CHAPTER 4ESSENTIALS OF PLANNING

MULTIPLE CHOICE

1. Planning is
a. a complex and comprehensive process involving interrelated stages.
b. organizing, implementing, and controlling.
c. finding the best person for a job.
d. communicating effectively with stakeholders.
ANS: A PTS: 1 DIF: M REF: p. 118
NAT: AACSB: Analytic, Strategy

2. Strategic plans are designed to

a. implement operational plans.
b. establish day-by-day procedures.
c. shape the destiny of the firm.
d. carrying out the functions of management.
ANS: C PTS: 1 DIF: E REF: p. 118
NAT: AACSB: Analytic, Strategy

3. The purpose of tactical planning is to

a. establish a general purpose for the organization.
b. translate strategic plans into specific goals and plans for organizational units.
c. tell entry level workers what to do on a daily basis.
d. compensate for past mistakes.
ANS: B PTS: 1 DIF: E REF: p. 118
NAT: AACSB: Analytic, Strategy

4. Branch manager Hector establishes recycling goals for his branch to support the company's strategic
goal of being a good environmental partner. What is Hector doing?
a. tactical planning
b. strategic planning
c. long-range planning
d. vision formulation
ANS: A PTS: 1 DIF: M REF: p. 118
NAT: AACSB: Reflective Thinking, Strategy

5. A study of CEO failure indicated that 70 percent of the time their failures were attributed to
a. poorly developed plans.
b. poor execution, not poor planning.
c. over-ambitious plans.
d. lack of adequate cost controls.
ANS: B PTS: 1 DIF: M REF: p. 121
NAT: AACSB: Reflective Thinking, Strategy

6. A manager controls the plan when he or she

a. creates a vision statement.
b. creates a mission statement.
c. establishes a budget to pay for the action plan.
 d. checks to see how well goals are being attained.
ANS: D PTS: 1 DIF: M REF: p. 122
NAT: AACSB: Reflective Thinking, Operations Management

7. A contingency plan is implemented if the

a. strategic plan is too modest.
b. control processes do not work.
c. original plan cannot be implemented.
d. action plan succeeds.
ANS: C PTS: 1 DIF: E REF: p. 122
NAT: AACSB: Analytic, Strategy

8. Which one of the following is a component of true business strategy?

a. a high level of operational effectiveness
b. a set of activities common to other firms
c. giving customers trade-offs
d. having quite different activities to make similar products for different markets
ANS: C PTS: 1 DIF: M REF: p. 124
NAT: AACSB: Analytic, Strategy

9. A key difference between a vision and a mission is that

a. the mission relates more to today's realities.
b. a mission is set farther into the future.
c. a vision does not deal with products or services.
d. a vision deals more with operations.
ANS: A PTS: 1 DIF: E REF: p. 126
NAT: AACSB: Analytic, Strategy

10. A recommended procedure for formulating strategy is for top-level managers to

a. form a small committee to do most of the work.
b. gather inputs from large numbers of people.
c. perform the task themselves during a retreat.
d. base strategy on fixing customer complaints.
ANS: B PTS: 1 DIF: D REF: p. 127
NAT: AACSB: Analytic, Strategy

11. The purpose of the strategic inventory is to help the manager

a. size up the environment accurately.
b. determine how much inventory is on hand.
c. involve workers at all levels in formulating strategy.
d. develop operating plans.
ANS: A PTS: 1 DIF: D REF: p. 129
NAT: AACSB: Analytic, Leadership Principles

12. Which one of the following strategies should be classified as a business-level strategy?
a. strategic alliances
b. diversification of goods and services
c. product differentiation
d. sticking to core competencies
 ANS: C PTS: 1 DIF: E REF: p. 136
NAT: AACSB: Analytic, Strategy

13. The purpose of a SWOT analysis is to assess

a. strengths, weaknesses, opportunities, and threats.
b. strategy, weaknesses, options, and time.
c. satisfactions, worst options, and trade-offs.
d. successes, winners, and ominous threats.
ANS: A PTS: 1 DIF: E REF: p. 130
NAT: AACSB: Analytic, Strategy

14. Which one of the following is not one of the five competitive forces that business strategists are
supposed to take into account?
a. competition among business units within the firm
b. the power of customers to affect pricing and reduce profit margins
c. the threat of similar or substitute products
d. the power of suppliers to influence the company's pricing
ANS: A PTS: 1 DIF: M REF: p. 134
NAT: AACSB: Analytic, Strategy

15. The firm's purpose and where it fits into the world is identified by the
a. strategy.
b. policy.
c. mission.
d. objective.
ANS: C PTS: 1 DIF: E REF: p. 126
NAT: AACSB: Analytic, Strategy

16. McDonald's states that it would like "to satisfy the world's appetite for good food, well-served, at a
price people can afford." The preceding reflects McDonald's
a. cost-leadership strategy.
b. mission.
c. annual goal statement.
d. advertising campaign.
ANS: B PTS: 1 DIF: D REF: p. 126
NAT: AACSB: Reflective Thinking, Creation of Value

17. Krispy Kreme donuts, a well-known donut retailer (but much smaller than Dunkin Donuts), most
likely emphasizes which one of the following business strategies?
a. cost leadership
b. product differentiation
c. strategic alliances
d. high speed
ANS: B PTS: 1 DIF: M REF: p. 136
NAT: AACSB: Analytic, Strategy

18. When two pharmaceutical firms get together to market a drug, their strategy is referred to as
a. high speed.
b. cost leadership.
c. product differentiation.
 d. a strategic alliance.
ANS: D PTS: 1 DIF: M REF: p. 135
NAT: AACSB: Reflective Thinking, Strategy

19. Suppose that Starbucks opens a nation-wide chain of carwashes, called Starbucks Car Wash. After two
years, the executive team sells of the car washes, and invests the cash back into building more
Starbucks stores. The strategy illustrated is referred to as
a. high speed.
b. sticking to core competencies.
c. product diversification.
d. a strategic alliance.
ANS: B PTS: 1 DIF: M REF: p. 136
NAT: AACSB: Analytic, Strategy

20. A functional strategy for becoming and remaining a successful organization is to

a. form a strategic alliance.
b. find and retain competent people.
c. get to market faster than others.
d. export products.
ANS: B PTS: 1 DIF: M REF: p. 137
NAT: AACSB: Reflective Thinking, Strategy

21. Assume that Motorola developed a cell and camera phone so small it comes with a strap to wear on the
wrist like a watch. Which strategy does this product launch most likely fit?
a. cost leadership
b. product differentiation
c. focus
d. high speed
ANS: B PTS: 1 DIF: M REF: p. 136
NAT: AACSB: Reflective Thinking, Strategy

22. Save-A-Lot has become one of the most successful grocery chains by serving the poor and offering
low prices. This is an example of
a. focus strategy.
b. premium pricing.
c. product differentiation
d. cost leadership
ANS: D PTS: 1 DIF: M REF: p. 137
NAT: AACSB: Reflective Thinking, Strategy

23. Policies serve as guidelines to action

a. that still allow for some interpretation.
b. that must be followed quite strictly.
c. for workers below the top-management level.
d. mostly in the areas of finance and human resources.
ANS: A PTS: 1 DIF: M REF: p. 140
NAT: AACSB: Analytic, Strategy

24. Management by objectives (MBO) includes

a. reviewing group members proposals.
 b. creating action plans to achieve objectives.
c. establishing unit objectives.
d. all of the choices.
ANS: D PTS: 1 DIF: M REF: pp. 142-143
NAT: AACSB: Analytic, HRM

25. Part of Dominos Pizzas original success was based on getting pizzas delivered more quickly than
competitors. This strategy is called
a. strategic planning
b. cost leadership
c. focus.
d. high speed
ANS: D PTS: 1 DIF: E REF: p. 138
NAT: AACSB: Reflective Thinking, Strategy

TRUE/FALSE

1. The first step in the planning process is defining the present situation.

ANS: T PTS: 1 DIF: M REF: p. 119

NAT: AACSB: Analytic, Strategy

2. In planning, measuring external threats is part of defining the present situation.

ANS: T PTS: 1 DIF: M REF: p. 119

NAT: AACSB: Analytic, Environmental Influence

3. The major thrust of business strategy is to achieve a high level of operational effectiveness and
efficiency.

ANS: F PTS: 1 DIF: M REF: p. 123

NAT: AACSB: Analytic, Strategy

4. An exit strategy might be part of the contingency plan.

ANS: T PTS: 1 DIF: D REF: p. 123

NAT: AACSB: Analytic, Strategy

5. A firm's strategy is a master plan for achieving its goals and objectives.

ANS: T PTS: 1 DIF: E REF: p. 123

NAT: AACSB: Analytic, Strategy

6. A major aspect of the nature of business strategy is to choose a unique set of activities to deliver a
unique value.

ANS: T PTS: 1 DIF: E REF: p. 124

NAT: AACSB: Analytic, Creation of Value

7. The mission of the Grand Union supermarket chain is probably to provide food, beverages, and related
merchandise (all of high quality) to the general public.
 ANS: T PTS: 1 DIF: M REF: p. 126
NAT: AACSB: Reflective Thinking, Strategy

8. The purpose of crowdcasting is to obtain widespread input into the development of business strategy.

ANS: T PTS: 1 DIF: M REF: p. 128

NAT: AACSB: Analytic, Strategy

9. To bring about a successful SWOT analysis, it is important to be clear about what you
are doing and why.

ANS: T PTS: 1 DIF: M REF: p. 130

NAT: AACSB: Analytic, Strategy

10. Firms must constantly change in order to be aligned with their key environments.

ANS: T PTS: 1 DIF: M REF: p. 128

NAT: AACSB: Analytic, Environmental Influence

11. The major purpose of the strategic inventory is to help the manager size up the competition, the
customers, and the technology necessary to compete effectively.

ANS: T PTS: 1 DIF: M REF: p. 129

NAT: AACSB: Reflective Thinking, Operations Management

12. Corporate-level strategy is concerned with the total direction of the enterprise and the selection of
specific businesses.

ANS: T PTS: 1 DIF: E REF: p. 132

NAT: AACSB: Analytic, Strategy

13. A SWOT analysis is often used to decide upon which weapons and tactics will be used to deal with a
corporate crisis such as a contaminated food product.

ANS: F PTS: 1 DIF: M REF: pp. 130-131

NAT: AACSB: Reflective Thinking, Strategy

14. One of the five competitive forces is the power of customers to affect pricing and reduce profit
margins.

ANS: T PTS: 1 DIF: E REF: p. 134

NAT: AACSB: Analytic, Strategy

15. Corporate-level strategy helps answer the question, "Which businesses should we enter?"

ANS: F PTS: 1 DIF: M REF: p. 126

NAT: AACSB: Reflective Thinking, Strategy

16. One of the competitive forces identified by Michael Porter is the power of charities to extract money
from a corporation.

ANS: F PTS: 1 DIF: M REF: p. 134

NAT: AACSB: Reflective Thinking, Strategy
 17. The experience of General Motors in diversifying into financial services illustrates how sticking to
core competencies is the most effective business strategy.

ANS: F PTS: 1 DIF: M REF: p. 136

NAT: AACSB: Analytic, Strategy

18. The Rolls Royce and Mercedes Benz automobiles are examples of a cost leadership strategy.

ANS: F PTS: 1 DIF: M REF: p. 137

NAT: AACSB: Reflective Thinking, Strategy

19. Nike and Apple get together to produce a soccer ball that plays tunes when in motion, illustrating a
functional-level business strategy.

ANS: F PTS: 1 DIF: D REF: pp. 137-138

NAT: AACSB: Reflective Thinking, Strategy

20. An example of the business strategy of sticking to core competencies is for a company like Papa John's
Pizza to concentrate on selling pizza and related food and beverage items to the public.

ANS: T PTS: 1 DIF: M REF: p. 136

NAT: AACSB: Reflective Thinking, Strategy

21. A medical products firm specializes in the manufacture of prosthetic arms and legs, thereby illustrating
a focus strategy.

ANS: T PTS: 1 DIF: M REF: pp. 136-137

NAT: AACSB: Reflective Thinking, Strategy

22. A rule is a specific course of action or conduct that must be followed;.

ANS: T PTS: 1 DIF: E REF: p. 141

NAT: AACSB: Analytic, Strategy

23. Operational planning often focuses on the short term.

ANS: T PTS: 1 DIF: D REF: p. 141

NAT: AACSB: Reflective Thinking, Strategy

24. An MBO program involves people setting many objectives for themselves.

ANS: T PTS: 1 DIF: M REF: p. 142

NAT: AACSB: Analytic, HRM

25. In management by objectives, the objectives start at the bottom of the organization and move upward.

ANS: F PTS: 1 DIF: D REF: pp. 142-143

NAT: AACSB: Analytic, HRM

ESSAY

1. Explain the nature of business strategy, including its four major components. Use a real or hypothetical
company in at least two places in your answer.
 ANS:
A strategy is an integrated overall concept and plan of how the organization will achieve its goals and
objectives. According to Porter, business strategy has four components: Strategy involves more than
operational effectiveness; Strategy rests on unique activities (Southwest Airlinesactivities focus on
low-cost, convenient service); A sustainable strategic position requires trade-offs (Dollar General has
low prices but lacks an inviting store atmosphere); and Fit drives both competitive advantage and
sustainability.

PTS: 1 DIF: M REF: pp. 123-125

NAT: AACSB: Reflective Thinking, Strategy

2. Several laptops were stolen from an office by a group of people pretending to be part of the cleaning
company. Every laptop stolen contained sensitive client data. After the theft, all clients had to be
notified that their personal information may have been compromised. The breach of security prompted
25 percent of the companys clients to close their accounts.

1. What are policies and rules?

2. Could policies and rules have prevented this situation? Explain

ANS:

1. Policies are general guidelines to follow when making decisions and taking
action; they are plans. A rule is a specific course of action or conduct that must be followed; it is the
simplest type of plan. Ideally, each rule fits a strategic plan.

2. If the company had policies and rules on how computer ID and passwords should be stored, and
how laptops should be secured, these problems would most likely have been avoided.

PTS: 1 DIF: D REF: pp. 140-141

NAT: AACSB: Technology, Information Technology

3. Write a memo to managers in your company, explaining an MBO program that your company intends
to implement.

ANS:
An MBO program involves sequential steps: Establishing organizational goals; Establishing unit
objectives; Reviewing group members proposals; Negotiating or agreeing; Creating action plans to
achieve objectives; and Reviewing performance.

PTS: 1 DIF: M REF: p. 143

NAT: AACSB: Reflective Thinking, HRM

4. Using the planning model, how would you plan an event for 500 people.

ANS:
The steps of the planning model include: 1. Define the situation (a birthday); 2.Establish the goals and
objectives (good food, good music, good setting, 500 friends); 3. Analyze the environment in terms of
aids and barriers to goals and objectives (aids: many people to help, ballroom with a nice atmosphere
available--barriers: high costs); 4. Develop action plans to reach goals and objectives (list calls to be
made to florist, restaurant, musicians); 5. Develop budgets (establish cost per person for food and
beverage, cost for centerpieces, cost for musicians); 6. Implement the plans (reserve the ballroom,
musicians, send out invitations);
7. Control the plans (oversee the food service, the music, the seating.)

PTS: 1 DIF: M REF: p. 119

NAT: AACSB: Reflective Thinking, Strategy