Chapter 9 Strategic Control and Corporate Governance True False

Strategic Management: Text and Cases, 9e Chapter 9 Strategic Control and Corporate Governance 1) Strategic control systems, both informational and behavioral, are used to correct theperformance 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 Accessibility: Keyboard Navigation 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 1 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 2 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 3 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-toface 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 4 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 selfsustaining. 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 5 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 6 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 7 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 8