Fundamentals of Management, 7e (Robbins/DeCenzo/Coulter)

Fundamentals of Management, 7e (Robbins/DeCenzo/Coulter)
Chapter 4 Foundations of Planning
1) All managers plan in some way, either formally or informally.

Answer: TRUE
Explanation: Planning has been identified as the primary management function, indicating that it
is the activity that managers concern themselves with most.
Diff: 1 Page Ref: 84
Objective: 4.1
2) Informal plans are not recognized to be an effective form of planning.

Answer: FALSE
Explanation: Informal plans can be highly effective and highly appropriate for some
organizations, especially those that are small in size. As organizations increase in size, the need
for formal planning tends to increase.
Objective: 4.1
3) At some point, all managers create formal plans.

Answer: FALSE
Explanation: Many managers, especially those who are part of small organizations, do not ever
resort to making systematic formal plans.
Objective: 4.1
4) Planning provides direction to managers and nonmanagers alike.

Answer: TRUE
Explanation: Part of the function of planning is to let everyone in the organization know what
the future holds, so planning is very important because it informs nonmanagers of what to expect
and how to prepare for the future.
Objective: 4.1
5) A key function of planning is to create goals.

Answer: TRUE
Explanation: Creating goals is one of four major reasons that managers plans. The other three
major functions of planning are to reduce uncertainty, reduce waste, and set goals and standards.
AACSB: Analytic Skills
Objective: 4.1
6) Informal planning typically works better in large organizations.

Answer: FALSE
Explanation: Informal planning is generally adequate only for small organizations in which a
single individual or small group can keep the plans to themselves. Once the organization grows
to a larger size, it becomes necessary for many people to have access to the organization's plans
—and that almost always requires formal planning.
Objective: 4.1
1
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7) The four reasons that organizations plan is to provide direction, set standards, minimize waste,
and reduce uncertainty and the impact of change.
Answer: TRUE
Explanation: Direction tells organization members where the organization is going with respect
to goals and objectives. Standards identify the goals of the organization. Minimizing waste and
redundancy makes the organization efficient. Reducing the impact of change makes the
organization more able to avoid the damage that change can bring on and to take advantage of
the opportunities that changes often presents.
Objective: 4.1
8) Planning rarely improves teamwork and cooperation among employees.

Answer: FALSE
Explanation: In fact, teamwork and cooperation are two things that planning often helps most.
The better the plans are, the more coordinated the organization's efforts tend to be.
Objective: 4.1
9) An organization that fails to plan will find it hard to assess progress.

Answer: TRUE
Explanation: Goals and standards developed in the planning process give the organization
something to compare its performance against. Without clearly identified goals and standards, an
organization has no idea of how to judge whether or not it has succeeded or failed.
Objective: 4.1
10) A major argument against formal plans is that they can't replace intuition and creativity.
Answer: TRUE
Explanation: Formal plans typically cannot avoid being more rigid than informal plans, leaving
less room for using intuition, spontaneity, and creativity.
Objective: 4.1
11) Formal planning can increase creativity in an organization.

Answer: TRUE
Explanation: If done well, formal plans can enhance, rather than stifle creativity. The key is for
the formal plans to be flexible enough to allow creativity to be employed.
Objective: 4.1
2
12) Managers who make formal plans are more likely to help an organization "break the mold"
and carry out truly groundbreaking work that redefines an entire industry.
Answer: FALSE
Explanation: Formal plans tend to focus on existing opportunities in the current climate rather
than the opportunities of the future that are as yet unimagined. Therefore, formal plans are likely
to impede, rather than promote, truly groundbreaking work.
Objective: 4.1
13) A major strength of formal planning is that it reinforces past successes and incorporates them
into the future.
Answer: FALSE
Explanation: Focusing on past successes is a weakness, not a strength of formal planning.
Formal plans tend to fixate on what worked well in the past, not what might work well in the
changed circumstances of the future.
Objective: 4.1
14) A major strength of formal planning is that it makes an organization rigid.

Answer: FALSE
Explanation: Rigidity is a weakness of formal planning. Formal planning can lock an
organization into a preset sequence of events that might not be able to cope with changing
conditions and circumstances.
Objective: 4.1
15) A major strength of formal planning is that it generally correlates with higher profits.
Answer: TRUE
Explanation: Studies show that organizations that use formal planning generally have higher
profits than those that don't use formal planning.
Objective: 4.1
16) Successful planning depends more on what managers plan than the quality of their planning.
Answer: FALSE
Explanation: Evidence shows that organizations often fail not because they focused their
planning efforts on the wrong things, but rather that the quality of their planning was deficient.
Objective: 4.1
3
17) Research indicates that organizations that don't use formal planning always outperform
organizations that do use formal planning.
Answer: FALSE
Explanation: To the contrary, evidence from studies shows that planning organizations generally
outperform non-planning organizations.
Objective: 4.1
18) Strategic management is the act of figuring out how an organization will compete in the
marketplace and attract loyal customers.
Answer: TRUE
Explanation: Strategic management involves developing an organization's strategies. Those
strategies involve making plans for how an organization will do business and achieve its goals.
Objective: 4.3
19) The first step in the strategic management process is analyzing the external environment.
Answer: FALSE
Explanation: The first step in the strategic management process is for the organization to
identify its goals, mission, and strategies. Only then can it move on to start analyzing its external
situation.
Objective: 4.3
20) A mission statement for a kayak manufacturer might be: To make the highest-quality kayaks
and sell them at a competitive price.
Answer: TRUE
Explanation: A mission statement defines what the organization is in business to do. This
statement clearly states why the kayak company is in business.
Objective: 4.3
21) An external analysis will identify the threats to a company's well-being, but not opportunities
for success.
Answer: FALSE
Explanation: An external analysis, the second step in the strategic management process, involves
not just identifying threats to an organization, but also finding opportunities that the organization
can take advantage of.
Objective: 4.3
4
22) Core competencies include an organization's major capabilities and its resources.
Answer: FALSE
Explanation: Core competencies include the capabilities of an organizational—its skills and
abilities only—not its resources.
Objective: 4.3
23) Capabilities are "what" an organization has; resources are "how" it uses what it has.
Answer: FALSE
Explanation: The statement has it reversed. Capabilities are what an organizational can do;
resources are strengths and assets that it has.
Objective: 4.3
24) SWOT analysis includes the identification of an organization's strengths, weaknesses,

opportunities, and threats.
Answer: TRUE
Explanation: The term SWOT is an acronym for strengths, weaknesses, opportunities, and
threats.
Objective: 4.3
25) The final three steps in the strategic management process involve the creation and
implementation of strategies for realizing organizational goals.
Answer: TRUE
Explanation: The last three steps in the strategic management process are: formulating
strategies, implementing strategies, and evaluating results. Together, these steps create and carry
out strategies that help an organization attain its goals and objectives.
Diff: 2 Page Ref: 87-89
Objective: 4.3
26) A corporate strategy may be a growth strategy, a stability strategy, or a renewal strategy.
Answer: TRUE
Explanation: The three major corporate strategies are growth strategies that focus on expansion,
stability strategies that focus on maintaining position, and renewal strategies that focus on fixing
problems.
Objective: 4.3
27) A diversification strategy focuses on a company becoming its own supplier of inputs.
Answer: FALSE
Explanation: A company becoming its own supplier describes backward vertical integration, not
diversification.
Objective: 4.3
5
28) A company with a stability strategy will plan to dramatically increase market share in a
highly competitive market.
Answer: FALSE
Explanation: A stability strategy would tend to focus on maintaining existing market share,
rather than increasing market share.
Objective: 4.3
29) The most drastic renewal strategy an organization can carry out is a retrenchment strategy.
Answer: FALSE
Explanation: Retrenchment is less drastic than a turnaround strategy, in which a company takes
extreme steps to remake itself.
Objective: 4.3
30) "Build a better mousetrap" is a way of describing a competitive advantage.

Answer: TRUE
Explanation: Having a competitive advantage means that an organization has some kind of edge
on its competition with respect to price, quality, the product itself, or some other characteristic.
Objective: 4.3
31) Innovation and super-high quality are typically the keys to a cost-leadership strategy.
Answer: FALSE
Explanation: Efficiency, rather than innovation or quality, is the key to a cost-leadership strategy
in which a company has lower prices than its competitors.
Objective: 4.3
32) A focus strategy seeks to appeal to a narrow segment of a market.

Answer: TRUE
Explanation: An example of a focus strategy is a super premium ice cream that tries to appeal to
a narrow, but important segment of the market.
Objective: 4.3
33) Customer service cannot be considered a strategic weapon for an organization.

Answer: FALSE
Explanation: Anything that a company has or does that gives it an edge on its competition
qualifies as a strategic weapon. Since customer service can serve as such an edge, it can be
considered a strategic weapon.
Objective: 4.3
6
34) Southwest Airlines studied race car pit crews as an example of benchmarking.
Answer: TRUE
Explanation: Benchmarking involves learning practices from other organizations that can be
applied to your own organization, so learning maintenance speed from race car crews definitely
qualifies as benchmarking.
Objective: 4.3
35) Goals are documents that outline how plans are to be carried out.
Answer: FALSE
Explanation: Goals are desired targets or outcomes, not outlines of how plans are to be carried
out.
Objective: 4.4
36) Traditional goal setting requires top managers to set goals that are carried out by the
organizational levels below.
Answer: TRUE
Explanation: Traditional goals are set by top managers and distributed to the levels below. Non-
traditional goal setting can be accomplished by others in the organization who are not necessarily
at the top of the pyramid.
Objective: 4.4
37) The key to MBO, or management by objectives, is that managers and subordinates mutually
agree on goals.
Answer: TRUE
Explanation: MBO includes both managers and subordinates in the process of setting goals.
With subordinates participating in the process, the likelihood of misunderstanding and
resentment is reduced.
Objective: 4.4
38) Goals typically should be reserved for managers only. Goals should not be shared with
subordinates.
Answer: FALSE
Explanation: Ideally, goals should be shared with any and all employees who have a need to
know what those goals are.
Objective: 4.4
39) Long-term plans used to refer to plans that covered a period of over three years, but now it
refers to any time period over one year.
Answer: FALSE
Explanation: Long-term plans in fact used to refer to plans that covered periods of over seven
years. Now long-term plans cover a time period of three years or more.
Objective: 4.4
7
40) A six-month plan qualifies as a short-term plan.
Answer: TRUE
Explanation: Short-term plans are defined as plans of one year or less, so a six-month plan
qualifies as a short-term plan.
Objective: 4.4
41) Directional plans leave no room for interpretation.

Answer: FALSE
Explanation: Directional plans are designed to be flexible so they have more, not less room for
interpretation than specific plans.
Objective: 4.4
42) In general, upper-level managers focus on tactical or operational planning.

Answer: FALSE
Explanation: Upper-level managers usually focus on strategic plans, while lower-level managers
take care of operational planning.
Objective: 4.4
43) Buying a competitor's product for evaluation is a form of environmental scanning.

Answer: TRUE
Explanation: Environmental scanning involves surveying the competitive environment to detect
emerging trends. Buying a competitor's product would help an organization understand its
environment, so it would qualify as environmental scanning.
Objective: 4.4
44) Which of the following is NOT a function of planning?

A) defining goals
B) identifying a strategy for attaining goals
C) settling disputes between employees
D) coordinating organizational activities
Answer: C
Explanation: C) Defining goals, identifying strategies for attaining goals, and coordinating
organizational activities are all recognized functions of planning, whether it is formal or
informal, so these choices are incorrect. Settling disputes is not something that can be planned
for, since most disputes are spontaneous and can occur at any time over any issue. This means
that settling disputes is not a function of planning, therefore making that the correct response.
Objective: 4.1
8
45) Planning is concerned with ________.
A) both ends and means
B) ends only
C) means only
D) neither ends nor means
Answer: A
Explanation: A) Planning is concerned with goals or ends, as well as how those goals are
reached, or means. Therefore, the choice indicating both ends and means is the correct response
and all of the other responses are incorrect.
Objective: 4.1
46) In informal planning, goals are usually ________ shared with others in the organization.
A) written, but little is
B) unwritten and little is
C) written and much is
D) unwritten, but much is
Answer: B
Explanation: B) A key difference between formal and informal planning is that informal
planning rarely involves recording the plans in written form. Informal planners also typically
keep their plans to themselves, or share them with few others. Together, these factors make the
choice indicating "unwritten and much" is the correct response. The two choices indicating
"written" can be immediately ruled out because informal plans are not written. "Unwritten but
much is" can be ruled out because little is shared with informal plans.
Objective: 4.1
47) Informal planning is ________.

A) always performed at the lowest organizational level
B) general and usually lacks continuity
C) performed exclusively by middle managers
D) more specific than formal planning
Answer: B
Explanation: B) Informal plans are typically not specific and performed by leaders or owners
rather than by middle managers or individuals on the lowest organizational level, ruling out all of
these choices. This leaves the correct response, as it correctly states that informal plans are
usually non-specific and lacking in continuity.
Objective: 4.1
9
48) In formal planning, ________.
A) specific goals covering a period of years are defined
B) to maximize flexibility, specific goals are never spelled out
C) very broad general goals are developed
D) goals may be written or unwritten
Answer: A
Explanation: A) Formal planning requires written, not unwritten plans and specific, rather than
general goals. Since only the choice regarding specific goals covering a period of years identifies
specific goals, it is the correct response.
Objective: 4.1
49) Which of the following is NOT a reason for managers to plan?

A) to give direction to an organization
B) to deal with change
C) to establish goals
D) to establish responsibility for mistakes
Answer: D
Explanation: D) Planning provides an organization with direction, goals, and a way to deal with
change. Since all of these choices are reasons for a manager to plan, they can be ruled out as the
correct response for this question. Blaming people for mistakes is not a function of planning so
establishing responsibility for mistakes is the correct response for this question.
AACSB: Ethical Understanding and Reasoning Abilities
Objective: 4.1
50) Planning gives organizations direction that primarily helps them ________.
A) improve teamwork and coordinate activities
B) improve their image in the business community
C) improve morale of middle managers
D) improve morale of all employees
Answer: A
Explanation: A) Direction provides a common path for all employees in an organization, thus
helping employees work together in a coordinated, cooperative effort. This makes improving
teamwork and coordinating activities the correct response since it mentions teamwork and
coordination. Planning is not concerned with organizational morale or image so all of those
choices can be ruled out as correct responses.
Objective: 4.1
10
51) Planning gives organizations a way to deal with change that ________.
A) eliminates all uncertainty
B) reduces uncertainty
C) reduces certainty
D) increases ambiguity
Answer: B
Explanation: B) A key function of planning is to help organizations deal with uncertainty,
making the choice regarding reducing uncertainty the correct response. Uncertainty
unfortunately cannot be completely eliminated, so that is not the correct response here. Reducing
certainty or increasing ambiguity are both tantamount to increasing, rather than decreasing
uncertainty, so they are incorrect responses.
Objective: 4.1
52) Organizations that don't formally plan may be more likely to have ________.
A) corrupt managers
B) legal problems
C) multiple departments performing the same task
D) a single department carrying out all company functions
Answer: C
Explanation: C) A major advantage to formal planning is that it reduces redundancy. That means
that organizations that don't carry out formal plans would be more likely to have more than one
department carrying out the same task, making that the correct response. Formal planning has
little effect on corruption or legal problems so those choices can be ruled out. A single
department carrying out all company functions is essentially the opposite of redundancy so it too
can be ruled out.
Objective: 4.1
53) One effect of planning on managers is that it forces them to ________.

A) fear change
B) anticipate and consider the effect of change
C) work to prevent change
D) ignore any change that doesn't directly affect them
Answer: B
Explanation: B) A major benefit of planning is that it forces managers to think systematically
about the future. Rather than fear change, try to prevent change, or ignore change, planning
requires managers to think constructively about change and its consequences.
Objective: 4.1
11
54) Managers who fail to plan may ________.
A) take advantage of change
B) stimulate change
C) be positively affected by change
D) be adversely affected by change
Answer: D
Explanation: D) Change can be disruptive and even destructive in the best of circumstances, so
managers who fail to plan thoughtfully are likely to suffer negative consequences of change,
making "being adversely affected" the correct response. Without planning, managers are likely to
be surprised by change, making it highly unlikely that they would be able to benefit or in any
way be positively affected by the change—making these choices incorrect. There is no
connection between planning and stimulating change so "stimulating change" would also be an
incorrect response for this question.
Objective: 4.1
55) Which of the following is a frequently cited criticism of formal planning?

A) Plans lock organizations into rigid goals and timetables.
B) Plans take too long to create.
C) Plans create resentment within different levels of the organization.
D) Formal planning works well only for smaller companies.
Answer: A
Explanation: A) Planning works better for larger rather than smaller companies. Few serious
complaints are ever voiced that planning is too time-consuming or that it creates discord, making
these responses incorrect. What planning does do is lock organizations into commitments that are
sometimes overly confining or destructive, making that the correct response.
Objective: 4.1
56) One criticism of formal planning is that it focuses on how to beat the competition rather than
how to ________.
A) have cordial relationships with the competition
B) focus on new opportunities
C) balance the organization's budget
D) cooperate with the competition
Answer: B
Explanation: B) Critics of planning do not complain that planning focuses too much on
organizational budgets or too-close relationships of an organization with its rivals. Critics do
complain that organizations that put too much emphasis on planning end up being small-minded
and myopic as they spend all of their energy trying to beat the competition rather than in being
innovative and creating whole new products or industries. This makes "focus on new
opportunities" the correct response.
Objective: 4.1
12
57) Failing to discard successful plans from the past is likely to lead to ________.
A) more success because conditions are unlikely to change in the future
B) failure because conditions are likely to change in the future
C) success because of the high quality of the plans
D) failure because of the low quality of the plans
Answer: B
Explanation: B) The trouble with focusing too much on successes of the past is that it is rare that
these successes can be duplicated in the changed circumstances of the future. So organizations
that rigidly stick to a tried-and-true success formula can get "burned" when conditions change.
This makes "failure because conditions are likely to change" the correct response and eliminates
the other choices.
Objective: 4.1
58) Studies of performance in organizations that plan have reached ________ with respect to the
benefits of formal planning.
A) somewhat negative conclusions
B) no conclusion
C) extremely negative conclusions
D) generally positive conclusions
Answer: D
Explanation: D) Studies have shown that formal planning usually results in higher profits and
general financial and organizational success, making "generally positive conclusions" the correct
response. Both choices regarding negative conclusions can be ruled out because they indicate
negative, rather than positive outcomes for formal planning. The choice indicating no conclusion
can be ruled out because it fails to indicate a positive outcome for formal planning.
Objective: 4.1
59) Studies of planning show that the key to successful planning is to make sure that the plans
________.
A) cover every possible detail
B) are high in quality and insight
C) are exceedingly simple to follow
D) are not shared with employees
Answer: B
Explanation: B) Success in planning seems to hinge more on the quality of the planning itself
rather than the the subject of the planning. A company may focus its plans on all of the right
topics, but unless those plans are systematic, comprehensive, and high in insight, they will not
provide successful direction for the organization. These factors make the choice indicating "high
in quality and insight" the correct response. Whether or not details are covered, plans are easy to
follow, or plans are shared extensively matter less than the quality of the plans themselves.
Objective: 4.1
13
60) In studies in which high-quality formal planning did not lead to higher performance,
________ usually the culprit.
A) unforeseen events or conditions were
B) demanding employees were
C) stubborn ownership was
D) lack of communication was
Answer: A
Explanation: A) Even the best plans can be foiled by unforeseen events, such as economic
disruptions or political turmoil—meaning that "unforeseen events or conditions" is the correct
response for this question. Plans can only take into account known events of the past, they can't
anticipate unknown future events, especially highly unlikely future events. When it comes to
spoiling plans, such things as demanding employees, stubborn owners, or poor communication
are minor factors compared to important outside events, so these choices are all incorrect
responses.
Objective: 4.1
61) Formal planning typically leads to which of the following?

A) higher profits
B) lower productivity
C) higher sales, but lower profits
D) tension between different management levels
Answer: A
Explanation: A) Studies show a positive correlation between formal planning and profits along
with other economic indicators, making "higher profits" the correct response. Lower productivity
and lower profits both show a negative correlation between planning and economic success, so
those choices can be ruled out. There is no evidence that planning results in tension of any kind,
so that choice can also be ruled out.
Objective: 4.1
62) The first step in the six-step strategic management process is to ________.
A) analyze the organization's strengths and weaknesses
B) identify the organization's mission
C) identify strategies to reach the organization's goals
D) analyze the opportunities the organization has
Answer: B
Explanation: B) Identifying the organization's mission is the first step in the strategic
management process, making that the correct response. Analysis of strengths and weaknesses,
and opportunities are all part of the second and third SWOT analysis steps of the process, while
identification of strategies would be included in the fourth step, formulate strategies.
Objective: 4.2
14
63) The first three steps of the strategic management process involve ________ strategies.
A) planning
B) implementing
C) evaluating
D) identifying
Answer: A
Explanation: A) The first three steps of the process include stating the mission of the
organization, followed by an analysis of its position (strengths, weaknesses, etc.) in the
marketplace. These first three steps are planning strategies, rather than the implementation (step
5), evaluation (step 6), or identification (step 4) strategies, making planning the correct answer.
Objective: 4.2
64) A mission statement includes identification of an organization's ________.

A) strengths and weaknesses
B) products and basic philosophy
C) assets and resources
D) resources and strengths
Answer: B
Explanation: B) Finding the organization's strengths, weaknesses, assets, and resources are all
part of an internal analysis, so the choices indicating strengths and weaknesses, assets and
resources, and resources and strengths can all be ruled out because they include one or more of
those items. That leaves products and basic philosophy as the correct response, as it correctly
identifies that a mission statement should include a description of an organization's products as
well as a summary of its basic philosophy.
Objective: 4.2
65) A mission statement does NOT include which of the following?

A) the customers of a company
B) strategy for success
C) why the company is in business and what it hopes to accomplish
D) the company's basic beliefs
Answer: B
Explanation: B) A mission statement should identify an organization's customers, its core
philosophy and beliefs, and its basic purpose, so these choices can be eliminated as possible
correct responses. The one item listed that should not be part of a mission statement is strategy
for success—the organization's mission has nothing to do with its strategy. The strategy is
something that will be determined by the strategic management process.
Objective: 4.2
15
66) An external analysis, the second step of the strategic management process, helps identify
________.
A) the products that a company makes
B) the long-term goals for a company
C) a company's opportunities and threats
D) a company's concern for its employees
Answer: C
Explanation: C) The focus of an external analysis is to locate the organization's place in the
external business environment, analyzing the competition that the organization faces, the
opportunities it might take advantage of, and the things that threaten the organization, making
"opportunities and threats" the correct response. Long-term goals, product descriptions, and
company policy toward its workers have nothing to with analyzing the external environment, so
those choices are ruled out.
Objective: 4.2
67) An internal analysis, the third step of the strategic management process, helps identify
________.
A) opportunities and threats
B) resources and capabilities
C) opportunities and possibilities
D) values and philosophy
Answer: B
Explanation: B) An organization's values and philosophy are part of its mission statement, not an
internal analysis, which rules out that choice as a correct response. Finding opportunities is part
of an external, not an internal analysis, which eliminates the choices regarding opportunities as
correct responses. The internal analysis should identify resources (a company's physical,
financial, and human assets) and capabilities (a company's skills and abilities) making "resources
and capabilities" the correct response.
Objective: 4.2
68) Which term refers to an organization's capital, workers, and patents?

A) resources
B) capabilities
C) abilities
D) core competencies
Answer: A
Explanation: A) An organization's workers, patents, and financial capital are all types of assets,
or resources that the organization has, making resources the correct response. Items such as
financial capital do not qualify as capabilities, abilities, or core competencies because they are
tangible goods, not abstract abilities.
Objective: 4.2
16
69) An organization's resources identify ________.
A) how the organization gets things done
B) where the organization operates
C) when the organization operates
D) what the organization has
Answer: D
Explanation: D) In informal terms, an organization's resources identify what the organization
has, while its capabilities refer to what it does. This means that how, where, or when the
organization operates all qualify as capabilities, so they can be ruled out as correct responses for
this question. Resources are generally tangible assets, while capabilities refer to skills and
abilities, making "what the organization has" the correct response.
Objective: 4.2
70) An organization's capabilities identify ________.

A) what the organization has
B) who the organization is
C) assets that the organization can rely on
D) what the organization can do
Answer: D
Explanation: D) In informal terms, an organization's resources identify what the organization
has, while its capabilities refer to what it does. What the organization has, who it is, or what its
assets are all refer to what the organization has, so they are all resources, not capabilities. What
the organization can do is a capability, so that is the correct response here.
Objective: 4.2
71) Together, an organization's resources and core competencies make up which of the
following?
A) core philosophy
B) competitive weapons
C) core assets
D) fundamental beliefs
Answer: B
Explanation: B) Finding the organization's strengths, weaknesses, assets, and resources are all
part of an internal analysis, so core philosophy, core assets, and fundamental beliefs can all be
ruled out because they include one or more of those items. That leaves competitive weapons as
the correct response, as it correctly identifies that a mission statement should include a
description of an organization's products as well as a summary of its basic philosophy.
Objective: 4.2
17
72) SWOT analysis identifies and analyzes an organization's ________.
A) strengths, weaknesses, opportunities, and threats
B) strategy for competing in the market
C) human resource assets
D) long-term goals
Answer: A
Explanation: A) The term SWOT is an acronym for strengths, weaknesses, opportunities, and
threats, making that the correct response and eliminating the other choices as possible correct
answers.
Objective: 4.2
73) SWOT analysis combines ________.

A) a company's mission with its goals
B) external and internal analyses
C) a company's philosophy with its ethics
D) profit with productivity
Answer: B
Explanation: B) An external analysis identifies threats to an organization and opportunities that
it has. An internal analysis identifies strengths and weaknesses of the organization. Together,
these two analyses make up the SWOT items—strengths, weaknesses, opportunities, and threats,
making external and internal analyses the correct response. SWOT analysis has nothing to do
with mission or company philosophy, making these choices incorrect. SWOT does not address
profit or productivity, which rules out that choice.
Objective: 4.2
74) Once SWOT analysis is complete, managers ________ to address the issues that came up
during the analysis.
A) formulate strategies
B) implement strategies
C) evaluate strategies
D) eliminate strategies
Answer: A
Explanation: A) The ultimate goal of a SWOT analysis is to come up with strategies that will
use an organization's strengths to take advantage of opportunities, defend against threats, and
shore up weaknesses, making formulating strategies the correct response. Implementation and
evaluation of the strategies will come later in the process, making these choices incorrect.
Elimination of strategies might be considered a minor part of strategy formulation, but it
certainly is not the objective of a SWOT analysis.
Objective: 4.2
18
75) Which of the following do managers NOT typically use to formulate strategies?
A) find ways to exploit the organization's strengths
B) find ways to protect the organization from external threats
C) find ways to rule out existing organizational opportunities
D) find ways to correct organizational weaknesses
Answer: C
Explanation: C) The incorrect choices all identify strategies that might emerge from a SWOT
analysis—to exploit organizational strengths, correct weaknesses, and protect against threats, so
they can all be ruled out as correct responses. The one thing that organizations would not
typically do is rule out possible opportunities—instead the organization would be looking to
exploit those opportunities, making "finding ways to rule out existing opportunities" the correct
response.
Objective: 4.2
76) The three different types of strategies that managers implement are ________.
A) corporate, private, functional
B) corporate, competitive, functional
C) long-term, short-term, public
D) competitive, non-competitive, corporate
Answer: B
Explanation: B) Organizations typically choose corporate, competitive, or functional strategies,
making that the correct response. Corporate strategies function on the largest scale,
encompassing the entire corporation. Competitive strategies concentrate on strategic business
units of a corporation. Functional strategies specialize even more, focusing on individual
corporate departments.
Objective: 4.2
77) A corporate strategy focuses primarily on ________.

A) an organization's mission
B) an organization's strengths
C) an organization's weaknesses
D) an organization's people
Answer: A
Explanation: A) An organization's mission is the primary focus of a corporate strategy, making
that the correct response. Strengths, weaknesses, and the people of the organization will certainly
be incorporated into the overall corporate strategy, but on their own none of these items represent
its primary focus.
Objective: 4.2
19
78) Which of the following make up the three main types of corporate strategies?
A) growth, vertical integration, horizontal integration
B) growth, retrenchment, renewal
C) renewal, retrenchment, diversification
D) growth, stability, renewal
Answer: D
Explanation: D) The three basic corporate strategies are termed growth, stability, and renewal,
making that the correct response. The choice indicating growth, vertical integration, and
horizontal integration includes only growth strategies so it can be eliminated. Both of the
remaining choices leave out at least one major corporate strategy and include at least two forms
of renewal, making these choices redundant and incorrect.
Objective: 4.2
79) Growth strategies include ________.

A) diversification, concentration, integration, stabilization
B) vertical integration, horizontal integration, concentration, diversification
C) vertical integration, horizontal integration, lateral integration, horizontal concentration
D) integration, allocation, horizontal diversification, vertical diversification
Answer: B
Explanation: B) The choice indicating vertical integration, horizontal integration, concentration,
and diversification is the only choice that lists all four types of growth strategy, so it is the
correct response. The other choices all fail to include all four items and substitute at least one
erroneous item.
Objective: 4.2
80) General Mills expanding its line so that it sells several different types of Cheerios is an
example of which of the following?
A) concentration
B) horizontal integration
C) vertical integration
D) diversification
Answer: A
Explanation: A) When a company focuses its attention on a single product or line of products, it
is employing concentration as a strategy, making that the correct response. Integration and
diversification are forms of growth by either expanding the control a company has over its
operations or combining with other companies—neither of which is being done by General Mills
here.
Objective: 4.2
20
81) A salad dressing company that buys a large olive grove to provide olive oil is practicing
which of the following?
A) concentration
B) forward vertical integration
C) backward vertical integration
D) horizontal integration
Answer: C
Explanation: C) Buying an olive grove is an example of a company trying to become its own
supplier, which is termed backward vertical integration. Forward vertical integration involves a
company seizing control of its distribution, not its suppliers, so that is not a correct response.
Horizontal integration involves combining with competitors, something that is not being done
here, so that is incorrect. Finally, concentration is incorrect because concentration requires a
company to expand on a product or line of products.
Objective: 4.2
82) A sneaker company creating its own stores where it sells only its own brand is an example of
which of the following?
A) forward vertical integration
B) backward horizontal integration
C) forward horizontal integration
D) reverse vertical integration
Answer: A
Explanation: A) The company is taking control of its distribution here, which is an example of
forward vertical integration, making that the correct response. Backward horizontal integration is
incorrect because it would entail taking control of supply, not distribution. Forward horizontal
integration would have the company combining with competitors, something that is not being
done here, making that choice incorrect. Finally, reverse vertical integration is not a recognized
strategy.
Objective: 4.2
83) In forward vertical integration, a company becomes its own ________, while in backward
integration the company is its own ________.
A) supplier; distributor
B) supplier; customer
C) distributor; monitor
D) distributor; supplier
Answer: D
Explanation: D) Forward vertical integration involves a company taking control of distribution,
while in backward vertical integration a company takes control of its suppliers. This makes the
choice indicating "distributor;supplier" the correct response and eliminates all other responses.
Objective: 4.2
21
84) Two movie studios combining to form one larger studio is an example of which of the
following?
D) diversification
Answer: B
Explanation: B) Each movie studio is combining with a competitor, a clear example of
horizontal integration, making that the correct response. Since each company is neither taking
control of supply nor distribution, both forms of vertical integration can be eliminated as correct
responses. Horizontal integration differs from diversification in that in diversification the
company doesn't combine with competitors but rather makes purchases of supporting industries.
Clearly, the studios are combining with competitors here, making horizontal integration correct
and diversification incorrect.
Objective: 4.2
85) The U.S. Federal Trade Commission monitors horizontal integration carefully to make sure
that consumers aren't harmed by which of the following?
A) increased competition
B) too much competition
C) deceptive ads
D) decreased competition
Answer: D
Explanation: D) Horizontal integration reduces the number of competitors in an industry. When
one shoe company combines with another, the number of companies in the shoe industry is
reduced by one, thereby decreasing competition. This makes decreased competition the best
response. Increased competition and too much competition can be eliminated because both
constitute increased competition, and horizontal integration decreases, rather than increases,
competition. Deceptive ads can be eliminated because there is no reason to expect that deception
would result from organizations joining together.
Objective: 4.2
22
86) When Google purchased YouTube, a company that featured different, but related products,
Google was engaging in which of the following?
A) concentration
B) forward vertical integration
D) diversification
Answer: D
Explanation: D) Google was clearly not focusing on existing products, taking control of
distribution or supply so those choices can be ruled out as correct responses. What Google was
doing was buying a company that it can use to complement or support its existing products.
YouTube makes Google a more diversified product, so the purchase is an example of
diversification, making that the correct response.
Objective: 4.2
87) Two companies that both sell fine time pieces combine. What are they doing?
A) diversifying, because they both sell the same products
B) integrating vertically, because they both sell the same products
C) backward vertical integration, because they are sharing distribution
D) integrating horizontally, because they both sell similar products
Answer: D
Explanation: D) The merger has nothing to do with controlling supply or distribution, so vertical
integration and backward vertical integration can both be eliminated as correct responses.
Diversification would require one of the companies to purchase an unrelated company that
somehow supports or complements its business, but these two companies both sell the exact
same products, so diversification is not occurring. Instead, the merging of two companies that
have the same product is an example of horizontal integration, making that the correct response.
Objective: 4.2
88) A company whose goal is to retain its ideal size and market share is employing which kind of
strategy?
A) non-corporate
B) growth
C) renewal
D) stability
Answer: D
Explanation: D) A corporate strategy that does not explicitly seek growth is termed a stability
strategy, making stability the correct response and growth incorrect. A renewal strategy would
require the company to be in some kind of trouble, so that is not the right answer here. The
remaining choice is also not correct because stability clearly is a corporate, not a non-corporate
strategy.
Objective: 4.2
23
89) Troubled companies seek ________ to address serious problems.
A) competitive strategies
B) corporate strategies
C) vertical and horizontal strategies
D) renewal strategies
Answer: D
Explanation: D) The strategies that specialize in fixing troubled organizations are termed
renewal strategies, making that the correct response. Competitive, corporate, or vertical and
horizontal strategies do not specialize in troubled organizations, so they are incorrect responses.
Objective: 4.2
90) To address limited, short-term problems a company is most likely to employ a ________
strategy.
A) retrenchment
B) turnaround
C) doomsday
D) self-critical
Answer: A
Explanation: A) When the problems of a troubled organization are limited, a retrenchment
strategy is typically employed, which helps cut costs and stabilize the company so it can compete
successfully, making retrenchment the correct response. When problems are more drastic, a
turnaround strategy is employed. Doomsday and self-critical approaches are not recognized
renewal strategies, so these choices are incorrect.
Objective: 4.2
91) A company that is on the verge of collapse or bankruptcy might employ this strategy.
A) retrenchment
B) incremental improvement
C) turnaround
D) hunker down
Answer: C
Explanation: C) When a company finds itself in truly dire conditions, it goes beyond
incremental improvement, "hunkering" down to try to wait out its troubles, or retrenchment.
Instead, it employs a turnaround strategy, making that the correct response. A turnaround strategy
is a full-fledged reorganization of the entire corporation, making it the most serious remedy for
corporate woes.
Objective: 4.2
24
92) Remedies that all renewal strategies employ include which of the following?
A) hiring efficiency experts
B) new ad campaigns
C) emulating competitors
D) cutting costs
Answer: D
Explanation: D) New ad campaigns, efficiency experts, or studying the competition are all
possible, but not essential elements of a renewal strategy. The only recognized essential element
of a renewal strategy is to cut costs, making that the correct response.
Objective: 4.2
93) The ________ strategy occupies the level below the corporate strategy.
A) business unit
B) competitive
C) functional
D) performance
Answer: B
Explanation: B) On an organizational strategies hierarchy chart (Exhibit 4-4, page 89), the top of
the hierarchy is occupied by corporate strategies, the second level by competitive strategies, and
the third level by functional strategies. This makes "competitive" the correct response and
eliminates "functional." "Business units" and "performance" do not identify recognized corporate
strategies, so they are incorrect responses for this question.
Diff: 1 Page Ref: 89, 91
Objective: 4.2
94) A diversified corporation is likely to have ________.

A) multiple competitive strategies
B) a single competitive strategy
C) no more than two competitive strategies
D) thousands of competitive strategies
Answer: A
Explanation: A) A single competitive strategy might exist for a small company that has only one
line of business. A large, diversified organization will consist of multiple businesses, so it will
have multiple competitive strategies, making that the correct response and ruling out the choices
indicating a single or no more than two competitive strategies. It is unlikely that an organization
would have thousands of different lines of business, so it would be equally unlikely to have
thousands of competitive strategies, ruling out that choice.
Objective: 4.2
25
95) The thing that makes your product special is known as your ________.
A) assets
B) destruction device
C) competitive advantage
D) competitive strength
Answer: C
Explanation: C) A competitive advantage is something that one organization has that other
organizations cannot offer. A competitive advantage can be a product, service, or some other
quality that sets the organization apart. A company may use its assets or strengths to develop a
competitive advantage, but weapons or strengths themselves do not constitute the advantage.
Destruction device can be ruled out because it is not a recognized term.
Objective: 4.2
96) Competitive advantages for a high-prestige, premium coffee franchise like Starbucks are
likely to include all of the following EXCEPT ________.
A) high quality
B) lowest prices
C) well-trained employees
D) pleasant venues
Answer: B
Explanation: B) Starbuck's as a premium alternative in the marketplace may offer high quality
coffee, pleasant store fronts, and well-trained employees. However, as a high-prestige choice, the
least likely thing for Starbucks to offer would be lowest prices, making that the correct response.
Low prices might actually harm the high-prestige image that Starbucks tries to project. Note that
for some other, non-premium company, low prices may indeed comprise a competitive
advantage.
Objective: 4.2
97) A cost leadership competitive strategy focuses on which of the following?

A) efficiency
B) innovation
C) elegant design
D) luxury
Answer: A
Explanation: A) A company with a cost leadership strategy is the pace-setter for prices in its
competitive market. In order to get the lowest prices, a company typically will eschew elegant
design, innovative products, and luxury in favor of efficiency. This makes efficiency the correct
response.
Objective: 4.2
26
98) Which of the following would you expect to find in a clothing store that follows a cost
leadership strategy?
A) only finest, most expensive materials
B) pampered, personalized service
C) state-of-the-art design
D) basic, no frills, practical items
Answer: D
Explanation: D) A company that uses a cost leadership strategy would tend to forego expensive
materials, specialized service, and high-tech design and instead focus on practicality. This makes
the choice indicating basic, no frills, practical items the correct response, as products for a cost
leadership company would most likely be of the "no frills" category.
Objective: 4.2
99) A company with a differentiation strategy focuses on making its products or services
________.
A) unique and special
B) similar to its competitors
C) familiar
D) affordable
Answer: A
Explanation: A) The key to a differentiation strategy is for the company to somehow make itself
or its products distinct from all of its competitors. This distinction may reside in a product,
service, or brand image that sets the company apart from others in the market. These factors
make "unique and special" the correct response. Being familiar, similar to competitors, or
affordable would have little value to a company that uses a differentiation strategy as none of
these qualities makes their product different or distinguished.
Objective: 4.2
100) A differentiation strategy ________.

A) usually focuses on price
B) must focus on price
C) can focus on a brand image
D) can focus on value, but not service
Answer: C
Explanation: C) A company with a differentiation strategy tries to make its products and services
distinct and different, so prices would not typically be part of the approach. Service can function
as something that differentiates the company, so the choice indicating focus on value but not
service cannot be a correct response. Surprisingly, brand image can be the determining factor for
a differentiation strategy. Though hard to establish, once it exists a unique and special brand
name can distinguish a company from all of its competitors.
Objective: 4.2
27
101) A company that looks for a niche in the market is following which strategy?
A) cost leadership
B) differentiation
C) focus
D) turnaround
Answer: C
Explanation: C) The key to a focus strategy is for a company not to try to appeal to a broad
market, but rather to find a narrow niche in the market and serve it with something extraordinary
and special. This makes focus the correct response and eliminates differentiation and cost
leadership as possible correct responses because both try to appeal to broad audiences. A
turnaround strategy is a corporate rather than a competitive strategy so that choice is not correct.
Objective: 4.2
102) Which of the following describes a company that is following a focus strategy?
A) a software company that makes a wide variety of games and financial products
B) a software company that makes games for a wide audience
C) a software company that makes financial products for accountants, consumers, and businesses
D) a software company that makes financial products for accountants only
Answer: D
Explanation: D) The correct answer for this question is the choice that describes a product that
serves the most narrow, specialized audience. The two choices regarding a wide variety of games
and a wide audience identify broad audiences, so they are incorrect. The choice regarding
making financial products for accountants among others, as well as the choice regarding making
financial products for accountants only refer to making only financial products, but the company
serving only accountants serves a more narrow market segment so it is the correct response.
Objective: 4.2
103) According to Michael Porter, a company with good products that has no clear competitive
advantage is said to be ________.
A) perfectly positioned
B) stuck in the middle
C) in the wheelhouse
D) outside of the box
Answer: B
Explanation: B) Porter's phrase "stuck in the middle" describes a company that has no clear edge
over its competitors, so "stuck in the middle" is the correct response for this question. A company
may be efficient, innovative, and produce high-quality products, but if it cannot establish some
kind of significant advantage over its rivals it will remain "stuck."
Objective: 4.2
28
104) Most successful companies find that ________ a competitive advantage is almost as
difficult as developing a competitive advantage.
A) assessing
B) sustaining
C) modifying
D) eliminating
Answer: B
Explanation: B) Once a company establishes its competitive advantage, you might think that it
would be able to rest on its achievement. In fact, today's world is so competitive that few
companies can do this. Once they gain an advantage they need to work hard to keep that
advantage as rivals scramble to reduce the company's edge or develop an edge of their own.
These factors all make sustaining a competitive advantage the correct response.
Objective: 4.2
105) All of the following are threats to a sustainable, long-term competitive advantage EXCEPT
________.
A) market stability
B) market instabilities and disturbances
C) evolution of the industry
D) new technology in the industry
Answer: A
Explanation: A) Instability, new technology, or an evolving industry can all function to erase the
edge a company has and threaten its competitive advantage. Market stability is the only choice
that is not a threat to an established edge, since the edge is likely to persist as long as conditions
don't change, making market stability the correct response.
Objective: 4.2
106) To gain a sustainable competitive advantage, a pharmaceutical company might ________.

A) market aggressively
B) set high prices for its products
C) secure exclusive rights to produce a drug
D) produce as many generic drugs as possible
Answer: C
Explanation: C) Marketing aggressively might help the company minimally in gaining an
advantage, but it would probably not be effective enough to make any advantage permanent or
sustainable. Setting high prices or making generics might reduce a company's competitive
advantage, so those choices can be eliminated. The one thing that might help the company
sustain its advantage would be to gain exclusive rights to a successful drug. Since no other
company could produce that drug, the monopoly that the company would have would constitute
a sustainable competitive advantage—at least as long as the rights remained exclusive.
Objective: 4.2
29
107) A company's strategic weapon is any product, service, or other attribute it has that
________.
A) gives it an edge over its competitors
B) identifies problems that the company has
C) identifies the potential of employees
D) helps diversify the company
Answer: A
Explanation: A) A strategic weapon is some kind of asset or ability that a company can use to
gain an advantage in the marketplace. For example, a strategic weapon that Apple has is its
ability to innovate. When Apple needs to try to gain in the market, it looks to innovation above
all other characteristics for its edge. These factors make the choice regarding giving it an edge
over competitors the correct response and eliminate the other responses.
Objective: 4.2
108) To create a competitive advantage that is sustainable, a company can begin by focusing on
quality, then ________
A) make sure quality doesn't decline at too rapid a pace
B) make incremental improvements to keep quality levels high
C) change its entire product line frequently
D) slowly diminish quality and raise the prices of its products
Answer: B
Explanation: B) Diminishing quality would be likely to erode a competitive advantage, not
make it more sustainable. Changing a successful formula would also tend to be counter-
productive, making "changing its entire product line frequently" incorrect. The only effective
strategy would be to refuse to let well enough alone—keep the same product, but keep improving
the product to stay ahead of rivals, making the choice regarding incremental improvements the
correct response.
Objective: 4.2
109) This term describes an electric shaver company that carefully observes its competitor's
production line to look for ways to improve its own manufacturing process.
A) trademarking
B) benchmarking
C) quality engineering
D) reverse marketing
Answer: B
Explanation: B) The practice of learning production techniques and similar practices from other
organizations is called benchmarking. Note that a company can successfully benchmark in a
completely unrelated industry. A car company, for example, might observe a shipping company
for clues about improving efficiency.
Objective: 4.2
30
110) Which of the following best defines plans?
A) documents that identify company problems
B) documents that define goals
C) documents that describe how goals will be met
D) documents that identify how goals from the past were met
Answer: C
Explanation: C) Plans do not specifically identify goals per se, problems, or past goals. Instead,
planning focuses on how goals will be met, making that the correct response.
Objective: 4.3
111) Which of the following best defines goals?

A) likely outcomes for the future
B) unlikely outcomes for the future
C) desired outcomes for the future
D) short-term targets
Answer: C
Explanation: C) The key to defining goals is not whether they are likely or unlikely, long term or
short term, but rather, that goals are desired outcomes, making that the correct response.
Objective: 4.3
112) In reality, all organizations have ________.

A) a single goal
B) multiple goals
C) the same goals
D) the same single goal
Answer: B
Explanation: B) Different organizations clearly have different goals. For example, one
organization may want to maximize profits while another may wish to make products that truly
help people. What all organizations share is that they have more than one goal. For example, the
company above that wants to help people may also seek to make large profits, work toward
environmental sustainability, and provide good jobs for as many people as possible. Multiple
goals are a feature of all organizations in one way or another, so that is the correct response.
Objective: 4.3
31
113) In most cases, strategic goals include ________.
A) all financial objectives
B) all objectives that are not financial
C) all objectives, both financial and non-financial
D) some financial objectives
Answer: B
Explanation: B) Most company goals can be classified as either strategic or financial. Strategic
goals, therefore, do not include financial objectives. This makes the choice indicating all
objectives that are not financial the correct response and eliminates the other three choices
because they all include some kind of financial objective.
Objective: 4.3
114) Which of the following is an example of a strategic goal for a professional baseball team?
A) to increase attendance by 5 percent over the next three years
B) to increase television revenues over the next 5 years
C) to decrease payroll by 20 million over the next 2 years
D) to average over 90 wins a year for the next 5 years
Answer: D
Explanation: D) A strategic goal is any kind of objective that is not financial in nature.
Increasing TV income, attendance, or decreasing payroll all have a financial component, so they
can be eliminated as correct responses for this question. The choice indicating an average of over
90 wins a year identifies a baseball, rather than a financial goal, so it is the correct response.
Objective: 4.3
115) An organization's real goals and priorities are best revealed by ________.
A) its official stated goals
B) its actions in the marketplace
C) its statements to the press
D) its mission statement
Answer: B
Explanation: B) Mission statements, press releases, and official stated goals all include a
political dimension in which an organization is telling you what it would like to want to do rather
than what it actually wants to do. Therefore, the only true measure of a company's priorities are
its actions, making that the correct response. For example, an organization may officially state
that jobs are its main goal, but its actual hiring record would be a much better indication of its
true objective than any official statement.
AACSB: Ethical Understanding and Reasoning Abilities
Objective: 4.3
32
116) ________ are important because they provide the standards against which all organizational
accomplishments are measured.
A) Goals
B) Guidelines
C) Models
D) Rules
Answer: A
Explanation: A) Goals are more than just something for an organization to shoot for. Goals are
also a metric by which an organization can measure success. Without stating goals, an
organization has no way of judging how successful it is. This makes goals the correct response
and rules out guidelines, models, and rules because none of these choices provide standards by
which organizational progress can be measured.
Objective: 4.3
117) In traditional goal setting, these individuals set goals.

A) top managers
B) middle and low-level managers
C) middle managers
D) managers and employees
Answer: A
Explanation: A) The traditional hierarchical organizational model has top managers setting goals
and having the goals flow down to lower organizational levels. This makes top managers the
correct response and eliminates the other choices because they do not exclusively identify top
managers as the decision makers.
Objective: 4.3
118) In traditional goal setting, as they work their way from top management to employees, goals
are likely to ________.
A) become more clear
B) be more rigorously followed
C) be unchanged
D) become less clear
Answer: D
Explanation: D) As they filter down from level to level, goals get repeatedly reinterpreted and
distorted, making the choice regarding becoming less clear the correct response and eliminating
becoming more clear and being unchanged. Being more rigorously followed is also incorrect
because there is no evidence to show that goals are more likely to be followed at lower levels of
an organization than at higher levels.
Objective: 4.3
33
119) In a means-ends chain, a goal at a lower level ________.
A) is the bridge to a goal at the next higher level
B) is attained only after higher level goals are fulfilled
C) is separate from the goal at the next higher level
D) is ignored if goals at higher levels are attained
Answer: A
Explanation: A) A means-ends chain links goals at higher levels to goals below. For example, in
a means-ends chain a goal at a high level cannot be considered accomplished until goals below it
have been fulfilled first. This links goals at different levels and makes them less subject to
degradation and distortion as they pass through organizational hierarchy. This means that the
bridge to a goal at the next higher level is the correct response, ruling out the choices regarding a
goal being separate and being ignored because they describe situations in which goals are not
linked. The choice regarding being attained only after higher-level goals are fulfilled shows
linked goals, but their order is reversed—in a means-ends chain, the lower-level goals are
fulfilled first.
Objective: 4.3
120) In management by objectives (MBO), goals ________.

A) must be easily accomplished
B) are jointly determined by employees and managers
C) are determined by top management
D) are developed by employees
Answer: B
Explanation: B) The key to goals set by an MBO arrangement is that goals are not handed down
from management to employees. Instead, employees participate in goal-setting, thus insuring a
more equitable result and more accountability for all sides of the process, especially the
employees. MBO goals are not exclusively developed by managers or employees, making both
of those choices incorrect. MBO goals are not required to be easily accomplished, making that
choice incorrect.
Objective: 4.3
121) In addition to being made by by both managers and employees, MBO goals must be
________.
A) non-specific and open-ended with regard to time
B) specific and open-ended with regard to time
C) specific and include an explicit time limit
D) non-specific and include no time limit
Answer: C
Explanation: C) To eliminate ambiguity and misunderstanding, MBO goals are required to be
specific and include a time limit. That way parties can't come back later and say that they weren't
warned with regard to what exactly was expected. This makes the choice regarding being
specific and including an explicit time limit the correct response and eliminates the other three
choices because they are either non-specific or open-ended with regard to time.
Objective: 4.3
34
122) MBO programs are usually successful largely because they ________.
A) give employees a sense of ownership of goals
B) free managers from the responsibility of setting goals
C) give managers a sense of ownership of goals
D) free employees from responsibility if goals are not met
Answer: A
Explanation: A) MBO goals do not free managers from the task of goal setting or give them any
special sense of goal ownership, since in traditional situations managers alone set goals. MBO
goals make employees more, not less responsible. What MBO goals clearly do accomplish is to
make employees more accountable and responsible for goals, giving them a sense of ownership
of goals. This makes giving employees a sense of ownership the correct response.
Objective: 4.3
123) Which goal setting sequence is correct for the following steps?
1. Evaluate resources.
2. Identify goals.
3. Review the mission and job tasks.
4. Communicate goals.
5. Link rewards to goals.
6. Build feedback mechanisms.
A) 1, 2, 4, 6, 3, 5
B) 4, 2, 5, 3, 1, 6
C) 3, 4, 2, 6, 5, 1
D) 3, 1, 2, 4, 6, 5
Answer: D
Explanation: D) Only the correct choice (3, 1, 2, 4, 6, 5) gives the correct sequence: Mission,
Resources, Identify goals, Communicate goals, Feedback, Link.
Objective: 4.3
124) The breadth of a plan refers to ________ concerns.

A) long-term versus short-term
B) strategic versus tactical
C) specific versus directional
D) single use versus standing
Answer: B
Explanation: B) Breadth does not refer to how specific, long term, or repeatable a plan is, but
rather whether it is tactical or strategic, making that the correct response. Strategic plans address
overall organizational goals. Tactical plans provide details of how those strategic goals can be
achieved.
Objective: 4.3
35
125) The specificity of a plan refers to ________ concerns.
A) long-term versus short-term
B) strategic versus tactical
C) specific versus directional
D) single use versus standing
Answer: C
Explanation: C) Specificity does not refer to the duration, goals, or repeatability of a plan.
Rather, specificity addresses how flexible plans are, making specific versus directional the
correct response. Specific plans are inflexible and leave little or no room for interpretation or
modification. Directional plans are flexible and can be modified if the situation warrants.
Objective: 4.3
126) Strategic plans address ________.

A) overall organizational goals
B) goals for a single branch of the organization
C) how overall goals are to be achieved
D) how a single goal is to be achieved
Answer: A
Explanation: A) Strategic plans have the broadest overall scope, addressing the larger, more
general issues and goals that an organization has. This makes overall organizational goals the
correct response and eliminates the other three choices because they all refer to more narrow
objectives.
Objective: 4.3
127) Tactical plans are operational plans that identify ________.

A) overall organizational goals
B) how overall goals are to be achieved
C) the mission of an organization
D) specific goals for accomplishing a specific objective
Answer: B
Explanation: B) Tactical plans do not address an organization's mission or its larger, overall
goals. The focus of tactical plans is always how goals are to be achieved rather than specific
goals themselves. This rules out specific goals and makes the choice regarding how overall goals
are to be achieved the correct response.
Objective: 4.3
36
128) A politician whose ultimate goal is to get elected is planning campaign ads for TV. In
planning the ads, the politician is functioning at a ________ level.
A) strategic
B) long-term
C) tactical
D) directional
Answer: C
Explanation: C) In this situation the politician's overall strategic goal is to get elected. His
immediate goal is to plan effective TV ads. Since he is working on his immediate goal, the
politician is functioning on a tactical, rather than a strategic level, making tactical the correct
response.
Objective: 4.3
129) Which of the following defines the time frame of a long-term plan?
A) over seven years
B) over three years
C) under three years
D) over one year
Answer: B
Explanation: B) In the past, long-term plans were defined as plans that were seven years or
longer in duration. This definition has been replaced by a new time duration that requires a long-
term plan to be any plan that covers a time frame of over three years. This makes over three
years the correct response and eliminates all other choices.
Objective: 4.3
130) Directional plans ________.

A) leave no room for interpretation
B) are flexible general guidelines
C) are difficult to modify
D) must be short-term plans
Answer: B
Explanation: B) The key to directional plans is flexibility, making "flexible general guidelines"
the correct response. Flexible plans cannot: be hard to modify, leave no room for interpretation,
or be focused only on short-term goals. This rules out all of the preceding choices and confirms
that flexible general guidelines is the correct response.
Objective: 4.3
37
131) Standing plans typically can be used ________.
A) only once
B) only in conjunction with specific, long-term plans
C) twice at most
D) repeatedly
Answer: D
Explanation: D) Standing plans are not confined to being used only once, twice, or exclusively
in conjunction with specific long-term plans. The key to a standing plan is that it is repeatable.
This indicates that "repeatedly" is clearly the correct response for this question.
Objective: 4.3
132) Top managers, for the most part, focus on this type of planning.
A) operational
B) strategic
C) tactical
D) short term
Answer: B
Explanation: B) Tactical, short-term, or operational planning are typically reserved for lower-
level or mid-level managers. Strategic planning is typically done by top managers, making
"strategic" the correct response.
Objective: 4.3
133) The more uncertain a situation is, the more ________ plans must be.
A) unspecific
B) long term
C) flexible
D) short term
Answer: C
Explanation: C) In a situation of high uncertainty, both flexibility and specificity are important.
A plan must be specific, but also flexible so it can be changed if the situation requires it. These
requirements make flexible the correct response and eliminate unspecific. Uncertainty has no
bearing on whether a plan is long or short term, so these choices can be eliminated.
Objective: 4.3
38
134) The commitment concept states that plans should ________.
A) always stake out a longer time period than is estimated
B) always stake out a shorter time period than is estimated
C) stake out a time period that is neither too long nor too short
D) not include time periods because they are too confining
Answer: C
Explanation: C) The commitment concept states that plans should extend to meet any
commitments that they directly or indirectly specify. For example, a plan to finance only the
construction of a bridge, but not its upkeep and maintenance, fails to meet its basic time
commitment. The preceding ideas identify staking out a time period that is neither too long nor
too short as the correct response. Staking out too long, too short, or no time periods all fail to
meet time commitments and are therefore incorrect responses.
Objective: 4.3
135) Most managers feel that formal, top-down plans created by corporate planning departments
are ________.
A) very useful
B) usually unsatisfactory
C) indispensible
D) excellent
Answer: B
Explanation: B) Rather than find plans created by specialized corporate planning departments
useful, indispensible, or excellent, a survey shows that over 75 percent of managers were
dissatisfied with formal planning department plans, making "usually unsatisfactory" the correct
response.
Objective: 4.3
136) In the twenty-first century, managers increasingly need to consider their plans as ________.
A) highly explicit recipes that must be scrupulously followed
B) a vague philosophy that should not interfere with actions
C) flexible road maps with destinations that may change
D) rigid road maps with a single destination
Answer: C
Explanation: C) In the unstable, fast-changing business environment of today, managers value
flexibility over other qualities. They do not see plans as explicit recipes or rigid road maps.
Though flexibility is key, managers do not want to go too far and get plans that are vague, so a
vague philosophy can also be eliminated. In the end, managers see plans as road maps that are
flexible because they allow paths and even final destinations to change if the situation requires it.
AACSB: Reflective Thinking
Objective: 4.4
39
137) A cell phone company might ask managers to do some environmental scanning of blogs that
deal with electronics as a way to ________.
A) obtain new customers
B) identify emerging trends
C) obtain new advertisers
D) identify potential rivals
Answer: B
Explanation: B) The purpose of environmental scanning is not to obtain customers, advertisers,
or competitors, but rather to get a feel for the business environment that an organization
functions in and detect emerging trends in its industry. This makes "identifying emerging trends"
the correct response.
Objective: 4.4
138) Which of the following is NOT something that a company would be likely to do as a part of
a competitive intelligence program?
A) buy competitors' products
B) attend trade shows
C) have employees evaluate competing products
D) buy stock in a competitor's company
Answer: D
Explanation: D) A company would be likely to buy competing products, attend trade shows, or
assess rival products as a part of a competitive intelligence program. It would not, however, buy
stock in a rival company because the purchase would not provide any insight into the company's
competitor. Since the company would not be likely to do this, "buying stock in a competitor's
company" is the correct response.
Objective: 4.4
40
Taco Rocket (Scenario)
Imagine that you are the president of Taco Rocket, a new and successful chain of 8 Mexican fast-
food restaurants. The success you have experienced in the last 5 years has you thinking of what
to do with the business next. Should you expand the business at the current rate? Open new and
different restaurants? What?
139) Up to now your success has been based on selling high-quality tacos and burritos at a price
that others can't match. Your business is pursuing which of Porter's strategies?
A) differentiation strategy
B) cost leadership strategy
C) competitive advantage strategy
D) focus strategy
Answer: B
Explanation: B) A focus strategy would have Taco Rocket trying to appeal to a narrow segment
of the market, something that it clearly is not doing. A differentiation strategy would have Taco
Rocket trying to make tacos that were superior in some way to all competitors, again something
that it is not attempting to do. What Taco Rocket is doing is selling good quality food at low
prices, so it is using a cost leadership strategy. A competitive advantage strategy is not one of
Porter's recognized categories, so it is an incorrect response for this question.
Objective: 4.2
140) You are thinking of buying a tortilla factory in a nearby state. This action would be an
example of ________.
D) forward diversification
Answer: C
Explanation: C) Buying a tortilla factory is an attempt by the company to be its own supplier.
This is an example of backward vertical integration. Forward vertical integration would involve
some aspect of distribution rather than supply, so that choice is incorrect. The remaining choices
(horizontal integration and forward diversification) describe situations in which the company is
not trying to become its own supplier, so both choices are incorrect.
Objective: 4.2
41
141) Recently, Taco Rocket has considered buying a local competitor and the two would
combine under the Taco Rocket name. This is an example of which of the following?
A) stability
B) vertical integration
C) horizontal integration
D) diversification
Answer: C
Explanation: C) When a company combines with a competitor, it is integrating horizontally.
When a company purchases a company from another industry, it is diversifying. In this case,
Taco Rocket is integrating horizontally because it is combining with a rival, not a company in
another industry. This makes horizontal integration the correct response and rules out
diversification. Stability can be ruled out because it is not a key factor in this situation.
Objective: 4.2
142) For a limited time, Taco Rocket is thinking of coming out with a new Fifth Degree Burrito
that is so hot it "burns a hole in the plate." Catering to the small segment of the market that likes
super-hot food is an example of a ________.
A) focus strategy
B) cost leader strategy
C) long-term strategy
D) differentiation strategy
Answer: A
Explanation: A) Taco Rocket is not trying to have the lowest cost in this example, or create an
ultra-premium product to differentiate itself from competitors. The product is clearly not a long-
term strategy because it is being offered for a "limited time." What Taco Rocket is doing is trying
to serve a very narrow segment of the market—people who like super-hot food. In doing this,
Taco Rocket is using a focus strategy.
Objective: 4.2
42
143) In a short essay, define planning and compare formal and informal planning as they are
used in various organizations.
Answer: Planning involves defining the organization's goals, establishing an overall strategy for
achieving those goals, and developing a system to implement that strategy. Planning is concerned
with both ends and means.
All managers engage in some form of planning whether it is formal or informal. In informal
planning, little or nothing is written down and there is little or no sharing of goals with others
within the organization. This type of planning is often done in small businesses where the owner-
manager has a vision of where he or she wants the business to go and how to get there.
In formal planning, goals and plans covering a specific period of time are developed. These goals
and plans are written and shared with organizational members. Specific programs exist in formal
planning to achieve planning goals; that is, managers clearly define the path they want to take
and the actions they will carry out to reach their goals.
Objective: 4.1
144) In a short essay, list and discuss two reasons for planning.
Answer: Planning establishes coordinated effort. It gives direction to managers and
nonmanagers alike. When employees know where the organization is going and what they must
contribute to reach goals, they can focus their individual and collective efforts to accomplish
those goals. Without planning, departments and individuals might end up working at cross-
purposes, preventing the organization from moving efficiently toward its goals.
Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the
impact of change, and develop appropriate responses to change. Even though planning can't
eliminate change, managers plan in order to anticipate changes and develop the most effective
response to them.
Objective: 4.1
145) In a short essay, list and discuss two additional reasons that justify the need for planning.
Answer: Planning reduces overlapping and wasteful activities. When work activities are
coordinated around established plans, waste and redundancy can be minimized. Furthermore,
when means and ends are made clear through planning, inefficiencies often become obvious and
can be easily corrected or eliminated.
Planning establishes goals or standards that are used in controlling. If managers are unsure of
what they are trying to accomplish, they will be unable to determine whether or not they have
been successful. In planning, goals and standards are clearly developed and stated. Then actual
performance can be compared against the goals and corrective action is taken, if necessary.
Without the goals identified in a planning process, there is no way for an organization to assess
its own progress.
Objective: 4.1
43
146) In a short essay, identify criticisms of formal planning.
Answer: One of the main arguments directed at formal planning is that it is rigid and can lock an
organization into specific goals and timetables that must be achieved, no matter how
circumstances may change.
Another criticism of plans is that they cannot replace intuition and creativity, and in many cases
are said to stifle these qualities. Many people advise planners to try to take intuition and
creativity into account when they formulate their plans, so their plans will enhance rather than
undermine these qualities.
A third criticism of planning is that it often fixates on the current business climate, not on how
the climate might change in the future. This can result in plans that are short-sighted and limited.
Rather than look for new opportunities, managers keep trying to perfect what they did in the past.
Finally, plans often focus too much on successes of the past, forcing a company to stick to tried-
and-true methods of operating rather than forging into new areas and blazing new trails.
Objective: 4.1
147) In a short essay, compare strategic plans and tactical plans.

Answer: Strategic plans are plans that apply to the entire organization, establish the
organization's overall goals, and seek to position the organization in terms of the overall business
environment.
Plans that specify the details of how the overall goals are to be achieved are called tactical or
operational plans. Tactical plans tend to cover a shorter time frame and a more narrow view of an
organization than strategic plans. Where strategic plans focus on identifying goals, tactical plans
focus on how to reach those goals.
Objective: 4.3
148) In a short essay, compare specific plans and directional plans.

Answer: Specific plans are plans that are clearly defined and that leave no room for
interpretation. There is little room for ambiguity or misunderstanding with a specific plan. The
drawbacks of specific plans are that they can be rigid and often require a measure of
predictability that in many cases does not exist.
When uncertainty is high and managers must be able to respond to unexpected changes,
directional plans are preferable. Directional plans are flexible plans that set out general
guidelines but don't lock managers into overly specific goals or courses of action. However, the
flexibility inherent in directional plans must be weighed against the loss of clarity provided by
specific plans.
Objective: 4.3
44
149) In a short essay, define and discuss management by objectives (MBO).
Answer: Management by objectives (MBO) is a system in which specific performance goals are
jointly determined by employees and their managers. MBO requires that progress toward
accomplishing these goals be periodically reviewed, and rewards allocated on the basis of this
progress. Rather than using goals exclusively as controls, MBO uses them to motivate employees
as well.
Management by objectives consists of four elements: goal specificity, participative decision

making, requiring an explicit time period, and performance feedback. MBO's appeal lies in its
focus on employees working to accomplish goals they have had a hand in determining.
Objective: 4.3
150) In a short essay, describe the first two steps in the strategic management process.
Answer: The first step in the strategic management process is to identify the organization's
current mission, goals, and strategies. Defining the organization's mission forces managers to
identify what it is in business to do. Knowing the company's current goals gives managers a basis
for assessing whether those goals need to be changed.
The second step involves an external analysis. Managers need to know, for instance, what the
competition is doing and how the current business environment is likely to affect the company.
After analyzing the environment, managers need to assess what they have learned in terms of
opportunities that the organization can exploit, and threats that it must counteract or buffer
against.
Objective: 4.2
151) In a short essay, describe the final four steps in the strategic management process.
Answer: The third step in the strategic management process involves an internal analysis, which
provides important information about an organization's specific resources and capabilities. After
completing an internal analysis, managers can then complete a SWOT analysis. The SWOT
analysis combines information from this step and the previous step in the process to formally
identify an organization's strengths, weaknesses, opportunities, and threats.
The fourth step in the strategic management process is to put all of the information gathered
together and use it to formulate strategies for putting the organization on the right track for the
future. As managers formulate strategies, they have to consider the realities of the external
environment and their available resources and capabilities and design strategies that will help the
organization reach its goals.
After strategies are formulated, they must be implemented. A strategy is only as good as its
implementation. The final step in the strategic management process is evaluating results. How
effective have the strategies been? Have they helped the organization reach its goals? What
adjustments, if any, are necessary?
Objective: 4.2
45
152) In a short essay, discuss environmental scanning and competitive intelligence.
Answer: Managers in both small and large organizations use environmental scanning, which is
the screening of large amounts of information, to anticipate and interpret trends and changes in
the business environment. Extensive environmental scanning is likely to reveal issues, trends,
and concerns that could affect an organization's current and planned activities.
One of the fastest growing areas of environmental scanning is competitive intelligence.

Competitive intelligence is a process by which organizations gather information about their
competitors and get answers to questions such as: Who are they? What are they doing? How will
what they're doing affect us? Competitive intelligence doesn't have to involve spying.
Advertisements, promotional materials, press releases, reports filed with government agencies,
annual reports, want ads, newspaper reports, and industry studies are all examples of readily
accessible sources of information for competitive intelligence. Many firms also regularly
purchase and analyze competitors' products to learn about new technical innovations.
Objective: 4.4
153) In a short essay, discuss the cost leadership strategy according to Michael Porter.
Answer: When an organization sets out to be the lowest-cost player in its industry, it is following
a cost leadership strategy. A low-cost leader aggressively searches out efficiencies in production,
marketing, and other areas of operation. Overhead is kept to a minimum, and the firm does
everything it can to cut costs. Although low-cost leaders don't place a lot of emphasis on "frills,"
the product or service being sold must be perceived as comparable in quality to that offered by
rivals or at least be acceptable to buyers. Examples of companies that have used the low-cost
leader strategy include Wal-Mart and Southwest Airlines.
Objective: 4.2
154) In a short essay, discuss Porter's differentiation strategy.

Answer: When a company seeks to offer unique products that are seen as truly special by
customers, it is following a differentiation strategy. Ways in which companies differentiate
themselves might include exceptionally high quality, extraordinary service, innovative design,
technological capability, or an unusually positive brand image.
The key to this competitive strategy is that whatever product or service attribute is chosen for
differentiation must set the firm apart from its competitors and be significant enough to justify a
price premium that exceeds the cost of differentiation. Many highly successful businesses can be
identified as examples of the differentiation strategy: L.L. Bean (customer service), Intel (higher-
quality chip technology), Maytag (reliability), and Mary Kay Cosmetics (distribution).
Objective: 4.2
46
155) In a short essay, discuss Porter's focus strategy.
Answer: A company pursues a focus strategy when it concentrates on a narrow product or
segment of the market. The goal of a focus strategy is to fill a niche in the market. A niche can be
based on product, type of buyer, distribution channel, or geographical location of buyers.
Research suggests that the focus strategy may be the most effective choice for small businesses
because they typically do not have the economies of scale or internal resources to successfully
pursue one of the other two strategies. Stouffer used a focus strategy with its Lean Cuisine line to
reach affluent, sophisticated, calorie-conscious customers who wanted convenient but high
quality products.
Objective: 4.2
47

Fundamentals of Management, 7e (Robbins/DeCenzo/Coulter)

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Chapter 4 Foundations of Planning

1) All managers plan in some way, either formally or informally.

2) Informal plans are not recognized to be an effective form of planning.

3) At some point, all managers create formal plans.

4) Planning provides direction to managers and nonmanagers alike.

5) A key function of planning is to create goals.

6) Informal planning typically works better in large organizations.

8) Planning rarely improves teamwork and cooperation among employees.

9) An organization that fails to plan will find it hard to assess progress.

11) Formal planning can increase creativity in an organization.

14) A major strength of formal planning is that it makes an organization rigid.

24) SWOT analysis includes the identification of an organization's strengths, weaknesses,

30) "Build a better mousetrap" is a way of describing a competitive advantage.

32) A focus strategy seeks to appeal to a narrow segment of a market.

33) Customer service cannot be considered a strategic weapon for an organization.

41) Directional plans leave no room for interpretation.

42) In general, upper-level managers focus on tactical or operational planning.

43) Buying a competitor's product for evaluation is a form of environmental scanning.

44) Which of the following is NOT a function of planning?

47) Informal planning is ________.

49) Which of the following is NOT a reason for managers to plan?

53) One effect of planning on managers is that it forces them to ________.

55) Which of the following is a frequently cited criticism of formal planning?

61) Formal planning typically leads to which of the following?

64) A mission statement includes identification of an organization's ________.

65) A mission statement does NOT include which of the following?

68) Which term refers to an organization's capital, workers, and patents?

70) An organization's capabilities identify ________.

73) SWOT analysis combines ________.

77) A corporate strategy focuses primarily on ________.

79) Growth strategies include ________.

94) A diversified corporation is likely to have ________.

97) A cost leadership competitive strategy focuses on which of the following?

100) A differentiation strategy ________.

106) To gain a sustainable competitive advantage, a pharmaceutical company might ________.

111) Which of the following best defines goals?

112) In reality, all organizations have ________.

117) In traditional goal setting, these individuals set goals.

120) In management by objectives (MBO), goals ________.

124) The breadth of a plan refers to ________ concerns.

126) Strategic plans address ________.

127) Tactical plans are operational plans that identify ________.

130) Directional plans ________.

147) In a short essay, compare strategic plans and tactical plans.

148) In a short essay, compare specific plans and directional plans.

Management by objectives consists of four elements: goal specificity, participative decision

One of the fastest growing areas of environmental scanning is competitive intelligence.

154) In a short essay, discuss Porter's differentiation strategy.

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