ESSENTIALS OF STRATEGIC MANAGEMENT, 3RD EDITION
CHAPTER 1
The Strategy-Making Process
Name: __________________________ Date: _____________
1. T F A strategy can be defined as a set of related actions that managers take to increase their
company’s performance relative to rivals.
2. T F If a company‘s strategy does result in superior performance, it is said to have a competitive
advantage.
3. T F Superior performance is typically thought of in terms of one company’s profitability relative
to that of other companies in the same or a similar kind of business or industry.
4. T F The more efficient a company is, the higher are its profitability and return on invested capital.
5. T F Capital means the sum of money invested in the company, that is, stockholders’ equity plus
debt owed to creditors.
6. T F A company is said to have a competitive advantage over its rivals when its profitability is
greater than the average profitability for all firms in its industry.
7. T F A company is said to have a sustained competitive advantage when it is able to maintain
above-average profitability for at least two quarters.
8. T F Managers are the lynch pin in the strategy-making process.
9. T F General managers bear responsibility for specific departments within the company.
10. T F Functional managers bear responsibility for the overall performance of the company or one of
its major self-contained subunits or divisions.
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11. T F A multi-divisional company is a company that competes in several different businesses and
has created a separate, self-contained division to manage each of them.
12. T F Corporate-level managers provide a link between the people who oversee the strategic
development of a firm and those who own it (the shareholders).
13. T F The corporate-level of management consists of the chief executive officer (CEO), other senior
executives, the board of directors, and corporate staff.
14. T F Corporate-level managers, and particularly the CEO, can be viewed as the agents of the
shareholders.
15. T F A business unit is a self-contained division (with its own functions – for example, finance,
purchasing, production, and marketing departments) that provides a product or service for a
particular market.
16. T F The formal strategic planning process has four main steps.
17. T F The CEO is a company’s principal general manager.
18. T F The task of analyzing the organization’s external and internal environment and then selecting
appropriate strategies is known as strategy implementation.
19. T F Strategy formulation involves putting the strategies (or plan) into action.
20. T F The first component of the strategic management process is crafting the organization’s
mission statement, which provides the framework or context within which strategies are formulated.
21. T F Some organizations use an annual strategic planning process as input into the budgetary
process for the coming year.
22. T F A mission statement has five main components.
23. T F The third component of the strategic management planning process, serves to pinpoint the
strengths and weaknesses of the organization.
24. T F The essential purpose of the external analysis is to identify strategic opportunities and threats
in the organization’s operating environment that will affect how it pursues its mission.
25. T F The comparison of strategy, weaknesses, operations, and threats is normally referred to as a
SWOT analysis.
26. T F Analyzing the industry environment requires an assessment of the competitive structure of
the company‘s industry, including the competitive position of the company and its major rivals.
27. T F Managers compare and contrast the various alternative possible strategies against each other
with respect to their ability to achieve a competitive advantage.
28. T F The central purpose of a SWOT analysis is to identify strategies which create a company–
specific business model that best aligns or matches the company’s resources and capabilities to its
environment.
29. T F A global strategy addresses how to expand operations outside the home country to grow and
prosper in a world where competitive advantage is determined at a global level.
30. T F Strategy implementation involves taking actions at the functional, business and corporate
level to execute a strategic plan.
31. T F An emergent strategy is formulated through a top-down approach.
32. T F The feedback loop suggests that strategic planning is ongoing; it never ends.
33. T F Critics of formal planning systems argue that we live in a world in which uncertainty,
complexity, and ambiguity dominate, and in which small chance events can have a large and
unpredictable impact on outcomes.
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34. T F A criticism of the rational planning process model of strategy is that too much importance is
attached to the role of top management, and particularly the CEO.
35. T F Action taken by lower-level managers who, on their own initiative, formulate new strategies
and work to persuade top-level managers to alter the strategic priorities of a company is considered a
business-level strategy.
36. T F Mark Andreesen developed the first browser, known as Mosaic.
37. T F The Internet has been around since the 1970s, but prior to the early 1990s, was a drab place,
lacking the color, content, and richness of today’s environment.
38. T F According to Mintzberg’s model, a realized strategy is the product of whatever planned
strategies are actually put into action (the company’s deliberate strategies) and of any unplanned, or
emergent strategies.
39. T F Devil’s advocacy is a technique in which three members of a decision-making group acts as
the devil’s advocate, bringing out all the considerations that might make the proposal unacceptable.
40. T F Scenario planning involves formulating plans that are based upon “what if” scenarios about
the future.
41. A competitive advantage is considered to be a sustained competitive advantage when
a) the firm is able to spread the advantage to all of its business units.
b) it is able to maintain above-average profitability for a number of years
c) the advantage is very large.
d) the advantage was gained at a low cost.
e) the managers who developed the advantage are still employed at the firm.
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42. Which of the following is the organization’s principal general manager?
a) Board of Directors
b) Division head
c) CEO
d) CFO
e) Controller
43. Within a diversified company, the responsibilities of corporate-level strategic managers include
a) translating the corporate mission statement into concrete strategies for individual business
units.
b) closely supervising the formulation of strategies at the functional level that support the
company’s business– and corporate-level strategies.
c) allocating resources to functions within business units.
d) identifying and establishing relationships with supplier firms.
e) overseeing the development of strategies for the total organization and allocating resources
among its different businesses.
44. Which of the following is not considered a part of corporate-level management?
a) Head of R&D
b) The Board of Directors
c) Senior executives
d) The CEO
e) All of these are considered part of corporate-level management.
45. Vice President James E. Small is responsible for executing decisions about human resources. Mr.
Small is
a) a functional manager
b) both a corporate- and business-level general manager.
c) a business-level general manager.
d) a corporate-level general manager
e) a corporate-level, business-level, and functional manager.
46. Functional managers
a) have no strategic role in the organization.
b) look at the overall picture of a corporation.
c) are responsible for the specific business functions or operations that constitute a company or
one of its divisions
d) formulate generic strategies.
e) execute business-level decisions.
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47. Betsy Holden is the head of Kraft Foods, a division of the Philip Morris Company. Which of the
following is not likely to be one of Ms. Holden’s responsibilities?
a) Turning corporate-level strategy into action
b) Supervising functional-level managers
c) Deciding how to compete in the foods industry
d) Defining Philip Morris’ mission
e) Developing a business-level strategy
48. The first component of the strategic management process is
a) deciding on a fit between the organization’s strengths and weaknesses, and the environments
opportunities and threats.
b) analyzing the macro-environment.
c) analyzing the industry environment.
d) determining the firm’s strengths and weaknesses.
e) crafting the organization’s mission statement, which provides the framework or context within
which strategies are formulated.
49. Strategy formulation refers to the
a) task of analyzing the organization’s external and internal environment and then selecting an
appropriate strategy.
b) process by which strategies are put into action.
c) top-down planning process that gives rise to the implementation of emergent strategies.
d) task of analyzing an organization’s external and internal environment and then selecting an
appropriate strategy.
e) process of choosing a realized strategy.
50. A mission statement has ____________ main components
a) three
b) five
c) two
d) four
e) six
51. The second component of the strategic management process is
a) an analysis of the organizations internal environment
b) development of the mission statement
c) a statement of the vision for the organization
d) an analysis of the organization’s external environment
e) a statement of the key values of the organization
52. _________ enables a firm to evaluate the effectiveness of its strategic choices.
a) Strategic intent
b) The feedback loop
c) Internal analysis
d) External analysis
e) SWOT
53. Aaron planned to cut prices at his bicycle shop, but when a competing shop began to offer free
repairs, Aaron decided to copy them. Aaron’s new strategy (offer free repairs) is an example of a(n)
a) mistake.
b) intended strategy
c) deliberate strategy.
d) emergent strategy
e) unrealized strategy.
54. Emergent strategies
a) are often a result of unplanned action taken in response to unforeseen circumstances.
b) are the result of rational planning.
c) are the product of intended strategies
d) always begin at the top level of an organization.
e) lead to deliberate strategies.
55. The comparison of strengths, weaknesses, opportunities, and threats is normally referred to as a/an
a) business-level strategy
b) global strategy
c) SWOT analysis.
d) emergent strategy
e) autonomous action
56. According to Mintzberg, emergent strategies are
a) most useful when the future is certain.
b) less likely to be successful than other types of strategies.
c) usually developed by the firm’s CEO and top managers.
d) exactly the same as deliberate strategies.
e) often successful and may be more appropriate than intended strategies.
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57. When considering emergent strategies, it is important for a firm’s managers to
a) ensure that the chosen strategies are the result of deliberate plans.
b) ignore strategies that are not the result of a formal planning process.
c) develop the emergent strategies themselves.
d) substitute emergent strategies for formal plans whenever possible.
e) assess whether the emergent strategy fits the company’s needs and capabilities.
58. The scenario approach to strategic planning involves
a) using computers to build virtual worlds for top-level managers.
b) honing in on a single prediction of future demand conditions using an iterative planning
process.
c) functional managers setting key corporate objectives.
d) formulating plans that are based upon “what if” scenarios about the future.
e) making planning the exclusive domain of top-level managers.
59. Scenario-based planning is a technique for coping with the problem of
a) strategic fit
b) planning equilibrium.
c) bottom-up planning.
d) uncertainty.
e) cognitive bias.
60. __________ occurs when strategic plans are formulated in a vacuum by top managers who have little
understanding or appreciation of current operating realities.
a) Reasoning by analogy
b) Strategic fit
c) Planning under uncertainty
d) Ivory tower planning
e) Cognitive bias
61. Successful strategic planning
a) encompasses managers at all levels.
b) should be done by business and functional managers.
c) should be decentralized.
d) should use corporate-level planners as facilitators.
e) requires all of the above.
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62. One important way in which managers can make better use of their knowledge and information is to
understand and manage their _____________ during the course of decision-making
a) dialectic inquiry
b) illusion of control
c) commitment
d) emotions
e) use of power
63. Which of the following cognitive biases occurs when decision makers commit even more resources if
they receive feedback that the project is failing?
a) Prior hypothesis bias
b) Escalating commitment
c) Illusion of control
d) Reasoning by analogy
e) Representativeness
64. Which of the following cognitive biases refers to the fact that decision makers who have strong prior
beliefs about the relationship between two variables tend to make decisions on the basis of these
beliefs, even when presented with evidence that their beliefs are wrong?
a) Escalating commitment
b) Reasoning by analogy
c) Illusion of control
d) Prior hypotheses bias
e) Representativeness
65. _________________ is rooted in the tendency to generalize from a small sample or even a single vivid
anecdote
a) Prior Hypothesis Bias
b) Reasoning by Analogy
c) Illusion of Control
d) Representativeness
e) Devil’s Advocacy
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66. Edward Wrapp’s ideas about the astuteness of political power suggest that successful strategic
managers
a) publicly commit themselves to bold strategic agendas.
b) are unwilling to “live with” less than total acceptance of their programs.
c) maintain tight control over as many decisions as possible.
d) often play the power game with skill and attempt to build consensus for their ideas rather than
use their authority to force ideas through; they act as members or democratic leaders of a
coalition rather than as dictators.
e) recognize the futility of pursuing intended strategies.
67. Jeffrey Pfeffer believes that a manager’s political power comes from his or her control over
a) employee’s paychecks.
b) the firm’s strategic vision.
c) the company’s website.
d) internal communication channels.
e) organizational resources.
68. Strong and effective leaders
a) stay well informed by using formal information channels.
b) do not get involved in strategy formulation.
c) maintain control over most decisions.
d) understand the feelings and viewpoints of subordinates and take those into account when
making decisions.
e) delegate key decisions.
69. Which of the following is not true with regard to individuals with emotional intelligence?
a) They are aware of their own limitations.
b) They make decisions by relying on their emotions.
c) They think before acting.
d) They get along well with others.
e) They are passionate in pursuing their goals.
70. Which of the following is not a cognitive bias?
a) Ivory tower thinking
b) Reasoning by analogy
c) Escalating commitment
d) Representativeness
e) Illusion of control
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71. Feelings of personal responsibility for a project are most likely to lead to
a) prior hypothesis biases.
b) group-think
c) reasoning by analogy.
d) representativeness.
e) escalating commitment
72. Devil’s advocacy
a) involves one group member being responsible for questioning the assumptions of a plan.
b) is vulnerable to the group-think phenomenon.
c) results in unproductive conflict.
d) is simpler than the expert approach.
e) results in a final plan that is a combination of a plan and a counterplan.
73. Effective _________________ develop a network of formal and informal sources who keep them well
informed about what is going on within their company
a) functional managers
b) divisional managers
c) strategic leaders
d) business-level managers
e) none of the above
74. Devil’s advocacy, dialectic inquiry, and the outside view are techniques for enhancing the
effectiveness of ______________________.
a) the willingness to delegate responsibilities.
b) emotional intelligence.
c) strategic decision-making.
d) the strategic direction of the organization.
e) none of the above.
75. The ___________ of a company refers to some desired future state.
a) vision
b) values
c) goals
d) mission statement
e) stakeholders
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76. Discuss the elements of the external operating environment, including the industry environment, the
national environment, and macro-environment.
77. Explain the formal strategic planning process, naming each step in the process, and describing the
specific activities included in each step and the relationship between the steps.
78. Identify the levels of strategic managers and discuss their role in the strategic management process.
79. Describe at least three characteristics of strong strategic leaders. Explain how each of the three
characteristics would help motivate and lead an organization’s personnel.
80. Describe at least three of the cognitive biases that individual decision makers experience. Then,
describe a real or hypothetical situation for each of the three biases, explaining how the bias was
evident in the situation.