Strategic Management Creating Competitive Advantages Gregory Dess 9e

Strategic Management Creating Competitive Advantages Gregory Dess 9e

Strategic Management: Text and Cases, 9e (Dess)

Chapter 9 Strategic Control and Corporate Governance

1) Strategic control systems, both informational and behavioral, are used to correct the performance and ultimate strategy of a firm.

Answer: TRUE

Explanation: Strategic control is the process of monitoring and correcting the strategy and performance of a firm. Two central aspects of strategic control are informational control (the ability to respond effectively to environmental change) and behavioral control (the appropriate balance and alignment among the culture, rewards, and boundaries of a firm).

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-01 The value of effective strategic control systems in strategy implementation.

Bloom’s: Understand

AACSB: Knowledge Application

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2) Informational controls involve the balance and alignment of the culture, rewards, and boundaries of a firm.

Answer: FALSE

Explanation: Strategic control is the process of monitoring and correcting the strategy and performance of a firm. Two central aspects of strategic control are informational control (the ability to respond effectively to environmental change) and behavioral control (the appropriate balance and alignment among the culture, rewards, and boundaries of a firm).

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-01 The value of effective strategic control systems in strategy implementation.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

3) The traditional approach to strategic control is interactive, while the contemporary approach to strategic control is sequential.

Answer: FALSE

Explanation: The traditional approach to strategic control is sequential, while in the contemporary approach, the relationships between strategy formulation, implementation, and control are highly interactive.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

4) The traditional approach to strategic control relies on feedback from performance measurement to formulate strategy.

Answer: TRUE

Explanation: The traditional approach to strategic control is based on a feedback loop from performance measurement to strategy formulation. This process typically involves lengthy time lags, often tied to the annual planning cycle of a firm.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

5) For firms competing in highly unstable and turbulent industries, traditional strategic controls are most appropriate.

Answer: FALSE

Explanation: Traditional control systems are most appropriate when the environment is stable and relatively simple, goals and objectives can be measured with a high level of certainty, and there is little need for complex measures of performance.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

6) Sales quotas, operating budgets, and production schedules are examples of traditional controls.

Answer: TRUE

Explanation: Traditional control systems include sales quotas, operating budgets, production schedules, and similar quantitative control mechanisms.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

7) In single-loop learning, the assumptions, premises, goals, and strategies of the organization are continuously monitored, tested, and reviewed.

Answer: FALSE

Explanation: The traditional approach to strategic control is based on a feedback loop from performance measurement to strategy formulation. Such traditional control systems, termed single-loop learning by Chris Argyris of Harvard University, simply compare actual performance to a predetermined goal.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

8) Contemporary strategic controls involve comparing actual performance to predetermined goals.

Answer: FALSE

Explanation: Traditional control systems, termed single-loop learning by Chris Argyris of Harvard University, simply compare actual performance to a predetermined goal.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

9) Informational control is primarily concerned with whether the organization is doing the right things.

Answer: TRUE

Explanation: There are two different types of strategic control in the contemporary approach: informational control and behavioral control. Informational control is primarily concerned with whether or not the organization is doing the right things.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

10) Double-loop learning in the contemporary approach to strategic control means that the organizational assumptions, premises, goals and strategies are occasionally monitored, tested, and reviewed.

Answer: FALSE

Explanation: In the contemporary approach to strategic control, there is double-loop learning in which the assumptions, premises, goals, and strategies of the firm are continuously monitored, tested, and reviewed. Time lags are dramatically shortened, changes in the competitive environment are detected earlier, and the ability of the organization to respond with speed and flexibility is enhanced.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

11) In contemporary control systems, data and information generated are best interpreted and discussed in online forums, in order to have traceability of the discussion.

Answer: FALSE

Explanation: Contemporary control systems must have four characteristics to be effective. One of these is that the data and information generated are best interpreted and discussed in face-to-face meetings.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

12) As firms downsize, a control system based on rewards and culture becomes dysfunctional.

Answer: FALSE

Explanation: As firms simultaneously downsize and face the need for increased coordination across organizational boundaries, a control system based primarily on rigid strategies, rules, and regulations is dysfunctional. The use of rewards and culture to align individual and organizational goals becomes increasingly important.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-04 The benefits of having the proper balance among the three levers of behavioral control: culture, rewards and incentives, and boundaries.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

13) For young managers who see themselves as free agents, behavioral controls such as rewards and culture can be an effective way to enhance organizational loyalty.

Answer: TRUE

Explanation: Younger managers today have been conditioned to see themselves as free agents and view a career as a series of opportunistic challenges. As managers are advised to specialize, market themselves, and have work, if not a job, the importance of culture and rewards in building organizational loyalty claims greater importance.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-04 The benefits of having the proper balance among the three levers of behavioral control: culture, rewards and incentives, and boundaries.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

14) Once a strong and healthy organizational culture has been established, it becomes self-sustaining.

Answer: FALSE

Explanation: Powerful organizational cultures just do not happen overnight, and they do not remain in place without a strong commitment, both in terms of words and deeds, by leaders throughout the organization.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-04 The benefits of having the proper balance among the three levers of behavioral control: culture, rewards and incentives, and boundaries.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

15) The primary participants in corporate governance, according to Monks and Minow, are the shareholders, board of directors, and employees.

Answer: FALSE

Explanation: Robert Monks and Nell Minow, two leading scholars in corporate governance, define it as the relationship among various participants in determining the direction and performance of corporations. The primary participants are the shareholders, the management (led by the CEO), and the board of directors. Agency theory is concerned with resolving two problems that can occur in agency relationships. The first is the agency problem that arises when the goals of the principals and agents conflict and when it is difficult or expensive for the principal to verify what the agent is actually doing.

Difficulty: 2 Medium

Topic: Corporate Governance

Learning Objective: 09-05 The three key participants in corporate governance: shareholders, management (led by the CEO), and the board of directors.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

16) Central to agency theory is the relationship between two primary players, the principals (stockholders) and agents (management).

Answer: TRUE

Explanation: Central to agency theory is the relationship between two primary players, the principals who are the owners of the firm (stockholders) and the agents, who are the people paid by principals to perform a job on their behalf (management).

Difficulty: 2 Medium

Topic: Corporate Governance

Learning Objective: 09-05 The three key participants in corporate governance: shareholders, management (led by the CEO), and the board of directors.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

17) Research has shown that executives who have large holdings of stock in their firm are more likely to have diversification strategies more consistent with shareholder interests, like increasing long-term returns.

Answer: TRUE

Explanation: Agents (executives) may have a stronger preference toward diversification than shareholders, because it reduces their personal level of risk from potential loss of employment. Executives who have large holdings of stock in their firms were more likely to have diversification strategies that were more consistent with shareholder interests, like increasing long-term returns.

Difficulty: 2 Medium

Topic: Corporate Governance

Learning Objective: 09-05 The three key participants in corporate governance: shareholders, management (led by the CEO), and the board of directors.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

18) One of the most critical roles of the board of directors is to create incentives that align the interests of the CEO and top executives with the interests of shareholders.

Answer: TRUE

Explanation: Managerial incentives, sometimes called contract-based outcomes, consist of reward and compensation agreements for managers. Here the goal is to carefully craft managerial incentive packages to align the interests of management with those of the stockholders.

Difficulty: 2 Medium

Topic: Governance Mechanisms

Learning Objective: 09-06 The role of corporate governance mechanisms in ensuring that the interests of managers are aligned with those of shareholders from both the United States and international perspectives.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

19) According to the Business Roundtable, representing the largest U.S. corporations, the most important quality of a good board of directors is that they do not get involved in critiquing company strategies.

Answer: FALSE

Explanation: According to the Business Roundtable, the most important quality for a good board of directors is to be active, critical participants in determining company strategies. That does not mean board members should micromanage or circumvent the CEO. Rather, they should provide strong oversight going beyond simply approving the plans of the CEO.

Difficulty: 2 Medium

Topic: Governance Mechanisms

Learning Objective: 09-06 The role of corporate governance mechanisms in ensuring that the interests of managers are aligned with those of shareholders from both the United States and international perspectives.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

20) In order to have effective board operations, firms need to cultivate engaged and committed boards.

Answer: TRUE

Explanation: Research and simple observations of boards indicate that simple prescriptions, such as having a majority of outside directors, are insufficient to lead to effective board operations. Firms need to cultivate engaged and committed boards.

Difficulty: 2 Medium

Topic: Governance Mechanisms

Learning Objective: 09-06 The role of corporate governance mechanisms in ensuring that the interests of managers are aligned with those of shareholders from both the United States and international perspectives.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

21) Behavioral controls are aspects of strategic change that involve finding the appropriate ________ and ________ among the culture, rewards, and boundaries of the firm.

1. A) balance; alignment
2. B) measure; balance
3. C) alignment; balance
4. D) measure; outcome

Answer: A

Explanation: Strategic control is the process of monitoring and correcting the strategy and performance of a firm. Two central aspects of strategic control are informational control (the ability to respond effectively to environmental change) and behavioral control (the appropriate balance and alignment among the culture, rewards, and boundaries of a firm).

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-01 The value of effective strategic control systems in strategy implementation.

Bloom’s: Understand

AACSB: Knowledge Application

Accessibility: Keyboard Navigation

22) Tesco was forced to restate its earnings for the first half of 2014 to 431 million USD because senior managers in the U.K. food business had booked income early and delayed the booking of costs in order to improve appearances of financial performance. This scandal results from ________ and ________.

1. A) poor environment; management systems
2. B) poor governance; control
3. C) external environmental factors; internal environmental factors
4. D) leadership; financial systems

Answer: B

Explanation: Strategic control is the process of monitoring and correcting the strategy and performance of a firm. Two central aspects of strategic control are informational control (the ability to respond effectively to environmental change) and behavioral control (the appropriate balance and alignment among the culture, rewards, and boundaries of a firm). In the case of Tesco, good governance is imperative. Shareholders and the board of directors must ensure that company management team members strive to fulfill their fiduciary duty of maximizing long-term shareholder value. As we just saw in the Tesco example, poor governance and control can lead to damaging scandals in firms.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-01 The value of effective strategic control systems in strategy implementation.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

23) The traditional approach to strategic control is sequential. Which of the following is not one of the steps in the sequence?

1. A) Action plans are submitted by lower level managers.
2. B) Performance is measured against the predetermined goal.
3. C) Strategies are implemented.
4. D) Strategies are formulated and top management sets goals.

Answer: A

Explanation: The traditional approach to strategic control is sequential: (1) strategies are formulated and top management sets goals, (2) strategies are implemented, and (3) performance is measured against the predetermined goal set.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

24) Which of the following is the primary drawback of traditional strategic control systems?

1. A) They are only appropriate when the environment is stable and simple.
2. B) Goals and objectives cannot be measured with a high level of certainty.
3. C) They lead to complacency.
4. D) They lack the flexibility needed to adjust to changes in the environment.

Answer: D

Explanation: Some question the value of rigid planning and goal-setting processes. Fixed strategic goals also become dysfunctional for firms competing in highly unpredictable competitive environments. Strategies need to change frequently and opportunistically. An inflexible commitment to predetermined goals and milestones can prevent the very adaptability that is required of a good strategy.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

25) For businesses facing complex and turbulent business environments, which of the following is true?

1. A) Goals and objectives that are uncertain prevent opportunism.
2. B) Traditional strategic controls are usually inappropriate.
3. C) Complacency about predetermined milestones can prevent adaptability.
4. D) Detailed plans are needed to maintain order.

Answer: B

Explanation: Traditional control systems are most appropriate when the environment is stable and relatively simple, goals and objectives can be measured with a high level of certainty, and there is little need for complex measures of performance.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

26) Single-loop learning, according to Chris Argyris, is most appropriate when the environment is ________, goals and objective can be measured with a ________ of certainty, and there is ________ need for complex measures of performance.

1. A) stable; high level; little
2. B) unstable; low level; great
3. C) stable; low level; great
4. D) unstable; high level; little

Answer: A

Explanation: Control is based on a feedback loop from performance measurement to strategy formulation. This process typically involves lengthy time lags, often tied to the company annual planning cycle. Such traditional control systems, termed single-loop learning by Chris Argyris of Harvard University, simply compare actual performance to a predetermined goal. They are most appropriate when the environment is stable and relatively simple, goals and objectives can be measured with a high level of certainty, and there is little need for complex measures of performance.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

27) In the contemporary approach to strategic control, adapting to and anticipating both internal and external environmental change is an integral part. The relationships between ________, ________, and ________ are highly interactive.

1. A) change; leadership; control
2. B) strategy formulation; leadership; control
3. C) strategy formulation; implementation; control
4. D) strategic information; organizational behavior; implementation

Answer: C

Explanation: Adapting to and anticipating both internal and external environmental change is an integral part of strategic control. The relationships between strategy formulation, implementation, and control are highly interactive, as suggested by Exhibit 9.2. The exhibit also illustrates two different types of strategic control: informational control and behavioral control.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-02 The key difference between “traditional” and “contemporary” control systems.

Bloom’s: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

28) Contemporary approaches to strategic control rely primarily on

1. A) feedback controls.
2. B) single-loop learning.
3. C) double-loop learning.
4. D) comparative learning.

Answer: C

Explanation: In the contemporary approach, information control is part of an ongoing process of organizational learning that continuously updates and challenges the assumptions that underlie the strategy of the organization. In such double-loop learning, the assumptions, premises, goals, and strategies of the organization are continuously monitored, tested, and reviewed.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

29) Informational control systems are concerned with which of the following questions?

1. A) Is the organization doing things right?
2. B) Is the organization doing the right things?
3. C) Are rules and regulations being followed as information is processed?
4. D) Is the environment of the organization a necessary and sufficient condition for success?

Answer: B

Explanation: In the contemporary approach, there are two different types of strategic control: informational control and behavioral control. Informational control is primarily concerned with whether or not the organization is doing the right things.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

30) Continuous monitoring, in the contemporary approach, is beneficial because

1. A) it reduces time lags.
2. B) it increases the time it takes to detect changes in the competitive environment.
3. C) organizational flexibility is reduced.
4. D) organization response time is increased.

Answer: A

Explanation: In the contemporary approach, information control is part of an ongoing process of organizational learning that continuously updates and challenges the assumptions that underlie the strategy of the organization. The benefits of continuous monitoring include: time lags are dramatically shortened, changes in the competitive environment are detected earlier, and the ability of the organization to respond with speed and flexibility is enhanced.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

31) Which of the following is not one of the characteristics of a contemporary control system?

1. A) It is a key catalyst for an ongoing debate about underlying data, assumptions, and action plans.
2. B) It must focus on constantly changing information that is strategically important.
3. C) It circumvents the need for face-to-face meetings among superiors, subordinates, and peers.
4. D) It generates information that is important enough to demand regular and frequent attention.

Answer: C

Explanation: Contemporary control systems must have four characteristics to be effective: focus on constantly changing information that has potential strategic importance; the information is important enough to demand frequent and regular attention from all levels of the organization; the data and information generated are best interpreted and discussed in face to face meetings; and the control system is a key catalyst for an ongoing debate about underlying data, assumptions, and action plans.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

32) Top managers at ABC Company meet every Friday to review daily operational reports and year to date data. This is an example of

1. A) behavioral control.
2. B) informational control.
3. C) strategy formulation.
4. D) strategy implementation.

Answer: B

Explanation: In the contemporary approach, information control is part of an ongoing process of organizational learning and must have several characteristics, including that the information is important enough to demand frequent and regular attention from all levels of the organization, and the data and information generated are best interpreted and discussed in face-to-face meetings.

Difficulty: 2 Medium

Topic: Organizational Structure and Controls

Learning Objective: 09-03 The imperative for contemporary control systems in today’s complex and rapidly changing competitive and general environments.

Bloom’s: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation