Testbank of fundamental of management 7e by robin ch 04

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.
Diff: 2
Page Ref: 84
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.
Diff: 2
Page Ref: 84
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.
Diff: 1
Page Ref: 84

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.
Diff: 2
Page Ref: 84
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.
Diff: 2
Page Ref: 84
Objective: 4.1
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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.

Diff: 2
Page Ref: 84
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.
Diff: 2
Page Ref: 84
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.
Diff: 2
Page Ref: 84
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 85
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.

Diff: 2
Page Ref: 85
AACSB: Analytic Skills
Objective: 4.1

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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.
Diff: 2
Page Ref: 85
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 85
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 86
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.
Diff: 2
Page Ref: 86
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.
Diff: 2
Page Ref: 86
AACSB: Analytic Skills
Objective: 4.1

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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.
Diff: 2
Page Ref: 86
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.
Diff: 2
Page Ref: 86
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 87
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.
Diff: 2
Page Ref: 88
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.
Diff: 2
Page Ref: 88
AACSB: Analytic Skills
Objective: 4.3

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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.
Diff: 2
Page Ref: 88
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.
Diff: 2
Page Ref: 88
AACSB: Analytic Skills
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.
Diff: 1
Page Ref: 85
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.
Diff: 2
Page Ref: 90
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.
Diff: 2

Page Ref: 90
Objective: 4.3

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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.
Diff: 2
Page Ref: 90
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.
Diff: 2
Page Ref: 91
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.
Diff: 2
Page Ref: 91
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.
Diff: 2
Page Ref: 92
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.
Diff: 2
Page Ref: 92
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.
Diff: 2
Page Ref: 93
Objective: 4.3

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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.
Diff: 2
Page Ref: 95
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.
Diff: 1
Page Ref: 95
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. Nontraditional goal setting can be accomplished by others in the organization who are not necessarily
at the top of the pyramid.
Diff: 2
Page Ref: 96
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.
Diff: 2
Page Ref: 97
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.
Diff: 2
Page Ref: 98
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.
Diff: 2
Page Ref: 99
Objective: 4.4
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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.
Diff: 2
Page Ref: 99
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.
Diff: 2

Page Ref: 99
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.
Diff: 2
Page Ref: 100
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 104
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.
Diff: 2

Page Ref: 84
Objective: 4.1

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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.
Diff: 1
Page Ref: 84
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.
Diff: 2
Page Ref: 84
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.
Diff: 2
Page Ref: 84
Objective: 4.1

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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.
Diff: 2
Page Ref: 84
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.
Diff: 2
Page Ref: 84
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.
Diff: 2

Page Ref: 84
Objective: 4.1

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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.
Diff: 2
Page Ref: 84
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 84
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 84
Objective: 4.1

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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.
Diff: 2
Page Ref: 84
AACSB: Analytic Skills
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.
Diff: 3
Page Ref: 85
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 85
Objective: 4.1

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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.
Diff: 3
Page Ref: 85

AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 86
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.

Diff: 3
Page Ref: 86
AACSB: Analytic Skills
Objective: 4.1

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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.
Diff: 2
Page Ref: 86
AACSB: Analytic Skills
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.
Diff: 1
Page Ref: 86
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.
Diff: 2
Page Ref: 87
Objective: 4.2

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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.
Diff: 2
Page Ref: 87
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.
Diff: 2
Page Ref: 88
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.
Diff: 2
Page Ref: 88
Objective: 4.2

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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.
Diff: 2

Page Ref: 88
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.
Diff: 2
Page Ref: 88
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.
Diff: 2
Page Ref: 88

Objective: 4.2

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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.
Diff: 2
Page Ref: 88
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.

Diff: 2
Page Ref: 88
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.
Diff: 2
Page Ref: 88
Objective: 4.2

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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.
Diff: 2
Page Ref: 88
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.
Diff: 2
Page Ref: 88
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.
Diff: 2
Page Ref: 89
Objective: 4.2

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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.
Diff: 2
Page Ref: 89
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.
Diff: 1
Page Ref: 89
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.
Diff: 2
Page Ref: 89
Objective: 4.2

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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.
Diff: 1
Page Ref: 90
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.
Diff: 1
Page Ref: 90
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.
Diff: 3
Page Ref: 90
AACSB: Analytic Skills
Objective: 4.2

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84) Two movie studios combining to form one larger studio is an example of which of the
following?
A) forward vertical integration
B) horizontal integration
C) backward vertical integration
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.
Diff: 2
Page Ref: 90
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 90
AACSB: Analytic Skills
Objective: 4.2

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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
C) backward 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.
Diff: 2
Page Ref: 90
AACSB: Analytic Skills
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.
Diff: 3
Page Ref: 90
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 90
AACSB: Analytic Skills
Objective: 4.2

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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.

Diff: 2
Page Ref: 91
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.
Diff: 2
Page Ref: 91
AACSB: Analytic Skills
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.

Diff: 2
Page Ref: 90
AACSB: Analytic Skills
Objective: 4.2

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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.
Diff: 2
Page Ref: 91
AACSB: Analytic Skills
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.
Diff: 2
Page Ref: 91
AACSB: Analytic Skills
Objective: 4.2

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