Chapter 12 Strategic Leadership True/False 1. Financial controls provide feedback about the outcomes of the firm's past actions and predictions about the results of the firm's future actions. A. True B. False Answer: False 2. Effectively managing the firm's resource portfolio (financial, human, social, and organizational capital) may be the most important strategic leadership task. A. True B. False Answer: True 3. Selection of an insider as a new CEO indicates a firm's desire to encourage innovation and strategic change. A. True B. False Answer: False 4. The more homogeneous a top management team, the more likely those managers will be innovative and willing to pursue strategic change. A. True B. False Answer: False 5. Rewarding those who use proper channels and procedures to report observed wrongdoings is an example of an action that should be taken by a strategic leader to develop an ethical organizational culture. A. True B. False Answer: True 6. Strategic leaders are most likely to integrate ethical values into their decisions when the company has explicit ethics codes that are integrated into the business through extensive ethics training. A. True B. False Answer: True 7. The firm's envisioned future encourages employees to stretch beyond their expectations of accomplishment and requires significant change and progress to be realized. A. True B. False Answer: True 8. Internal labor markets consist of the career opportunities for managers within the firm for which they currently work. A. True B. False Answer: True 9. When the new CEO is from inside the firm and a heterogeneous top management team is in place, the strategy may not change, but innovation is likely to continue. A. True B. False Answer: True 10. Employees usually have a strong preference for firms to use the internal managerial labor market when selecting top management team members and the CEO. A. True B. False Answer: True 11. The Chapter 12 Strategic Focus reports on recent surveys which found that about 90 percent of boards of corporations had a succession plan for their CEOs. A. True B. False Answer: False 12. Firm size, firm age, the executive's tolerance for ambiguity, and his or her commitment to strategic outcomes are all factors that may affect managerial discretion. A. True B. False Answer: True 13. Criteria such as asset utilization improvements and changes in employee turnover rates are part of the internal business processes perspective of the balanced scorecard. A. True B. False Answer: True 14. The experience that results from long tenure in a firm is known to extend the breadth of an executive's knowledge base. A. True B. False Answer: False 15. Strategic control focuses on the content of strategic actions rather than their outcomes. A. True B. False Answer: True 16. The more heterogeneous and the larger the top management team, the easier it is to implement strategy effectively. A. True B. False Answer: False 17. In the past, companies had a preference for insiders to fill top-level management positions because of the desire for continuity and a continuing commitment to the firm's current vision, mission, and chosen strategies. A. True B. False Answer: True 18. As the dynamics of competition accelerate, people are perhaps the only truly sustainable source of competitive advantage. A. True B. False Answer: True 19. Transformational leadership is the most effective strategic leadership style. A. True B. False Answer: True 20. The balanced scorecard's perspective on learning and growth is intended to improve the firm's ability to innovate. A. True B. False Answer: True 21. The decision-making discretion of top-level managers is determined partly by external environmental factors such as the industry structure, the industry's rate of growth, and the degree to which products can be differentiated. A. True B. False Answer: True 22. The CEO is the individual with primary responsibility for effective strategic leadership within an organization. A. True B. False Answer: True 23. Competitive aggressiveness, proactiveness, risk aversion, innovativeness, and autonomy are the five dimensions characterizing the entrepreneurial mind-set. A. True B. False Answer: False 24. When a new CEO is selected from outside the firm, a change of strategy is likely, especially if the top management team is homogenous and highly cohesive. A. True B. False Answer: False 25. Because of the current changing competitive landscape and varying levels of performance, an increasing number of boards of directors are turning to insiders to succeed CEOs. A. True B. False Answer: True 26. The advantages of long tenure (firm-specific human and social capital, knowledge, and power) seem to outweigh the disadvantages of rigidity and maintaining the status quo. A. True B. False Answer: True 27. To influence employees' judgment and behavior, ethical practices must shape the firm's decision-making process, but should be a peripheral part of organizational culture. A. True B. False Answer: False 28. The strategic direction of a firm usually focuses on the coming 3 to 5 years. A. True B. False Answer: True 29. Including talent from both the internal and external labor markets increases the likelihood that the firm will be able to form an effective top management team. A. True B. False Answer: True 30. An emphasis on strategic controls encourages managers to be risk averse. A. True B. False Answer: False 31. Members with substantive expertise in the firm's core functions and businesses aids the effectiveness of the top management team. A. True B. False Answer: True 32. The firm's core ideology motivates the firm's employees through the company's heritage. A. True B. False Answer: True 33. Compared to homogeneous top management teams, heterogeneous top management teams with an internally promoted CEO are more likely to change their firm's strategies when necessary and to support innovation. A. True B. False Answer: False 34. The most critical ability of a strategic leader is the ability to attract and then manage human capital. A. True B. False Answer: True 35. The training of future strategic leaders yields a competitive advantage for a firm, in part because knowledge and skills are necessary for successful execution of strategy. A. True B. False Answer: True 36. GM's newest CEO, Dan Akerson, is building new capabilities in technology development and marketing, especially in customer service. This is an example of a CEO developing capabilities into core competencies. A. True B. False Answer: True 37. Organizational culture is a complex set of ideologies, symbols, and core values that are shared throughout the firm, but its development is so subtle and poorly understood that top managers cannot influence its content. A. True B. False Answer: False 38. Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. A. True B. False Answer: True 39. Typically, a vice president would NOT be considered to hold a high enough position to be included in the top management team of an organization. A. True B. False Answer: False 40. The CEO of YorkMark, Inc., has an exceptional amount of power in the organization. It is likely the board of directors is composed of sympathetic outside members and insiders who report to the CEO. A. True B. False Answer: True 41. External social capital is increasingly critical to firm success as few if any companies have all the resources to successfully compete against their rivals. A. True B. False Answer: True 42. For 15 years, Edward was a compensation specialist at a mid-sized firm. He was laid off when the firm experienced financial setbacks. Edward has decided to open his own business as a compensation consultant to small firms. He can expect that his main source of human capital will be a bank line of credit. A. True B. False Answer: False 43. Incremental changes to a firm's culture can be used to implement strategies effectively. A. True B. False Answer: True 44. A CEO may gain power by holding the titles of both CEO and Chairman of the Board. A. True B. False Answer: True 45. The underlying premise of the balanced scorecard is that firms jeopardize their future performance possibilities when strategic controls are emphasized at the expense of financial controls. A. True B. False Answer: False 46. The balanced scorecard focuses on both financial and non-financial controls. A. True B. False Answer: True 47. Top management team members and CEOs who have long tenure on the team and in the organization have greater influence in board decisions. A. True B. False Answer: True 48. In addition to determining new strategic initiatives, top-level managers also develop the appropriate organizational structure and reward systems of a firm. A. True B. False Answer: True Subjective Short Answer Case Scenario 1: The Walt Disney Company The Walt Disney Company was founded as a cartoon studio in 1923 by Walt Disney and his brother Roy with a $500 loan from an uncle. In the early 1920s, cartoonist Walt Disney visited New York to pitch his idea for a cartoon rabbit called Waldo. During that trip, through a complicated series of events, Disney lost the rights to develop Waldo. On the train-ride back to California he spoke with his wife about the importance of coming home with some alternative character. "I can't come back to our office and tell them I've lost Waldo," he bemoaned. This hardship inspired Disney to develop a new character, Mickey Mouse, and release the world's first fully- synchronized sound cartoon, "Steamboat Willie" (starring, of course, Mickey Mouse). Disney's creative genius was now coupled with a fierce instinct to protect and control his creative output. Never again would he lose "Waldo." Consequently, the Walt Disney Company was pushed by Walt to tirelessly create timeless and universal entertainment, consistently innovate and take risks to deliver that entertainment, stress a vision of being the provider of choice of quality family entertainment, and maintain rigorous control over the quality of customers' experiences with Disney products and its image. Such a personal passion for control led the Walt Disney Company into theme parks because Disney did not want Mickey's reputation sullied by the dirty, cheap theme parks that littered the land during those days. All films had to be new and of the highest quality animation (taking a minimum of five years to create, including hand-painted backgrounds); sequel films were not tolerated. Walt's vision and risk taking propensity led him in the early 1960s to buy 43,000 acres in Florida (now Walt Disney World), betting the company's future on a high-risk, uncertain venture. Amidst such a flurry of activity, Walt Disney died just before Christmas 1966, and the company was literally stopped dead in its tracks. Walt Disney's blueprint was being followed to the letter, but no further (Walt Disney World opened in 1971). No "new" creations were undertaken until 1982, when the company finally launched such businesses as the Disney Channel, Touchstone, and their home video business. Had it not been for the appointment of Michael Eisner as Disney's new CEO in 1984, the company would likely not have survived its perilous financial situation and stifled creativity. Eisner returned the company to its roots of family entertainment and values of quality, fairness, creativity, entrepreneurialism, and teamwork. 49. (Refer to Case Scenario 1). To what extent had the Walt Disney Company become a reflection of Walt up to the time that he died in 1966? Answer: This question helps the students to see how the personality of a particularly influential person can actually become imprinted on the firm. The best answers will observe that Walt was a hugely creative risk taker, and we see the consequences of his personality in the legacy identified in the case. Up to Walt Disney's death in 1966, the Walt Disney Company closely reflected his personal vision and values. Walt's relentless pursuit of creative excellence, control over quality, and commitment to innovation shaped the company's identity. His decisions to venture into animation, theme parks (like Disneyland), and ambitious projects (such as Walt Disney World) underscored his influence on the company's direction and risk-taking culture. His insistence on family-friendly entertainment and avoidance of sequels also defined Disney's approach during his tenure. 50. (Refer to Case Scenario 1). The Walt Disney Company had a plan for succession in the event of the death of Walt Disney. When Walt died before Christmas 1966, the new CEO continued Walt's dream and created innovations that allowed Disney to continue along its path to success with very little interruption. Answer: False 51. (Refer to Case Scenario 1). What value-creating legacy did Walt Disney leave to the Walt Disney Company? Answer: There are numerous starting points and comprehensive answers should note that the theme parks, creative content, retailing, and real estate divisions are likely to continue generating surplus value into the future because of several barriers to entry. These include Disney's strong brand name value, which is likely to allow them to charge higher prices, earn higher margins, and maintain healthy returns on capital into the future. The bulk of the investment, especially in the theme parks, has been made already. Disney will continue to enjoy the benefits of this investment in the form of earnings at these parks. The potential for excess returns in the creative content (movie) division will continue to be greater for Disney Studios (where the brand name counts) than for Touchstone Studios, where the brand name value counts for less. 52. (Refer to Case Scenario 1). Why do you think the Walt Disney Company had so much difficulty being innovative in the decades following Walt's death? Answer: The best answers will suggest that while aspects of Walt's personality may have become imprinted on the Disney Company, there was likely little near-term replacement for his personal vision and tolerance for risk. This vision drove the firm to stretch itself beyond its means (have the students imagine what it must have been like describing plans for Walt Disney World to a banker before it was built), because Walt was comfortable taking the concomitant risks. Consequently, upon Walt's death, his company was well able to implement the vision, but could no longer revise it and extend it as Walt did. Only when the firm faced possible ruin was it able to take the drastic steps of renewal, including its propensity to take risks in the form of entrepreneurial behavior (for example, Disney released Roger Rabbit, a state-of-the-art animated feature film). Case Scenario 2: Yepsen Timber Farms, Inc. Yepsen Timber Farms, Inc., (YTF) was started around 1933 by Danish immigrants. The firm's primary operations were timber harvesting on several thousand acres in Oregon acquired in part under the Homestead Act, and in part through direct purchase. The firm was founded, initially as a partnership, between brothers Mogens and John (Jack) Yepsen. The Yepson brothers were among the first four graduates at Oregon Agricultural College (now Oregon State University), worked for the forest service and private industry in Oregon for a number of years, then quit their respective jobs to manage the forest they had been developing for a number of years. While timber is considered a low-tech type business, Mogens and Jack were very innovative from the standpoint that they established "tree farms," that is, harvesting then replanting acreage so that it would yield timber on a sustainable basis. At the time, and in certain parts of the world to this day, timber lands were typically "clear cut" where all the trees were stripped from a property, then the timber harvester simply moved to another parcel. This practice left thousands of acres barren, and often damaged valuable animal habitats and watershed. The brothers also introduced hybrid Pine and Douglas Fir trees that grew considerably faster than the native forest stock. These factors allowed them to grow trees that would be ready for market in 25 years, about half the time of that required to grow native trees. The brothers' idea about regeneration, care for the environment, and hybridization defined the YTF business. Never would land be harvested faster than it could replenish itself, or in a manner that threatened habitats or watersheds. Eventually, Mogens and Jack passed on and their only surviving children, Marjorie, Mary Jane, Burton, and Betty inherited the property. Two of these heirs took a strong interest in further building the portfolio of Oregon properties, and also converted the holdings to an S-Corp. to allow for the distribution of ownership and earnings to their own children. Under their guidance, YTF was tremendously successful and garnered much community acclaim for its sustainable farming practices. Now, the four siblings are in their 70s and few of their children have expressed much interest in managing the extensive portfolio of timber holdings. Among those that have expressed an interest, some are very knowledgeable about forestry, while others have a track record of incompetence and self-promotion. At the same time, ownership is now spread among some 40 children, nieces, nephews, and grandchildren of the four siblings. Many of these individuals' only interest in YTF is the annual dividend check they receive. 53. (Refer to Case Scenario 2). What culture did Mogens and Jack nurture in YTF? Answer: The best answers will address this question by looking to the case scenario statement that "The brothers' idea about regeneration, care for the environment, and hybridization defined the YTF business. Never would land be harvested faster than it could replenish itself, or in a manner that threatened habitats or watersheds." Other subtler aspects of the culture may be retaining YTF as a family-owned and family-run Oregon timber farm. The second part of this latter statement suggests that some of YTF's culture may actually include a definition of the firm's scope of operations, both geographic (Oregon) and business (timber). 54. (Refer to Case Scenario 2). How important is this culture to the future success of YTF? Answer: The best answers will likely begin by noting that YTF's culture has defined its strategy, which should probably be credited for the firm's historical success. The second part of this answer will depend on students' understanding of larger environmental trends and regulations facing extraction industries like timber, coal, oil, and natural gas. It is reasonable to assume that these industries are facing greater pressures for accountability in terms of their relationships with communities and the environment. Given this backdrop, the best answers will argue that the sustainable growth component of YTF's culture may be a requirement for all timber companies in the future. Similarly, if YTF is to remain family-run, then the narrow business and geographic scope of its operations allow it to specialize in timber, a skill set that is more reasonably acquired by the descendants of the Yepson brothers. 55. (Refer to Case Scenario 2). One of the Chapter 12 Key Leadership Actions that stands out in the Case Scenario is "Sustaining an Effective Organizational Culture." Both founding brothers Mogens and Jack infused a culture of innovation and sustainability. As the firm grew, however, and ownership became spread among 40 family members, that culture became diluted. This case shows that organization culture cannot be a source of competitive advantage as organizations grow. Answer: False 56. (Refer to Case Scenario 2). What must be done to continue the viability of YTF as a sustainable timber farm? Answer: The best answers here will begin by observing that Mogens and Jack, and then two of their children, embodied the culture and vision of YTF. If this culture and vision are still important to its continued viability then another one of the family members needs to reassert these as guiding principles for the firm. There is no reason that YTF must retain this strategy, but some coherent set of guidelines must be in place for any firm to remain viable, and YTF appears to be suffering from "attrition of interest" to its prior strategy. For instance, the pressure put upon the firm to increase its level of dividends could lead to greater levels of timber harvesting, thus a less sustainable operation. Case Scenario 3: Zachary, Wesley & Partners. Zachary, Wesley & Partners (ZW&P) is a leveraged buyout (LBO) firm that specializes in friendly buyouts of mid- sized U.S. retailing and manufacturing firms. ZW&P shuns turnarounds and hostile takeovers; its typical deals retain the existing management team and provide extensive funding for what is perceived to be an already sound strategy. It focuses on this type of firm because the partners have good contacts in retailing and manufacturing and they are typically able to avoid bidding wars when the LBO is negotiated. The firm has been immensely profitable over the years, in part due to the very extensive and selective due diligence process used to winnow down the list of prospective targets. Fewer than one out of one hundred candidates are even approached, and only a fraction of these passes further screens in the LBO negotiations. The resulting profitability has, in turn, given ZW&P a strong reputation in the financial community for successful deals, and among managers for being able to put together needed financing with good business plans. 57. (Refer to Case Scenario 3). What are this firm's core resources and capabilities? Answer: The best answers to this question will move quickly to identify ZW&P's list of contacts and clients, reputation, and deal-making skills as its three primary resources and capabilities. With the exception perhaps of the partners' particular expertise and contacts in retailing and manufacturing industries, all other resources and capabilities will likely be summarized by one of these three categories. 58. (Refer to Case Scenario 3). ZW&P's core resources are its financial and technological resources. Answer: False 59. (Refer to Case Scenario 3). Effectively managing ZW&P's portfolio of resources (in particular its human and social capital resources) may be its most important strategic leadership task. Answer: True 60. (Refer to Case Scenario 3). Where are these core resources likely to be located in the firm? Answer: This question is intended to show how ZW&P core resources are actually located in the partners themselves. When students think about most firms' resources and capabilities, they are likely to refer to particular technologies or other firm-level characteristics. In this type of firm however, the most critical resources and capabilities reside in the human capital of each partner. 61. (Refer to Case Scenario 3). What factors may threaten the ability of ZW&P's resources and capabilities to generate continued success? Answer: The best answers will point to internal and external factors. Internally, the death or defection of a partner will actually remove particular resources and capabilities from the firm. This is a key risk when such valuable assets reside in individuals (and hence one explanation for "key man" life insurance policies). Externally, given ZW&P's selectivity there are probably only a limited number of ideal targets. On the one hand, ZW&P could just do fewer deals, but this means the overall partnership will be less profitable as a result of decreased volume. On the other hand, they could relax their selectivity. But this could damage their per-deal performance, which in turn could damage their reputation with managers and the financial markets. Multiple Choice 62. An example of the external labor market is the situation where A. an assessment center operated by an external consulting firm evaluates company managers for promotion potential. B. a new vice president of marketing is hired from a competitor. C. the senior vice president of finance is promoted to CEO. D. a vice president of human resources is sent to a university executive MBA program for professional development. Answer: B 63. In the balanced scorecard framework, ______ controls are used to assess the organization's success in creating a climate that supports change and innovation. A. learning and growth B. financial C. operational D. innovational Answer: A 64. Two key strategic leadership actions include A. monitoring the hiring of key employees and focusing on growth but not learning initiatives. B. designing and then implementing the balanced scorecard. C. setting appropriate financial targets and establishing an effective business level synergy. D. determining strategic direction and establishing balanced organizational controls. Answer: D 65. The Enron employee who reported the financial manipulations at the company to her superiors can be considered to have engaged in A. managerial opportunism. B. white-collar crime. C. vindictive disloyalty. D. an act of courage. Answer: D 66. Shaping and reinforcing a new organizational culture requires all of the following EXCEPT A. effective communication. B. effective performance appraisals. C. adherence to the firm's traditional core values. D. an appropriate reward system. Answer: C 67. Which of the following will increase the probability that a lower-level manager will become a successful strategic leader? A. Appointing many outside board members. B. Increasing the firm's sales. C. Increasing the homogeneity of the top management team. D. Training and development programs. Answer: D 68. Billy Kroghmen is the son of a very prominent Fortune 500 CEO. Billy has had troubles. He failed out of multiple colleges, universities, and correspondence schools. He finally received his undergraduate degree from a university with only a post office box for an address. He then enrolled in the school's combined graduate accounting and law school programs, graduating with honor with degrees in both areas. After graduation, he twice failed both the CPA and bar exams, managing to set record low scores on the ethics portions of both. Despite these academic setbacks, Billy's career now seems to be thriving. He has been appointed to a number of "blue ribbon" government committees, is on the board of directors of two corporations and one prestigious not-for-profit organization. In at least one instance, a donor credited Billy with the idea for making a large contribution to the not-for-profit. Widespread speculation is that his career advancement is based largely on social relationships through friends and family. We would classify Billy as _________ on _________ capital, and _________ on _________ capital. A. high; social; low; human B. high; human; high; social C. high; human; low; social D. None of these options are correct. Answer: A 69. The most effective leadership style is _________ leadership. A. pragmatic B. charismatic C. inspirational D. transformational Answer: D 70. A heterogeneous top management team is composed of individuals with A. different functional backgrounds, experience, and education. B. similar commitments to the organization's core ideology and culture. C. a high level of education and industry expertise. D. long tenure in the organization who have held various functional positions. Answer: A 71. Clarita Cosmetics is confronting a decline in sales due largely to a general economic downturn. The top management team is debating whether to lay off employees. In the debate, the following statements are made. Which of the statements is FALSE? A. If Clarita Cosmetics lays off a large number of employees, there will be a significant loss of human capital that will cause further downturns in the firm's performance. B. A moderate-sized layoff at Clarita Cosmetics will probably improve firm performance. C. If Clarita Cosmetics restructures, it ought to increase investments in training and development. D. A layoff will increase the slack at Clarita Cosmetics and allow the firm to absorb the increased number of errors employees may make until they learn their new tasks. Answer: D 72. The effective development and management of the firm's _________ may be its only sustainable competitive advantage. A. capital base B. human capital C. technology D. organizational culture Answer: B 73. The premise of the balanced scorecard is that firms jeopardize future performance possibilities when they A. overemphasize financial controls and neglect strategic controls. B. overemphasize strategic control and neglect financial controls. C. overemphasize strategic and financial controls and neglect ethical controls. D. neglect short-term controls of all kinds in favor of long-term strategic controls. Answer: A 74. The board of directors for TundraPro, Inc., is searching for a new CEO. The firm is in need of new direction after suffering several years of declining performance and increasingly demoralized management and employees. The board has decided it needs a CEO who can be a transformational leader. To this specific end, the board needs to identify applicants who have A. high levels of honesty, trustworthiness, and integrity. B. high emotional intelligence. C. Both A and B are correct. D. low tolerance for ambiguity. Answer: C 75. Which of the following is NOT associated with heterogeneous top management teams? A. higher firm performance B. innovation and strategic change C. diminished debate among top managers D. better strategic decisions Answer: C 76. Organizational controls provide A. the parameters within which strategies are to be implemented. B. goals and objectives that must be achieved. C. information on action steps to be taken to implement the corporate strategy. D. managers with guidelines on how to treat employees. Answer: A 77. Which of the statements about CEO duality is FALSE? A. CEO duality is associated with high CEO power. B. CEO duality has been blamed for slow response to change by the organization. C. CEO duality is relatively rare in the U.S. except in large Fortune 500 firms. D. If the CEO acts a steward, CEO duality facilitates effective decisions and actions. Answer: C 78. Which key strategic leadership action plays a key role in influencing how the firm conducts its business and regulates and controls employees' behavior? A. Effectively Managing the Firm's Resource Portfolio. B. Determining Strategic Direction. C. Regulating and Controlling Employees. D. Sustaining an Effective Organizational Culture. Answer: D 79. Determining the strategic direction of a firm involves A. implementation of a balanced scorecard. B. developing an entrepreneurial mind set. C. specifying the vision and the strategy to achieve that vision over time. D. exploiting and maintaining core competencies. Answer: C 80. Which of the following factors most encourages stability in a firm's strategy? A. a new CEO hired from outside the firm but within the industry B. internal CEO succession and a homogeneous top management team C. external CEO succession and a heterogeneous top management team D. a new CEO hired from outside the industry Answer: B 81. The more heterogeneous the top management team, the A. more difficult it will be for the team to implement strategies. B. more likely it is that the team will be cohesive. C. less innovative the team's decisions will tend to be. D. less diverse the team membership will be. Answer: A 82. Competitive aggressiveness describes a firm's A. tendency to engage in new ideas and creative processes. B. willingness to allow employees to take actions free of organizational constraints. C. ability to be a leader in the marketplace. D. propensity to take actions that allow it to outperform rivals consistently and substantially. Answer: D 83. Which of the following is NOT related to a CEO having long tenure in his or her position? A. more effective strategic control B. greater influence on board decisions C. more limited perspective D. a broader knowledge base Answer: D 84. Firms needing to change their strategies should A. create more heterogeneous top management teams. B. focus on their core customer base. C. implement transformational leadership. D. emphasize the training and development of internal managerial talent. Answer: A 85. Normally, the more involved a board of directors is in shaping the firm's strategic direction, the A. more balanced the organization is. B. higher the corporation's performance is. C. more rapidly executive decisions can be make. D. more difficult it becomes to make effective executive decisions. Answer: B 86. The top management team is composed of the A. heterogeneous group of advisors selected by the CEO. B. CEO and chairperson of the board. C. key individuals who are responsible for selecting and implementing a firm's strategy. D. officers listed in a firm's annual report and the board of directors. Answer: C 87. A characteristic of the manager that may affect managerial discretion is his/her A. amount of industry experience. B. level of education. C. tolerance for ambiguity. D. length of tenure. Answer: C 88. Which of the following statements is TRUE regarding effective organizational cultures? A. Once a corporate culture is developed, strategic leaders can focus on other activities. B. A strategy that is historically new for a firm should be implemented by incremental changes in the organization's culture. C. A central task of strategic leaders is to revise the corporate culture on an annual basis after analyzing the changes occurring in the competitive environment. D. Organizational culture can be a source of competitive advantage because it influences employee behavior and how the firm's conducts its business. Answer: D 89. All of the following are correct about the status of CEO succession (Chapter 12 Strategic Focus) EXCEPT A. there is considerable CEO turnover in North American and European firms hence the need for succession plans. B. IBM has a succession plan for CEO Sam Palmisano. C. most formal succession plans call for the use of executive search firms. D. over 90 percent of firms have succession plans. Answer: D 90. The _______ is a framework firms can use to verify that they have established both strategic and financial controls to assess their performance. A. managerial model B. holistic control system C. balanced scorecard D. internal auditing system Answer: C 91. The top management team at Ingenuity, Inc., has assigned a team of scientists to a multi-year project to investigate the viability of growing large amounts of fur from cloned cells of minks and foxes to produce no-kill fur products for coats and other clothing items. This idea would satisfy all the dimensions of the entrepreneurial orientation EXCEPT A. innovativeness. B. risk taking. C. proactiveness. D. competitive autonomy. Answer: D 92. Human capital refers to A. the net present value of the future competencies of the workforce. B. the amount of money purchasers of the firm would pay for the continuing employment of the present workforce. C. the value-added that the firm's workforce contributes to each product produced or service rendered. D. knowledge and skills of the firm's work force. Answer: D 93. Strategic control focuses on the ________ of strategic actions, whereas financial controls focus on the ________ of strategic actions. A. revenues; costs B. long-term financial outcomes; short-term financial performance C. content; outcomes D. outcomes; content Answer: C 94. Four perspectives are integrated to form the balanced scorecard framework. The financial perspective focuses on the view of the firm by the A. customer. B. employee. C. shareholder. D. general society. Answer: C 95. When the top management team is homogeneous and a new CEO is selected from inside the firm, it is A. unlikely that the current strategy will change. B. likely that product innovation will continue. C. likely there will be a change in strategy. D. unlikely the new CEO will have a long tenure. Answer: A 96. Actions that effective strategic leaders can take to develop an ethical organizational culture include all of the following EXCEPT A. relying on the fundamental goodness of individuals. B. using reward systems that recognize acts of courage. C. communicating goals that describe the firm's ethical standards. D. creating a work environment where individuals are treated with dignity. Answer: A 97. Monahegan Plasma Company is facing a performance downturn and realizes that a major rethinking of its strategy is in order. Under these circumstances, Monahegan Plasma would benefit from a(n) A. internal CEO with short tenure. B. external CEO with a heterogeneous top management team. C. dual CEO/chairperson with a homogenous top management team. D. CEO with long tenure who has a strong sense of hubris. Answer: B 98. Executive headhunters have approached Charles about taking the position of senior vice president of marketing for a well-known company. Although this company has been highly successful since 1995, Charles has heard persistent rumors of overly aggressive marketing tactics, questionable reporting of sales data, and an atmosphere of intolerance of criticism. The CEO is a powerful and charismatic individual, who built the company from a small regional firm to an international powerhouse in only a decade. The other top managers have been hand-picked by the CEO, as have a number of the members of the board of directors. The salary for this position is very high and includes generous stock options. It would be a major step up in Charles's career and would position him to move to CEO of another company in the future. Charles has prided himself on his high moral values and is viewed as an exceptionally ethical person by his peers. What should Charles do? A. Charles should take the job because he can effect real change in the culture of the organization, and take advantage of the personal financial and career opportunities. B. Charles should realize that personal moral values and the realities of the corporate world differ in both quality and degree. Consequently, he can take a job in an ethically borderline company without tainting his personal moral standing. C. Charles should not rely on rumors to dissuade him from making an advantageous career decision. D. Charles should not take the job because the culture of the organization is set by the CEO and other top managers. He would have little influence on the organizational culture as one of many top managers. Answer: D 99. The primary responsibility for effective strategic leadership of the organization rests with the A. board of directors. B. top management team. C. CEO. D. stakeholders. Answer: C 100. The ability to attract and manage _________ may be the most important skill a strategic leader must have. A. human capital B. financial resources C. responses to competitors' actions D. investment strategies Answer: A 101. _________ capital increases cooperation among individuals inside and outside the firm. A. Human B. Social C. Visionary D. Cultural Answer: B 102. Which of the following is NOT a factor that determines the amount of a manager's decision discretion? A. characteristics of the manager B. characteristics of the organization C. cohesiveness of the board of directors D. the external environmental Answer: C 103. Christina is evaluating Maximum Brands as an investment opportunity. She is very concerned about future financial performance by Maximum Brands. Christina does not believe that the CEO can act as a steward. Christina will probably be most concerned if A. there is CEO duality. B. many of the members of the board of directors are outsiders. C. the positions of chairman of the board and CEO are held by different persons. D. there is an independent board leadership structure. Answer: A 104. Faced with declining enrollment and increased competition from not-for-profit organizations offering inexpensive art courses for new hobbyists, the for-profit Delta Academy of Art has steadfastly stayed true to its mission of offering high-quality classical art instruction for both beginners and advanced artists at high tuition. Delta has been noted for the excellence of its artistic training for decades. This is an example of A. adhesion to the status quo. B. lack of an envisioned future. C. competence becoming a liability. D. failure to have a clear core ideology. Answer: A 105. Criteria for reevaluating internal business processes using the balanced scorecard include all of the following EXCEPT A. asset utilization improvements. B. improvements in employee morale. C. increases in employee skills. D. changes in turnover rates. Answer: C 106. A CEO's breadth of knowledge base is constrained by A. his or her relationship with the board of directors. B. whether he or she is also the chairperson of the board of directors. C. his or her long tenure with the firm. D. the level of social capital in the firm. Answer: C 107. The CEO/chairman of PharmaPacifica was recently killed in an airplane crash. This tragedy has thrown PharmaPacifica into turmoil as there is no one in the organization qualified to step into the former CEO's shoes. This is an example of A. a failure of succession management. B. managerial hubris. C. the risk inherent in CEO duality. D. excessive reliance on the internal managerial labor market. Answer: A 108. The goal of investing in human capital is to A. increase the number of employees in the firm. B. reduce organizational slack. C. maximize current productivity per employee. D. develop a workforce capable of continuous learning. Answer: D 109. Research shows that _______ is the most effective means of ensuring that employees comply with the firm's ethical requirements. A. a written code of ethics B. a statement in the firm's mission statement C. a speech on ethics by the CEO of the company D. a value-based culture Answer: D 110. Which of the following is NOT one of the five dimensions thought to characterize an employee's entrepreneurial mind-set? A. autonomy B. reactivity C. risk taking D. innovativeness Answer: B 111. The CEO of CLEO, Inc., in all her communications to employees consistently refers to her dream of CLEO becoming the company of choice for employee assistance programs. She keeps this theme uppermost and it is reflected in the firm's motto, the title of its Web newsletter, and even on the company t-shirts and mugs. This is an example of the firm's A. core ideology. B. organizational culture. C. strategy. D. envisioned future. Answer: D 112. An organization's _______ is composed of the key individuals who are responsible for selecting and implementing the firm's strategies. A. top management team B. board of directors C. keiretsu D. governance circle Answer: A 113. All of the following are external environmental sources that affect managerial discretion EXCEPT A. industry structure. B. corporate culture. C. market growth rate. D. potential for product differentiation. Answer: B 114. Which of the following is NOT a benefit to the firm using the internal labor market to select a new CEO? A. Internal hiring results in an increased level of innovation. B. Insiders are familiar with the firm's products, markets, technologies, and operating procedures. C. Use of the internal labor market reduces turnover among existing employees. D. Insiders are more familiar with a firm's operating procedures. Answer: A 115. Omicron Artificial Intelligence is able to respond quickly to competitors' actions and to opportunities in the marketplace. This is an example of A. agility. B. a core competency. C. flexibility. D. responsiveness. Answer: B 116. A CEO gains power from all of the following circumstances EXCEPT A. when many of the outside directors are appointed by the CEO. B. when the CEO is also the chairman of the board. C. when tenure of the top management team is shorter than the tenure of the board. D. the fact that inside board members report to the CEO. Answer: C 117. Which of the following is NOT one of the four perspectives in the balanced scorecard framework? A. entrepreneurial B. financial C. customer D. learning and growth Answer: A 118. ______ provide information about the results of past actions, but do not communicate the drivers of the firm's future performance. A. Financial controls B. Accounting information systems C. Policies and procedures D. Strategic feedback systems Answer: A 119. Recently, Sony selected Sir Howard Stringer as CEO. Sir Howard is not Japanese and he was not a Sony employee before his selection. Which of the following statements is FALSE? A. Sony's top management team will be more heterogeneous with the addition of Sir Howard. B. Sir Howard will have a broader perspective of the firm and its competitive environment than would a Sony insider. C. If Sony's top management team is homogeneous, Sir Howard's future impact on Sony's strategy is ambiguous. D. The decision-making process on Sony's top management team will be smoother and faster with the addition of Sir Howard. Answer: D 120. To successfully implement a firm's strategy, the workforce must be viewed as a A. variable cost. B. depreciating asset. C. resource to be maximized. D. renewable asset. Answer: C 121. The firm of Bergeron has existed for hundreds of years, having made exquisite clocks and watches. In its advertising it refers to clocks the firm made for such past royalty as Marie Antoinette and the Czars of Russia. Employees are constantly reminded of the firm's rich history and its long tradition of excellence of design and execution. Bergeron is motivating its employees through its A. core ideology. B. envisioned future. C. organizational culture. D. business strategy. Answer: A 122. Exploiting and maintaining core competencies is part of the key strategic leadership action "Effectively Managing the Firm's Resource Portfolio." Which of the following is most important for developing and using core competencies? A. extensive financial assets B. transformational leadership C. high-quality human capital D. an ethical organizational culture Answer: C 123. The CEO of Icon Image Associates wishes to radically change the corporate culture of the firm. She knows that she must convince others at Icon Image of the necessity for the culture change and gain their active support. The CEO knows that the key players in energizing the culture change and fostering alignment with the new strategic vision are A. the members of the board of directors. B. top management team members. C. the CEO, top managers, and middle managers. D. rank-and-file employees. Answer: C 124. CEO duality refers to A. firms where there is both a president and a CEO. B. CEOs who sit on the board of directors of other firms. C. CEOs who hold office in more than one company. D. the situation where the CEO is also chairperson of the board of directors. Answer: D 125. Managerial actions that support development of an ethical organizational culture include all of the following EXCEPT A. establishing a code of conduct. B. disseminating the code of conduct to all stakeholders to inform them of the firm's ethical standards and practices. C. creating a work environment in which people are treated with dignity. D. disciplining whistle-blowers. Answer: D Essay 126. What is strategic leadership, who has primary responsibility for strategic leadership, and what are the five key strategic leadership actions? Answer: Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change. The CEO has primary responsibility for strategic leadership, which is shared with the board of directors, the top management team and divisional general managers. The five key strategic leadership actions are: determining a strategic direction, effectively managing the firm's resource portfolio, sustaining an effective organizational culture, emphasizing ethical practices, and establishing balanced organizational controls. 127. Discuss how the managerial succession process and the composition of the top management team interact to affect strategy. Answer: Internal labor markets represent the opportunities for employees to take managerial positions (including the position of CEO) within a firm. The external labor market is the collection of career opportunities for managers in firms outside of the one for which they currently work. CEOs may be selected from internal or external candidates. Internal CEO selection is preferred by employees and by those who wish the firm to continue in its present strategies. External CEO succession is considered a sign that the board of directors wants change. Internal CEOs are less likely to seek change in the firm's strategy than external CEOs. It is important to note that the source of the CEO (from the internal or external labor market) and the top management team's composition interact to affect the likelihood of strategic change. If a firm hires a new internal CEO and has a homogeneous top management team, it is unlikely that the firm's strategy will change. If the firm employs a new internal CEO but has a heterogeneous top management team, it will probably continue the current strategy, but innovation will be encouraged. If the top management team is homogeneous, but an external CEO is chosen, the situation will be ambiguous. Finally, if the top management team is heterogeneous and an external CEO is chosen, strategic change is likely. 128. What are organizational controls? Why are strategic controls and financial controls important aspects of the strategic management process? Answer: Organizational controls are the formal, information-based procedures used by managers to maintain or alter patterns in organizational activities. Controls provide the parameters within which strategies are to be implemented, as well as forming guidelines for corrective actions when adjustments are required. There are two main types of controls: financial and strategic. Financial controls focus on short-term financial outcomes. Strategic controls focus on the content of strategic actions. Financial controls give feedback about the outcomes of past actions. Strategic controls focus on the drivers of the firm's future performance. Emphasizing either financial or strategic controls has important implications for the strategic management process. For example, emphasizing financial controls often produces more short-term and risk-averse managerial actions because financial outcomes may be caused by events beyond the managers' direct control. In contrast, strategic control encourages lower-level managers to make decisions that incorporate moderate and acceptable levels of risk because outcomes are shared between the business-level executives making strategic proposals and the corporate-level executives evaluating them. 129. Define human capital and its importance to the firm's success. Answer: Human capital represents the knowledge and skills of the firm's entire workforce. Effective strategic leaders view human capital as a capital resource that requires investment rather than as a cost to be minimized. It is thought that people are the organization's only truly sustainable source of competitive advantage. So, effective human resource management practices are necessary to successfully select and use people to attain the firm's goals. Not only must future leaders be trained, but the entire workforce must be able to learn continuously to build skills and knowledge that lead toward innovation. Layoffs can be disastrous because they strip skills and knowledge from the firm, leaving remaining employees unable to perform their tasks effectively. 130. What is a top management team, and how does it affect a firm's performance and its abilities to innovate and design and implement effective strategic changes? Answer: The top management team is composed of the key managers in the organization who are responsible for selecting and implementing the firm's strategy. Typically, the top management team includes all officers of the firm (defined by the title of vice president or above) and/or those who serve as a member of the board of directors. Team characteristics have been shown to affect the strategy of the organization. A heterogeneous top management team is composed of individuals with varied functional backgrounds, experiences, and education. A homogeneous team's members are similar to one another in characteristics and experiences. A heterogeneous team is more likely to formulate an effective strategy because of its varied expertise and knowledge. Additionally, heterogeneous top management teams have been shown to positively affect performance. In particular, heterogeneous teams positively affect innovation and strategic change in firms. But, heterogeneous teams are less cohesive than homogeneous teams because of communication difficulties, and it is more difficult for heterogeneous teams to implement strategies. Consequently, a heterogeneous top management team must be managed effectively to use the diversity in a positive way. 131. As a strategic leader, what actions could you take to establish and emphasize ethical practices in your firm? Answer: Ethical practices should be institutionalized within the organization by being an integral part of the organizational culture. Sustaining an effective organizational culture is one of the key leadership actions and one aspect of an effective culture is that it promotes ethical behavior in the organization. Strategic leaders also develop explicit codes of conduct and provide ethics training to disseminate those codes. Examples of specific actions taken by strategic leaders to develop an ethical organizational culture include: (1) establishing and communicating specific goals to describe the firm's ethical standards (e.g., developing and disseminating a code of conduct), (2) continuously revising and updating the code of conduct, based on inputs from people throughout the firm and from other stakeholders (e.g., customers and suppliers), (3) disseminating the code of conduct to all stakeholders to inform them of the firm's ethical standards and practices, (4) developing and implementing methods and procedures to use in achieving the firm's ethical standards (e.g., use of internal auditing practices that are consistent with the standards), (5) creating and using explicit reward systems that recognize acts of courage (e.g., rewarding those who use proper channels and procedures to report observed wrongdoing), and (6) creating a work environment in which all people are treated with dignity. 132. What is organizational culture? What must strategic leaders do to develop and sustain an effective organizational culture? Answer: Organizational culture is the set of ideologies, symbols, and core values that is shared throughout the organization and that influences the way the firm conducts its business. An organization's culture can be a source of competitive advantage. It is more difficult to change a firm's culture than to sustain it. But effective strategic leadership recognizes when a change in a firm's culture is necessary. Incremental changes to the firm's culture are typically used to implement strategies. Sometimes radical changes are used to support strategies that differ from the firm's historical pattern. Shaping and reinforcing change in an organization's culture require communication and problem solving, selection processes that find people with the right values, effective performance appraisals focused on goals reflecting the new culture, and reward systems that reward behaviors reflecting the new core values. Change occurs only when it is actively supported by the CEO, other top managers, and middle management. Test Bank for Strategic Management: Concepts and Cases: Competitiveness and Globalization Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson 9781285425177, 9780538753098, 9781133495239, 9780357033838, 9781305502208, 9781305502147
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