price-leadership, and niche.
(False; Moderate; p. 105)

24. A project is an example of a single-use plan.

(True; Moderate; p. 94)

25. SWOT analysis determines the primary threats and opportunities an organization
faces.
(True; Easy; p. 102)

26. A SWOT analysis consists of four key steps.

(False; Easy; p. 102)

27. The grand strategies are growth, differentiation, stability, and combination strategies.
(False; Easy; p. 103)

28. A differentiation strategy is a strategy that an organization follows when it wants to

establish a competitive advantage in a narrow market segment.
(False; Challenging; p. 105)

62
 Chapter 3 – Foundations of Planning

29. A combination strategy is a strategy that an organization follows when it wants to be

unique in its industry within a broad market segment.
(False; Challenging; p. 105)

30. Reducing the size, scope or number operational units usually in a declining
environment is known as reengineering.
(False; Challenging; p. 104)

31. Reducing the size, scope or number operational units usually in a declining
environment is known as a retrenchment strategy.
(True; Challenging; p.104)

32. How do we overcome the challenge of scanning a global business environment? One
way is for management to subscribe to news services that review newspapers and
books from around the globe and provide summaries to client companies.
(False; Challenging; p. 106)

33. Strengths that represent unique skills or resources that can determine an
organization's competitive edge are called its core competency.
(True; Moderate; p. 102)

34. A strong culture may act as a significant barrier to acceptance of change.

(True; Moderate; p. 102)

35. SWOT stands for strengths, weaknesses, opportunities, and threats. The S and W
refer to the strengths and weaknesses of the current and future economy.
(False; Easy; p. 102)

36. The typical growth strategies include direct expansion, new product development,
quality improvement, or diversifying—merging with or acquiring other firms.
(True; Moderate; p. 103)

37. The evidence suggests organizations should have formal plans.

(True; Easy; p. 89)

38. Organizations with formal plans will always outperform those organizations without
formal plans.
(False; Challenging; p. 91)

39. Directional plans provide focus, but do not lock managers into specific objectives or
specific courses of action.
(True; Moderate; p. 93)

63
Part II - Planning

Multiple Choice Questions

40. The _____ of RJ Nabisco is “to meet the needs of consumers through innovative
marketing and manufacturing of healthful, good-tasting products that contribute to a
healthy lifestyle and consumer well-being around the world, yielding above-average
returns over time and for our shareholders.”
a. tactical plan
b. mission
c. strategic plan
d. environmental plan
(B; Easy; 99)

41. Which of the following is not included in the definition of planning?

a. Define the organization’s objectives or goals.
b. Establish an overall strategy for achieving these objectives or goals.
c. Allocate resources and develop a chain of communication.
d. Develop a hierarchy of plans to integrate and coordinate activities.
(c; Moderate; p. 88)

42. When objectives are not written down or rarely verbalized, and the planning is general
and lacks continuity, which of the following types of planning is used?
a. environmental planning
b. economic planning
c. informal planning
d. formal planning
(c; Moderate; p. 88)

43. When planning involves specific objectives (covering a period of years) that are then
written down and made available to organization members with specific action
programs for achieving the goal, which of the following types of planning was used?
a. environmental planning
b. economic planning
c. informal planning
d. formal planning
(d; Moderate; p. 88)

44. In what order should plans be developed?

a. Mission, operational, strategic, and tactical
b. Strategic, tactical, mission, and operational
c. Mission, tactical, strategic, and operational
d. Mission, strategic, tactical, and operational
(d; Moderate; p. 88)

45. _____ clarifies the consequences of actions managers might take in response to
continual change.
a. Controlling
b. Organizing
c. Leading
d. Planning
(d; Moderate; p. 89)

64
 Chapter 3 – Foundations of Planning

46. Which of the following is an argument against formal planning?

a. Planning focuses on the future.
b. Planning may create rigidity.
c. Planning replaces creativity.
d. Planning ignores prior successes.
(b; Moderate; pp. 89-90)

47. Once a plan is established, it should always be

a. followed.
b. changed.
c. flexible.
d. long term.
(c; Moderate; p. 90)

48. The organizational formality of Apple Computer ultimately led to

a. a successful organization.
b. hampered creativity.
c. increased vision.
d. increased market share.
(b; Challenging; p. 90)

49. Which of following is not one of the reasons why managers should engage in planning
as that was stated in the text?
a. Planning reduces cost.
b. Planning minimizes waste and redundancy.
c. Planning provides direction.
d. Planning facilitates control.
(a; Moderate; p. 89)

50. Which of the following is not an argument that has been made against formal
planning?
a. cannot be developed for a dynamic environment
b. cannot replace creativity and intuition
c. takes too much time and staff resources
d. focuses mostly on today’s competition
(c; Moderate pp. 89-90)

51. _____ plans specify the details of how an organization or business will achieve its
objectives.
a. Strategic
b. Tactical
c. Long-term
d. Operational
(b; Moderate; p. 92)

52. Planning can

a. provide guidance and direction.
b. minimize waste and redundancy.
c. provide standards to facilitate control
d. All of the above.
(d; Moderate; p. 89)

65
Part II - Planning

53. Successful plans may provide

a. a false sense of security.
b. only success.
c. increased awareness of the environment.
d. increased awareness of change.
(a; Challenging; p. 91)

54. In those organizations where formal planning did not lead to higher performance, the
culprit was which of the following?
a. competition
b. marketing plan
c. management
d. environment
(d; Moderate; p. 92)

55. Plans that apply to the entire organization, establish the organization's overall
objectives, and seek to position the organization in terms of its environment are called
_____ plans.
a. operational
b. tactical
c. strategic
d. single-use
(c; Moderate; p. 92)

56. _____ plans are differentiated by their breadth.

a. Directional and specific
b. Single use and standing
c. Strategic and tactical
d. Long-term and short-term
(c; Moderate; p. 92)

57. Which of the following is not a popular way to describe plans?

a. breadth
b. time frame
c. specificity
d. environmental focus
(d; Moderate; p. 92)

58. _____ specify how overall objectives are to be achieved.

a. Operational plans
b. Tactical plans
c. Strategic plans
d. Single-use plans
(b; Moderate; p. 92)

59. Tactical and strategic plans differ in all of the following ways except
a. time frame.
b. scope.
c. known set of organizational objectives.
d. environmental effects.
(d; Moderate; p. 92)

66
 Chapter 3 – Foundations of Planning

60. Which of the following is an argument against formal planning?

a. Planning focuses on the past.
b. Planning may create rigidity.
c. Planning cannot replace creativity.
d. All of the above.
(d; Moderate; p. 91)

61. Strategic plans include

a. the formulation of objectives.
b. financial information.
c. participation from all levels.
d. benchmarking.
(a; Moderate; p. 92)

62. _________ plans have the broadest organizational focus and the longest time frame.
a. Tactical
b. Strategic
c. Directional
d. Operational
(b; Moderate; p. 92)

63. The greater the uncertainty, the more plans should be of the _____ variety.
a. long-term
b. short-term
c. intermediate in length
d. rigid
(b; Challenging; p. 93)

64. When uncertainty is high and management must maintain flexibility, which of the
following types of plans are preferable?
a. long-term plans
b. no plans
c. directional plans
d. specific plans
(c; Moderate; p. 93)

65. Which type of plan is used to meet a particular or unique situation?

a. tactical plan
b. operational plan
c. single-use plan
d. standing plan
(c; Easy; p. 94)

66. _____ plans have clearly defined objectives.

a. Directional
b. Flexible
c. Specific
d. Standing
(c; Moderate; p. 93)

67
Part II - Planning

67. At Quest Diagnostics, a Medical Blood Testing Company, every test must be
performed in exactly the same way to meet Federal Health and Regulatory Guidelines.
The plans for conducting these tests are called _________ plans
a. tactical
b. strategic
c. standing
d. project
(c; Moderate; p. 94)

68. MBO links objectives at one level to which of the following?

a. top management
b. middle management
c. first-line management
d. the next level
(d; Moderate; p. 95)

69. MBO makes objectives _____ by devising a process in which they cascade down
through the organization.
a. operational
b. realistic
c. strategic
d. directional
(a; Easy; p. 94)

70. Which of the following is not a step in objective setting?

a. Specify deadlines.
b. Allow the employee to actively participate.
c. Link rewards to effort.
d. Prioritize goals.
(c; Challenging; p. 97)

71. When Maria Murdock assists her employees with setting objectives, she establishes
specific and challenging goals for each key task. Which of the following would she not
advise employees to do?
a. Specify the target for the employee to hit.
b. Specify the goal when the employee cannot think of anything.
c. Specify the deadlines for each goal.
d. Identify the level of performance expected of each employee.
(b; Moderate; p. 897)

72. Each MBO objective must have

a. a percentage change specified.
b. a concise time period.
c. a reference to quality.
d. a specified dollar amount.
(b; Moderate; p. 96)

68
 Chapter 3 – Foundations of Planning

73. What types of goals produce higher levels of output?

a. goals of moderate difficulty
b. generalized goals such as "do your best"
c. specific, hard goals
d. easy goals
(c; Moderate; p. 96)

74. MBO advocates participative goal setting. Research comparing participative set and
assigned goals on performance
a. shows consistently higher performance with participatively set goals.
b. shows consistently lower performance with participatively set goals.
c. has not shown any strong or consistent relationships.
d. has been biased by the researchers.
(c; Challenging; p. 97)

75. Which of the following is not an ingredient in MBO programs?

a. goal specificity
b. participative decision making
c. performance feedback
d. general time period
(d; Moderate; p. 96)

76. Managers can overcome the criticisms of management by objectives by

a. ensuring that employees have multiple goals.
b. treating MBO as a single-event activity.
c. punishing employees who fail to achieve goals.
d. rewarding employees for setting easy goals.
(a; Moderate; p. 98)

77. Managers should treat MBO as an ongoing activity, which means that goals should be
regularly reviewed and _____.
a. rewarded
b. scrapped
c. updated
d. delegated
(c; Moderate; p. 98)

78. The Director of Marketing at Warner Publications sends out a broad, flexible plan that
sets out the guidelines and targets for sales every year. This plan is called a
_____________ plan.
a. tactical
b. strategic
c. directional
d. standing
(c; Moderate; p. 93)

69
Part II - Planning

79. A project plan is an example of a(n)________plan.

a. tactical
b. operational
c. standing
d. single-use
(d; Challenging; p. 94)

80. Which of the following is not a component of the MBO process?

a. Objectives are determined jointly by subordinates and supervisor
b. Progress towards objectives is reviewed every three months.
c. Employees are given ratings based on reaching specific targets
d. Rewards are based on progress towards achieving objectives.
(c; Challenging; p. 94)

81. Which of the following is not one of the steps to follow in setting objectives for
employees?
a. Encourage active employee participation.
b. Link rewards to achievement of goals.
c. Establish a specific and accurate measurement system.
d. Prioritize goals in terms of importance and difficulty.
(c; Moderate; p. 97)

82. Studies have supported the premise that companies that plan strategically
a. have no better financial measurements than those without plans.
b. have better financial measurements than those without plans.
c. have more satisfied employees than those without plans.
d. have less satisfied employees than those without plans.
(b; Moderate; p. 98)

83. Which of the following is a nine-step process that involves strategic planning,
implementation, and evaluation?
a. decision-making process
b. strategic management process
c. tactical management process
d. long-range planning process
(b; Moderate; p. 99)

84. In which step of the strategic management process does an organization find out what
its competition is doing, what legislation is pending, and what customers desire?
a. Step 1: identify the organization's current mission, objectives, and strategies.
b. Step 2: analyze the environment.
c. Step 3: identify opportunities and threats.
d. Step 4: analyze the organization's resources.
(b; Moderate; p. 99; Ex. 3-5)

70
 Chapter 3 – Foundations of Planning

85. The owner of a chain of supermarkets sets a goal of opening up ten new stores in new
locations within the next six years. This is a _______ plan?
a. short-range
b. standing
c. long range
d. directional
(c; Moderate; p. 98)

86. In environmental SWOT analysis, the external organizational position is analyzed

according to its
a. strengths and weaknesses.
b. opportunities and weaknesses.
c. strengths and threats.
d. opportunities and threats.
(d; Moderate; p. 102)

87. The starting point in strategic management process is usually

a. analyzing current mission, strategies and objectives.
b. identifying opportunities and threats.
c. conducting an environmental scan.
d. identifying opportunities and weaknesses.
(a; Moderate; p. 99)

88. The importance of environmental scanning (outside of national security agencies) was
first recognized by firms in the _____ industry.
a. television
b. advertising
c. computer
d. life insurance
(d; Moderate; p. 100)

89. A fast growing area of environmental scanning is

a. competitive intelligence.
b. human resource planning.
c. global positioning.
d. demographic analysis.
(a; Easy; p. 100)

90. In conducting a SWOT analysis, a company’s ____________ are examined by

questions about internal resources and skills possessed by the company.
a. competencies
b. strengths
c. capabilities
d. opportunities
(b; Moderate; p. 102)

71
Part II - Planning

91. Krispy Kreme has a distribution network that allows fresh doughnuts to be transported
to convenience stores, and supermarkets. Krispy Kreme outlets before dawn so that
consumers can enjoy them. This is a unique source of competitive advantage for
Krispy Kreme known as a(n)_________.
a. organizational strength
b. core competency
c. organizational capability
d. strategic opportunity
(b; Challenging; p. 102)

92. After analyzing and learning about the environment, management needs to evaluate
opportunities and threats. Opportunities are
a. internal resources.
b. unmet needs.
c. positive external environmental factors.
d. internal competitive strategies.
(c; Moderate; p. 101)

93. Which of the following is not true about strong organizational culture?
a. It is difficult for management to convey to new employees the organization's core
competency.
b. It may act as a barrier to change.
c. Almost all employees have a clear understanding of what the organization is about.
d. It is difficult to change.
(a; Moderate; p. 102)

94. Which of the following is not one of the grand strategies?

a. growth
b. stability
c. retrenchment
d. cost-leadership
(d; Moderate; p. 103)

95. Tim's Company is analyzing the technology that allows it to produce wireless
communication equipment for less money. This technological breakthrough for Tim's
Company is which of the following?
a. strength
b. weakness
c. opportunity
d. threat
(c; Moderate; p. 102)

96. When Northwest Airlines began serving its own in-flight meals, which of the following
strategies was it pursuing?
a. growth
b. stability
c. retrenchment
d. combination
(a; Challenging; p. 103)

72
 Chapter 3 – Foundations of Planning

97. Larry's Company is in the process of buying a smaller competitor and incorporating
that company's resources into his business. This is an example of which of the
following types of strategies?
a. merger
b. stability
c. retrenchment
d. acquisition
(d; Moderate; p. 103)

98. The fact that The Nordstrom Company has a very strong culture that embraces service
and customer satisfaction makes it also difficult to create change; this is an example of
the fact that culture can be ____________.
a. a source of competitive advantage
b. critical resource
c. a core competency
d. Both a strength and a weakness.
(d; Moderate; p. 102)

99. NUCOR is so efficient in its steel production and casting processes that it is the only
U.S. steel producer that regularly exports its products directly to Japan. This is an
example of NUCOR’s
a. organizational capability.
b. strategic opportunities.
c. core competency.
d. competitive advantage.
(c; Moderate; p. 102)

100. There are many healthcare products manufacturers. Forrest Labs Drug Company
manufactures only personal hygiene products. It markets such products deodorant,
body powder, body creams, and exfoliates. Because it only stocks body care and
personal hygiene products, it is using a(n) _____ strategy.
a. prospecting
b. emergent
c. focus
d. cost leadership
(c; Moderate; p. 105)

101. Strategy formulation involves__________.

a. developing and evaluating a set of alternative strategies
b. evaluating a set of alternative strategies and selecting the best for each level
c. selecting a strategy that will increase the level of operations
d. completing a SWOT analysis
(b; Challenging; p. 105)

102. _____ occurs when Navistar a large shipping company buys smaller tugboat
operations in several major ports and incorporates them into their operations.
a. A merger
b. An acquisition
c. A combination strategy
d. A growth strategy
(b; Moderate; p. 103)

73
Part II - Planning

103. Growth through direct expansion involves increasing company size, revenues,
operations, or _____.
a. assets
b. workforce
c. profits
d. foreign subsidiaries
(b; Challenging; p. 103)

104. Stacy's Company continues to offer the same quality beauty products it has for the last
10 years. The company is successful and has no current plans for change. Which of
the following types of strategies is it employing?
a. growth
b. stability
c. retrenchment
d. combination
(b; Moderate; p. 104)

105. Susan's Ceramics is expanding the size of its unfinished products while decreasing the
amount of firing and finishing of products it does. This is known as which of the
following strategies?
a. growth
b. stability
c. retrenchment
d. combination
(d; Moderate; p. 104)

106. Michael Porter proposed that management must select a(n) _____, which will give its
unit a distinct advantage by capitalizing on the strengths of the organization and the
industry it is in.
a. growth opportunity
b. competitive strategy
c. organizational chart
d. vision
(b; Moderate; p. 105)

107. A company that states that its product is reliable, even to the extent of never needing a
service call, such as Maytag, is practicing which of the following competitive
strategies?
a. cost-leadership strategy
b. differentiation strategy
c. focus strategy
d. retrenchment strategy
(b; Challenging; p. 105)

74
 Chapter 3 – Foundations of Planning

108. A candy store that places its expensive chocolates only in fine hotels and restaurants
frequented by the very rich is using which of the following competitive advantage
strategies?
a. cost-leadership strategy
b. differentiation strategy
c. focus strategy
d. retrenchment strategy
(c; Challenging; p. 105)

109. Lila's Luscious Lips produces a cherry flavored lipstick and is targeting the "teen" girl
who is between 12 and 14 years old. The strategy pursued is
a. cost leadership.
b differentiation.
c. focus.
d. segmentation.
(c; Moderate; p. 105)

110. Porter's term for an organization that cannot use one of his three strategies is
a. derailed.
b. on a limb.
c. noncompeting.
d. stuck in the middle.
(d; Moderate; p. 105)

111. Companies achieving ISO 14000 certification have demonstrated that they are
a. cost efficient.
b. in compliance with human resource laws.
c. environmentally responsible.
d. good corporate citizens.
(c; Moderate; p. 108)

112. The premise behind _____ is to design in quality as the product is being made.
a. six sigma
b. TQM
c. reengineering
d. benchmarking
(a; Moderate; p. 108)

113. All of the following involve increasing a companies’ size, markets, assets, or products
except a(n) ________________.
a. merger
b. acquisition
c. retrenchment
d. growth
(c; Easy; p. 104)

75
Part II - Planning

114. The HUMMER television ads frequently show the company’s SUVs being driven under
very challenging off-road conditions and over difficult terrain in order to impress
consumers with how well built the vehicles are and to create the impression that the
HUMMER Volvos are among the most rugged cars on the market. What type of
competitive business strategy is Hummer using?
a. Focus
b. Overall cost leadership
c. Differentiation
d. Growth
(c; Moderate; p. 105)

115. Rochester Big and Tall is a small chain of clothing retailers that sell exclusively only to
men. Its quality materials, variety of styles and range of prices, and _____ strategy
create a competitive advantage for the chain.
a. differentiation
b. overall cost leadership
c. focus
d. combination
(c; Easy; p. 105)

116. Which of the following is not one of the steps in the Six Sigma 12-Step Process?
a. Define performance standards.
b. Redesign work processes.
c. Establish current process capability.
d. Identify sources of variation.
(b; Challenging; p. 108; Ex. 3-7)

117. Entenmann’s Baking Company produces cakes, pies, and other prepared foods. It is
one of the largest producers of baked goods in the Northeastern United states yet, it
spends less than $2000.00 a year on advertising, and sells its product in large
supermarkets and grocery stores for 1/2-1/3 the cost of its competitors. This company
pursues a(n) _____ strategy.
a. combination
b. overall cost leadership
c. focus
d. differentiation
(b; Moderate; p. 105)

118. The quality philosophy that focuses on the input side of the production process is
a. TQM.
b. six sigma.
c. reengineering.
d. benchmarking.
(b; Moderate; p. 108)

76
 Chapter 3 – Foundations of Planning

119. Peter Drucker, a well-known management author, believes that entrepreneurs can find
opportunities in _____.
a. the unexpected
b. the incongruous
c. the process need
d. All of the above.
(d; Challenging; pp. 110-111)

120. _____ is a process by which individuals pursue opportunities, fulfilling needs and
wants through innovation, without regard to the resources they currently control.
a. Small business ownership
b. Innovative Management 2000
c. Entrepreneurship
d. Privatization
(c; Easy; p. 109)

Scenario-Based Questions

Application of MBO

Kay was excited. She had just returned from a manager's retreat where MBO had
been discussed. This had never been used in her organization before, and she was
enthusiastic about implementing the program in her department. She received the OK
from her manager, the division head, who vaguely remembered having heard of the
program several years earlier. Kay looked over the handout she had received. She
was still somewhat confused on who was to choose the goals for the employees.
However, she knew that the goals once chosen needed to be specific and have explicit
time periods attached. Even though there was a lot of work to do in order to implement
the program, Kay was excited. She knew this would prove to be beneficial to the
organization.

121. Who should develop the employee goals for the MBO program?
a. Kay
b. Kay's manager
c. employees
d. Kay and the employees
(d; Easy; p. 94)

122. Which of the following is a well-written objective to be used in MBO?

a. increase productivity
b. increase sales
c. decrease department costs by 8% over the next six months
d. decrease personnel costs
(c; Moderate; p. 96)

123. In order for MBO to work most effectively in Kay's department, which level of support

77
Part II - Planning

does she still need to receive?

a. first-line managers
b. middle managers
c. top managers
d. She does not need the support of management.
(c; Moderate; p. 97)

124. Kay knew that the research showed that MBO allows which of the following?
a. increased employee performance
b. decreased employee performance
c. increased profits
d. increased sales
(a; Challenging; p. 97)

125. Kay knew she wanted her employees to view the objectives as which of the following?
a. floors
b. ceilings
c. unobtainable in order to encourage stretching
d. challenging and yet unrealistic
(a; Challenging; p. 98)

126. Kay did not want her employees to see MBO as setting _____, which might limit their
thinking and achievements.
a. floors
b. ceilings
c. unobtainable goals
d. themselves up for failure
(b; Moderate; p. 98)

Application of SWOT Analysis

Terry had been told to reexamine the strategic niche their company held in the cosmetic
industry. Top management did not want the company caught unaware of any changes
occurring. Terry began reviewing a list of factors in his mind. There had been some negative
publicity lately due to cosmetic testing on animals. The animals were well treated, but they
were used to test new products. Positively, sales industry-wide was up 10%. Women were
buying more cosmetics in general, which was nothing but good for the company. Another
positive factor was their personnel. They had good people working in the company,
particularly in research and development. The only other negative Terry could find was that
the advertising campaign that was begun last year had not shown the results they had hoped
for. Something needed to be done in that department. Terry began to compile his report.

127. In formulating the company’s report which analysis of the following would be included
in an environmental scan?
a. current business strategies and objectives
b. strengths and weaknesses
c. opportunities and threats
d. weaknesses and threats
(c; Moderate; p. 100)

128. Which analysis would assist Terry to identify a strategic niche that the company could

78
 Chapter 3 – Foundations of Planning

exploit?
a. SWOT analysis
b. MBO
c. MBWA
d. SWAT analysis
(a; Easy; p. 102)

129. The negative publicity due to the testing of cosmetics on animals would be classified
as which of the following?
a. weakness
b. strength
c. threat
d. opportunity
(c; Moderate; p. 102)

130. The fact that sales are up 10% industry-wide because women are buying more
cosmetics would be which of the following?
a. weakness
b. strength
c. threat
d. opportunity
(d; Moderate; p. 102)

131. The quality of the company's personnel would be classified as which of the following?
a. weakness
b. strength
c. threat
d. opportunity
(b; Moderate; p. 1-2)

132. The failure of the advertising campaign would be classified as which of the following?
a. weakness
b. strength
c. threat
d. opportunity
(a; Challenging; p. 102)

133. Having a good research and development department is a real _____ for the
company.
a. asset
b. strength
c. money maker
d. opportunity
(b; Moderate; p. 102)

Application of Porter's Competitive Strategy

Stacie sighed. Her general manager had just left after giving her the latest assignment—
readdress the competitive advantage of their company. By Friday's meeting, Stacie was to
have developed three differing strategies the business could use in order to maintain its
competitive advantage. Its computer business was slowly losing market share to its

79
Part II - Planning

competitors, and everyone realized something needed to be done. Stacie glanced through the
article by Michael Porter that her manager had left with her. According to Porter, there were
three differing types of strategies they could choose from. Stacie began wondering if there
was a way they could make their computers cheaper, which would allow them to then sell at a
lower price. If they could reduce price by $100 a machine, they would be the industry leaders
in price. Stacie wondered if they could find any lower-priced suppliers for the more expensive
parts of their computers. She knew that their computers appealed particularly to small
business owners due in part to price. They were able to offer the lower price because their
computers were not as powerful or fast as some machines, but did contain the necessary
word processing, database, and spreadsheet capabilities necessary for a typical small
business owner. The lack of frills with the solid three program capabilities, plus their known
reputation for quality had worked for them in the past. Stacie wondered if perhaps they
needed to look at a smaller segment of the market, maybe small businesses with large
accounts receivables that would fully utilize their specific database. She knew that would cut
their market by 1/8 but maybe achieving a definite market niche would help. Stacie began
compiling her report for Friday's meeting.

134. The source of competitive advantage that makes the focused strategy possible by
creating unique features for a growing market segment is referred to as a
a. core capability.
b. strategic resource.
c. core competency.
d. strategic opportunity.
(c; Moderate; p. 102)

135. As the market for larger desktop computers was replaced by smaller portable hand-
held models, there has been a decline in sales of traditional models regardless of how
much the price is reduced. At this point, what type of strategy should be pursued by
Stacey’s group?
a. cost-leadership strategy
b. differentiation strategy
c. focus strategy
d. retrenchment strategy
(d; Moderate; p. 104)

136. The competitive advantage focusing on a lower price would be a

a. cost-leadership strategy.
b. differentiation strategy.
c. focus strategy.
d. retrenchment strategy.
(a; Easy; p. 105)

137. The competitive advantage based upon their known reputation among small business
owners for a computer with few frills, but the capabilities of performing word
processing, databases, and spreadsheets would be known as a
a. cost-leadership strategy.
b. differentiation strategy.
c. focus strategy.
d. retrenchment strategy.
(b; Moderate; p. 105)
138. The competitive advantage based upon developing the market of small businesses

80
 Chapter 3 – Foundations of Planning

that had a specific need for a database with the capability for a large accounts
receivable billing, would be which of the following?
a. cost-leadership strategy
b. differentiation strategy
c. focus strategy
d. retrenchment strategy
(c; Moderate; p. 105)

139. The long-term success of any competitive strategy Stacie develops requires that the
advantage be which of the following?
a. profitable
b. similar to the strategy used by the competition
c. sustainable
d. dissimilar to the strategy used by the competition
(c; Challenging; p. 106)

140. Stacie knew that in order to keep its competitive advantage, her company would have
to do which of the following?
a. remain profitable
b. lower price
c. take constant action
d. hire new management
(c; Challenging; p. 106)

141. Stacie knew that the strategy management would depend on the organization’s _____
and its competitors’ _____.
a. weaknesses; strengths
b. opportunities; threats
c. strengths; threats
d. strengths; weaknesses
(d; Moderate; p. 105)

Short Discussion Questions

142. Discuss the difference between strategy formulation and implementation.

(Moderate; pp. 105-106)

Strategy formulation involves the development and evaluation of alternative strategies.

Strategy implementation means selecting a set of strategies at a given level and providing the
resources, plans and actions to capitalize on the opportunities available in the environment.

143. What is the difference between short term and long-term planning?
(Easy; p. 93)

Short-term plans cover less than one year.

Long-term plans extend beyond five years
With respect to the degree of variability, the greater the uncertainty, the more plans should be
of the short-term variety.

144. Discuss the difference between strengths and opportunities in relation to competitive
advantage.

81
Part II - Planning

(Moderate; pp. 105-106)

Which strategy management chooses depends on the organization’s strengths

and its competitors’ weaknesses. The organization should put its strength where the
competition isn’t. Success, then, depends on selecting the right strategy, the one that fits the
complete picture of the organization and the industry of which it is a part. In so doing,
organizations can gain the most favorable competitive advantage.
An increasing number of organizations are applying quality practices to build a competitive
advantage. To the degree that an organization can satisfy a customer’s need for quality, it can
differentiate itself from the competition and attract and hold a loyal customer base. Moreover,
constant improvement in the quality and reliability of an organization’s products or services
can result in a competitive advantage others cannot steal. Product innovations, for example,
offer little opportunity for sustained competitive advantage. Why? Because usually they can be
quickly copied by rivals. But incremental improvement is something that becomes an
integrated part of an organization’s operations and can develop into a considerable cumulative
advantage.

145. Discuss two benefits of planning and two arguments against formal planning in an
organization.

Benefits—provide direction, reduce the impact of change, and minimize waste and
redundancy.
Arguments against—may create rigidity, cannot be used in a dynamic environment, and
cannot replace creativity and intuition.
(Moderate; pp. 89-91
146. What is the difference between strategic plans and tactical plans?

Strategic—long term; drive the organization's efforts to achieve its goals; and serve as the
basis for tactical plans.
Tactical—operational; shorter time frame; and more specific.
(Easy; p. 92)

147. Describe these characteristics of planning: breadth, time frame, specificity, and
frequency of use.

Breadth refers to strategic versus tactical. Time frame deals with long-term versus short-term.
Specificity describes directional versus specific. Frequency tells us if it is a single-use or
standing plan.
(Moderate; p. 92)

148. What is environmental scanning?

Screening large amounts of information to detect emerging trends and create a set of
scenarios; competitive intelligence is one of the largest growing areas of environmental
scanning.
(Easy; p. 100)

149. Explain benchmarking, ISO 9000, and six sigma.

82
 Chapter 3 – Foundations of Planning

Benchmarking—searching for best practices among competitors.

ISO 9000—independent auditors attest to an organization's meeting quality standards defined
by the International Organization for Standardization.
Six sigma—philosophy of management that seeks to "design in" quality as a product is being
made.
(Moderate; pp. 106-108)

150. What factors regularly sit on the top of most lists that profile the entrepreneurial
personality?

Entrepreneurs have a high need for achievement, believe strongly that they can control their
own destinies, and take only moderate risks.
(Easy; pp. 110-111)

Medium Length Discussion Questions

151. Describe SWOT analysis and explain how it is used.

SWOT analysis is a strategic planning tool that brings together and analyzes the
organization’s internal Strengths, Weaknesses, and external Opportunities, and Threats, in
order to identify a strategic niche that can be exploited. It is used to reassesses the
organization’s mission, strategies, plans and objectives. In a strategic analysis, environmental
analysis is conducted to identify Opportunities, which are positive external environmental
factors. Threats are negative ones. Then plans are developed to exploit opportunities and
minimize threats. Next, the manager evaluates the organization’s strength’s--Strengths
(strategic) are internal resources or things that the organization does well. These strengths
can be used to build competitive advantage. When an organization lacks certain resources or
skills, or identifies activities the firm does not do well, these are called weaknesses. The
organization needs to minimize the impact of weaknesses.
(Moderate; pp. 102-103)

152. Compare and contrast the following: strategic plans, tactical plans, specific plans and
directional plans.

Strategic plans—cover an extensive time period, cover broad issues, and include the
formulation of objectives.
Tactical plans—cover shorter time periods, focus on specifics, and assume objectives are
known.
Directional plans—provide a general direction of where the company is headed, not the
specifics of how to get there.
(Moderate; pp. 92-93)

153. Explain in detail who is to determine the objectives in MBO and why.

Objectives are jointly determined by employees and their bosses so that the goals established
are participatively set, which frequently will lead to higher employee performance. Goals
should cascade down throughout the organization using this approach.
(Moderate; p. 94)
154. What are the four ingredients common to MBO programs?

The four ingredients are goal specificity, participative decision making, an explicit time period,

83
Part II - Planning

and performance feedback.

(Easy; p. 96)

155. How can you set employee objectives in MBO?

Setting objectives is a skill that every manager needs to perfect. You can better facilitate this
process by following these guidelines: 1) identify an employee’s key job tasks, 2) establish
specific and challenging goals for each key task, 3) allow the employee to actively participate,
4) prioritize goals, 5) build in feedback mechanisms to assess goal progress, and 6) link
rewards to goal attainment.
(Challenging; p. 97)

Comprehensive Essays

156. Describe Porter’s Model and explain how a manager would use it to develop a strategy
to achieve competitive advantage.

Michael Porter of Harvard’s Graduate School of Business has developed a strategic

framework. Porter’s competitive strategy framework has generic competitive strategies.
His underlying principle is that no firm can successfully perform at an above-average
profitability level by trying to be all things to all people. Competitive advantage is achieved by
fitting or tailoring the right strategy to the specific business or industry or competitive situation.
According to Porter, management must select a competitive strategy that will give it a distinct
advantage by capitalizing on the strengths of the organization and the industry it is in.
He has identified three generic strategies: cost-leadership, differentiation, and focus
strategies.
The low-cost producer in its industry is following a cost-leadership strategy. Success requires
that the organization be the cost leader; the product or service being offered must be
perceived as comparable to rivals, or at least acceptable to buyers.
A differentiation strategy is followed when a firm seeks to be unique in its industry in ways that
are widely valued by buyers. It might emphasize high quality, extraordinary service, innovative
design, technological capability, or an unusually positive brand image. The focus strategy
aims at a cost advantage (cost focus) or differentiation advantage (differentiation focus) in a
narrow segment. The goal is to exploit opportunities in a narrow segment of a market.
(Moderate; pp. 105-106)

157. How is competitive intelligence useful?

It seeks basic information about competitors, such as who they are, what they are doing, and
how will their actions affect our company. This information helps an organization to make
crucial decisions. Specific data on an industry and associated organizations is important and
easily available. Databases and trade shows provide a wealth of information. The Internet and
buying competitors’ products for examination can be splendid sources of information.
(Moderate; pp. 100-101)

158. Describe SWOT analysis and how it is used in today's business.

Analyzing a business in relationship to its internal strengths and weaknesses, as well as

84
 Chapter 3 – Foundations of Planning

looking at external opportunities and threats in order to find a competitive niche to exploit.
Strengths are internal resources or things the organization does well. Weaknesses are
resources that the organization lacks or activities the firm does not do well. Opportunities are
positive external environmental factors, while threats are negative ones.
(Moderate; p. 102)

159. Choose two grand strategies and describe those strategies, giving an example of
each.

Growth—increasing the level of operations.

Stability—making no significant change.
Retrenchment—reducing the size or variety of operations.
Combination—using two or more grand strategies at the same time.
(Moderate; pp. 103-104)

85