161

CHAPTER 8
Implementing Strategies: Marketing,
Finance/Accounting, R&D and MIS Issues
True/False
The Nature of Strategy Implementation
1.

Less than 2 percent of formulated strategies are successfully implemented.

Ans: F

2.

Page: 306

Being long term in nature, strategy implementation affects top and middle managers
but not the lower-level employees.
Ans: F

Page: 306

Marketing Issues
3.

An example of a marketing decision is whether or not to limit the share of business

done with a single customer.
Ans: T

4.

Given that most information on individuals is available online, the extent to which
companies can track individuals movements on the Internet is not a marketing issue
of great concern to consumers today.
Ans: F

5.

Page: 307

The marketing mix component factors are product, place, promotion, price and
people.
Ans: F

7.

Page: 307

Market penetration can be defined as the subdividing of a market into distinct

subsets of customers according to needs and buying habits.
Ans: F

6.

Page: 306

Page: 308

With market segmentation, a firm can better operate with limited resources.
Ans: T

Page: 308

162

8.

The most common bases for segmenting markets are geographic and demographic.
Ans: T

9.

Segmentation often reveals that large, random fluctuations in demand actually

consist of several small, predictable, and manageable patterns.
Ans: T

10.

Page: 311

A firm can usually serve two or more market segments with the same strategy.
Ans: F

16.

Page 310

Multidimensional scaling involves examining three or more criteria simultaneously

in a product-positioning analysis.
Ans: T

15.

Page: 308

In general, the Internet makes market segmentation easier.

Ans: T

14.

Page: 308

The next step after segmenting markets so the firm can target particular customer
groups is to find out what customer groups want and expect.
Ans: T

13.

Page: 308

Generally, market segmentation is followed by market diversification strategy.

Ans: F

12.

Page: 308

Segmenting industrial markets is generally simpler and easier than segmenting

consumer markets.
Ans: F

11.

Page: 308

Page: 311

It is okay for firms to create expectations that exceed the service the firm can or will
offer if it will attract customers.
Ans: F

Page: 311

163

Finance/Accounting Issues
17.

Return on assets is the most widely used technique for determining whether debt,
stock, or a combination of debt and stock is the best alternative for raising capital to
implement strategies.
Ans: F

18.

Besides net profit from operations and the sale of assets, the two basic sources of
funds for an ongoing enterprise are debt and equity.
Ans: T

19.

Page: 315

In times of depressed stock prices, stock issuances often prove to be the most
suitable alternative for obtaining capital.
Ans: F

25.

Page: 315

When additional debt is issued to finance implementation of strategy, ownership and

control of the enterprise are diluted.
Ans: F

24.

Page: 313

A reason for concern over the dilution of company stock is a possible hostile
takeover.
Ans: T

23.

Page: 313

An EPS/EBIT chart can be constructed to determine the breakeven point, where one
financing alternative becomes more attractive than another.
Ans: T

22.

Page 313

Additional capital is often required for successful strategy implementation.

Ans: T

21.

Page: 313

In low earning periods, too much debt in the capital structure of an organization can
endanger stockholders returns and jeopardize company survival.
Ans: T

20.

Page: 313

Page: 315

A projected financial analysis can be used to forecast the impact of various

implementation decisions.
Ans: T

Page: 318

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26.

When performing pro forma financial analyses, the balance sheet should be prepared
before the income statement.
Ans: F

27.

The percent-of-sales method should be used for computing the cost of goods sold
and the expense items in projected income statements.
Ans: T

28.

Page: 321

Although cash budgets can be a useful financial tool, publicly held companies are
not required to complete them.
Ans: F

34.

Page: 320

The most common type of financial budget is the capital budget.

Ans: F

33.

Page: 320

Limiting an organizations expenditures is the primary purpose of financial budgets.

Ans: F

32.

Page: 320

A financial budget is a document that details how funds will be obtained and spent
for a specified period of time.
Ans: T

31.

Page: 320

The Sarbanes-Oxley Act of 2002 has eliminated the problem of firms inflating
their financial projections, so stakeholders need not worry about the financial
projections of different companies.
Ans: F

30.

Page: 319

The cash account is used as a plug figure in pro forma balance sheets.
Ans: T

29.

Page: 318

Page 321

A limitation of financial budgets is that they can hide inefficiencies if based solely
on precedent rather than on periodic evaluation of circumstances and standards.
Ans: T

Page: 321

165

35.

All the methods for determining a business worth can be grouped into three basic
approaches: what a firm owns, what a firm earns, and what a firm spends.
Ans: F

36.

A conservative rule of thumb for measuring the value of a firm is to establish a

business worth to be 10 times the firms most current annual profit.
Ans: F

37.

Page: 325

In general, there are very little costs associated with going public.
Ans F

41.

Page: 322

It is generally not recommended for companies with less than $10 million in sales to
go public.
Ans: T

40.

Page: 322

To determine the price-earnings ratio, divide the market price of the firms annual
earnings per share by the common stock and multiply this number by the firms
average net income for the past 10 years.
Ans: F

39.

Page: 322

A recommended approach for determining a firms worth is to base the analysis on

the selling price of a similar company.
Ans: T

38.

Page: 322

Page 325

Buying off the outstanding shares of your company from the open market to make
the company private is what going public means.
Ans: F

Page: 299

Research and Development (R&D) Issues

42.

If the rate of market growth and technical progress is fast and there are few barriers
to possible new entrants, then in-house R&D is the preferred solution.
Ans: F

Page: 325

166

43.

According to research, the most successful new product companies use a research
and development strategy that ties internal strengths to external opportunities and is
linked with corporate objectives.
Ans: T

44.

R&D policies can enhance strategy implementation efforts to emphasize product or

process improvements.
Ans: T

45.

Page: 326

One R&D strategy is to be an innovative imitator of successful products.

Ans: T

47.

Page: 325

A major effort in R&D may be very risky if technology is changing rapidly and the
market is growing slowly.
Ans: T

46.

Page: 325

Page: 326

A current trend in R&D management involves the lifting of the veil of secrecy
whereby firms, even major competitors, are joining forces to develop new products.
Ans: T

Page 327

Management Information Systems (MIS) Issues

48.

The process of strategic management is facilitated immensely in firms that have an

effective information system.
Ans: T

49.

Increased costs are a disadvantage of a good information system.

Ans: F

50.

Page: 327

Page: 327

With information technology, in some cases it is possible to do away with the

workplace by allowing employees to work at home or anywhere, anytime.
Ans: T

Page: 328

167

Multiple Choice
The Nature of Strategy Implementation
51.

What percent of strategies formulated are successfully implemented?

a.
Less than 10 percent
b.
About 30 percent
c.
Between 40 to 60 percent
d.
Approximately 66 percent
e.
More than 80 percent
Ans: a

52.

Page: 306

What level of management is directly affected by strategy implementation?

a.
plant managers
b.
sales managers
c.
project managers
d.
division managers
e.
all of these
Ans: e

Page: 306

Marketing Issues
53.

All of the following are examples of marketing decisions that require policies
except:
a.
to be a market leader or follower.
b.
to advertise online or not.
c.
to offer a complete or limited warranty.
d.
to use heavy, light, or no TV advertising.
e.
to use exclusive dealerships or multiple channels of distribution.
Ans: a

54.

Page: 306

Which two variables are of central importance to strategy implementation?

a.
diversification and budgeting.
b.
marketing penetration and competition.
c.
competition and collaboration.
d.
product development and market development.
e.
market segmentation and product positioning.
Ans: e

Page: 307

168

55.

Subdividing a market into distinct subsets of customers according to their needs and
the way they buy and use a product or service is:
a.
market penetration.
b.
product diversification.
c.
market segregation.
d.
market segmentation.
e.
positioning.
Ans: d

56.

Why is market segmentation an important variable in strategy implementation?

a.
all company strategies require increased sales through new markets and
products.
b.
it allows a firm to operate with limited resources.
c.
mass production, mass distribution and mass advertising are not always
required.
d.
market segmentation decisions directly affect marketing mix variables.
e.
all of the above.
Ans: e

57.

Page: 307-308

Which of the following variables are not directly affected by market segmentation?
a.
Product
b.
Place
c.
Process
d.
Promotion
e.
Price
Ans: c

58.

Page: 307

Page: 308

Why is market segmentation an important variable in the strategy-implementation

process?
a.
company strategies do not require increased sales through new markets and
products.
b.
it allows a firm to operate with no resources.
c.
it directly affects marketing mix variables.
d.
it allows a firm to minimize per-unit profits and per-segment sales.
e.
all of the above.
Ans: c

Page: 308

169

59.

Perhaps the most dramatic new market segmentation strategy is the

a.
targeting of regional tastes.
b.
focusing on universal product.
c.
preference of international over domestic sales.
d.
treatment of industrial markets.
e.
none of these.
Ans: a

60.

Matching of which factors would allow factories to produce desirable levels without
extra shifts, overtime or subcontracting?
a.
markets and competitors
b.
competition and positioning
c.
customer behavior and positioning
d.
supply and demand
e.
segments and demand
Ans: d

61.

Page: 308

Which variable would be considered part of the product element of the marketing
mix?
a.
Advertising
b.
Packaging
c.
Payment terms
d.
Inventory levels and location
e.
Publicity
Ans: b

62.

Page: 308

Page 308

Which variable would be considered part of the place element of the marketing mix?
a.
Product line
b.
Service level
c.
Personal selling
d.
Sales territory
e.
Discounts and allowances
Ans: b

Page 308

170

63.

What entails developing schematic representations that reflect how your products or
services compare to competitors on dimensions most important to success in the
industry?
a.
Positioning
b.
Segmentation
c.
Penetration
d.
Diversification
e.
Budgeting
Ans: a

64.

Which of these is not a correct step in product positioning?

a.
Select key criteria that effectively differentiate products or services in the
industry.
b.
Look for a hole or vacant niche
c.
Plot major competitors products or services in the resultant matrix.
d.
Identify areas in the positioning map where the companys products or
services could be most competitive in the given target market.
e.
Develop a marketing plan to position the companys products and services
appropriately.
Ans: b

65.

Page: 311

Looking for a vacant niche helps a company determine

a.
its advertising budget.
b.
the size of the marketing department.
c.
the best place to position a product.
d.
the best place to locate a new facility.
e.
its projected R & D expenditures.
Ans: c

66.

Page: 311

Page: 311

Multidimensional scaling is used to determine

a.
the size of a new building.
b.
the size of a new department.
c.
the amount of high-tech equipment a firm needs.
d.
product positioning.
e.
market segmentation.
Ans: d

Page: 311

171

67.

Which of the following is (are) true about two different market segments?
a.
They can usually be served with the same marketing strategy.
b.
They usually require different marketing strategies.
c.
They are always in different geographic locations.
d.
They are usually incompatible.
e.
They are most effective when a firm squats between two segments.
Ans: b

68.

Page: 311

Which of these is not a rule of thumb when using product positioning as a strategyimplementation tool?
a.
Dont squat between segments.
b.
Look for the hole or vacant niche.
c.
Try to serve more than one segment with the same strategy.
d.
Dont position yourself in the middle of the map.
e.
All of these are valid rules of thumb.
Ans: c

Page: 311

Finance/Accounting Issues
69.

Which of the following is not an example of a decision that may require

finance/accounting policies?
a.
To extend the time of accounts receivable
b.
To establish a certain percentage discount on accounts within a specified
period of time
c.
To lease or buy fixed assets
d.
To use LIFO, FIFO, or a market-value accounting approach
e.
To determine the amount of product diversification
Ans: e

70.

Page: 313

In the low earnings period, too much ______ in the capital structure of an
organization can endanger stockholders return and jeopardize company survival.
a.
debt
b.
liquid assets
c.
equity
d.
cash
e.
tax
Ans: a

Page: 313

172

71.

Which of these obligations generally must be met, regardless of circumstances?

a.
Dividends
b.
Employee
c.
Fixed debt
d.
Equity
e.
All of these
Ans: c

72.

What is the most widely used technique for determining the best combination of
debt and stock?
a.
Debt-to-stock ratio
b.
Earnings per share/earnings before interest and tax analysis
c.
Gross profit analysis
d.
Capital asset pricing model
e.
Present value analysis
Ans: b

73.

Page: 313

What becomes a more attractive financing technique when cost of capital is high?
a.
stock issuance
b.
debt
c.
cost cutting
d.
borrowing
e.
staying privately owned
Ans: a

75.

Page: 313

After completing an EPS/EBIT analysis, what conclusions would you make if the
debt line is above the stock line throughout the range of EBIT on the graph?
a.
Debt appears to be the best financing alternative.
b.
Stock would be the best financing alternative.
c.
A combination of debt and stock is probably the best financial alternative.
d.
Dividends must be considered before conclusions can be made.
e.
The company should be privately owned.
Ans: a

74.

Page: 313

Page: 315

What is a drawback of using only equity to raise capital?

a.
The cost
b.
Fluctuations in the stock market
c.
Dilution of the control of the company
d.
That it will cause EPS to roller coaster
e.
That it doesnt raise as much capital as debt financing
Ans: c

Page: 315

173

76.

A benefit of using projected balance sheets and income statements is that

a.
an organization can compute projected financial ratios under various
scenarios.
b.
money can be put aside to pay future income taxes.
c.
insurance needs can be computed.
d.
it is useful in analyzing past performance.
e.
all of the above.
Ans: a

77.

Projected financial analysis is an important strategy-implementation technique because

a.
it is an exact measurement of financial costs in the future.
b.
it is an exact measurement of future company profits.
c.
it allows an organization to examine the expected results of various actions
and approaches.
d.
insurance needs can be computed.
e.
none of the above
Ans: c

78.

Page: 318

What is a central strategy-implementation technique that allows an organization to

examine the expected results of various actions and approaches?
a.
EPS/EBIT
b.
Financial budgeting
c.
TOWS analysis
d.
Projected financial statement analysis
e.
External analysis
Ans: d

79.

Page: 318

Page: 318

The first step in preparing a projected statements is to

a.
prepare the projected balance sheet.
b.
take an inventory of goods.
c.
estimate increases in debt.
d.
prepare the projected income statement.
e.
calculate the projected net income.
Ans: d

Page: 318

174

80.

In preparing projected statements, to project cost of goods sold and the expense
items in the income statement, which of these methods is recommended?
a.
Determining the net worth method
b.
What a firm earns method
c.
Percentage-of-sales method
d.
Price-earnings ratio met
e.
Outstanding shares method
Ans: c

81.

Which element in the projected income statement cannot be forecasted using the
percentage-of-sales method?
a.
Cost of goods sold
b.
Selling expense
c.
Administrative expense
d.
Interest expense
e.
All of these items are forecasted using the percentage-of-sales method.
Ans: d

82.

Page: 319-320

In projected financial statements, what account is used as a plug figure?

a.
retained earnings
b.
fixed assets
c.
cash
d.
long-term liabilities
e.
stockholders equity
Ans: c

84.

Page: 319

Retained earnings is obtained by subtracting

a.
any dividends from net income.
b.
net income from EBIT.
c.
taxes from EBIT.
d.
interest expense from EBT.
e.
EBIT from CGS.
Ans: a

83.

Page: 318-319

Page: 320

Which of these is the most common type of budgeting time frame?

a.
Daily
b.
Quarterly
c.
Annual
d.
Every decade
e.
Monthly
Ans: c

Page: 320

175

85.

If a firm incurs a loss during a particular year, or if the firm had positive net
income but paid out dividends more than the net income, its retained earnings for
that year will most likely be
a.
a large positive number.
b.
a low positive number.
c.
zero.
d.
a negative number.
e.
Can not be determined from this information.
Ans: d

86.

What is the most common type of financial budget?

a.
cash
b.
sales
c.
profits
d.
factory
e.
flexible
Ans: a

87.

Page: 321

Who has mandated that every publicly held company in the United States must issue
an annual cash-flow statement in addition to the usual financial reports?
a.
SEC
b.
Congress
c.
FCC
d.
FASB
e.
OPEC
Ans: d

88.

Page: 319-320

Page: 321

How should financial budgets be thought of?

a.
A tool for limiting expenditures.
b.
A method for obtaining the most productive and profitable use of an
organizations resources.
c.
A method for rationing the profits from the past year.
d.
A method for determining who should receive the largest pay raise.
e.
A tool for forecasting future profits.
Ans: b

Page: 320

176

89.

What is a limitation of using financial budgets?

a.
They can be so detailed that they are cumbersome and expensive.
b.
They can become a substitute for objectives.
c.
They can hide inefficiencies if done only on precedent.
d.
They are sometimes used as instruments of tyranny.
e.
All of the above.
Ans: e

90.

Which of the following methods is not accepted for determining a business worth?
a.
What the firm owns.
b.
What the firm earns.
c.
What the firms return on investment has been.
d.
What the firm will bring in the market.
e.
All of the above are accepted.
Ans: c

91.

Page: 322

Which method of determining a firms net worth divides the market price of the
firms stock by the annual earnings per share and multiplies this number by the
firms average net income for the past five years?
a.
Debt/equity method
b.
Current ratio method
c.
Price-earnings ratio method
d.
Long-term asset method
e.
Outstanding shares method
Ans: c

93.

Page: 322

Which item is/are not included in net worth?

a.
Fixed assets
b.
Common stock
c.
Additional paid-in-capital
d.
Retained earnings
e.
All of these are included in net worth
Ans: a

92.

Page: 321

Page: 322

What best describes how much a company is worth?

a.
An exact science
b.
An educated guess
c.
Explicit accounting standards
d.
Known only to the firms accountants
e.
Static
Ans: b

Page: 322

177

94.

The Financial Accounting Standard Board (FASB) Rule 142 deals with
a.
illegal inflation of financial projections.
b.
hacking issues in MIS.
c.
goodwill.
d.
how firms conduct R & D.
e.
improving marketing policies.
Ans: c

95.

What is the best definition of goodwill?

a.
Premiums paid for acquisition
b.
Value attached to the firms reputation
c.
Excess of assets over liabilities
d.
Value associated with benefits from environmental programs
e.
Excess of current assets over liabilities
Ans: a

96.

Page: 322

Page 322

If an initial stock issuance is at or under $1 million, what is the average total cost
paid to lawyers, accountants and underwriters?
a.
1 dollar in 20
b.
1 dollar in 10
c.
25 percent
d.
5 percent
e.
40 percent
Ans: c

Page: 325

Research and Development (R&D) Issues

97.

R&D employees and managers perform all of the following tasks except:
a.
transferring complex technology.
b.
alternating products to particular tastes and specifications.
c.
researching resource availability.
d.
adapting processes to local markets.
e.
adjusting process to local raw materials.
Ans: c

Page: 325

178

98.

Which of the following is not a major approach to R&D?

a.
To be a pioneer
b.
To be an innovative imitator
c.
To be a low-cost producer by mass-producing products similar to but less
expensive than products recently introduced
d.
To be a liquidator
e.
All of the above are major approaches to R&D.
Ans: d

99.

Page: 326

The attitude of U.S. firms toward research and development is best described by
which of the following?
a.
The veil of secrecy is being lifted, resulting in more collaboration.
b.
Firms are more cutthroat than ever and less cooperative with each other.
c.
Firms are less interested in working with universities.
d.
Firms are spending less in total research and development expenditures.
e.
Firms are less involved with research consortia than ever.
Ans: a

Page: 327

Management Information Systems (MIS) Issues

100.

A good information system can allow a firm to

a.
gain competitive advantage.
b.
reduce costs.
c.
increase productivity.
d.
increase customers.
e.
reduce turnover.
Ans: b

Page: 327

Essay Questions
101.

Name five examples of marketing decisions that may require policies.

Student answers may vary. Possible answers include: 1) To use exclusive
dealerships or multiple channels of distribution; 2) To use heavy, light, or no TV
advertising; 3) To limit (or not) the share of business done with a single
customer; 4) To be a price leader or a price follower; 5) To offer a complete or
limited warranty; 6) To reward salespeople based on straight salary, straight
commission, or a combination salary/commission ; 7) To advertise online or not.
Page: 306

179

102.

Although there are many marketing variables that impact the success or failure of
strategy-implementation efforts, two variables are central to the process. What are
these variables? Discuss why they are so important.
Two variables of central importance to strategy implementation are market
segmentation and product positioning. Segmentation is important because it is a key
to matching supply and demand, which is one of the thorniest problems in customer
service. Segmentation often reveals that large, random fluctuations in demand
actually consist of several small, predictable and manageable patterns. Product
positioning is important because it is a severe mistake to assume the firm knows
what customers want and expect. Many firms have become successful by filling the
gap between what customers and producers see as good service. What the customer
believes is good service is paramount, not what the producer believes service should
be. Positioning entails developing schematic representations that reflect how a firms
products or services compare to competitors on dimensions most important to
success in the industry.
Page: 307-310

103.

What are the marketing-mix component factors? Give some examples of each.
The marketing-mix component factors consist of product, place, promotion and
price. Please refer to Table 8-1 on page 308 for examples of each factor.
Page: 308

104.

What are the five steps required for effective product positioning? Give an example
of a product-positioning matrix for an organization of your choice.
There are five steps required for effective product positioning. These five steps are
as follows: (1) select key criteria that effectively differentiate products or services in
the industry, (2) diagram a two-dimensional product-positioning map with specified
criteria on each axis, (3) plot major competitors products or services in the resultant
four-quadrant matrix, (4) identify areas in the positioning map where the companys
products or services could be most competitive in the given target market and look
for niches and (5) develop a marketing plan to position the companys products or
services appropriately.
Student examples of product-positioning matrices will vary.
Page: 311

180

105.

Name five examples of finance/accounting decisions that may require policies.

Possible answers include: 1) To raise capital with short-term debt, long-term debt,
preferred stock, or common stock; 2) To lease or buy fixed assets; 3) To
determine an appropriate dividend payout ratio; 4) To use LIFO, FIFO, or a
market-value accounting approach; 5) To extend the time of accounts receivable.
6) To establish a certain percentage discount on accounts within a specified period
of time; 7) To determine the amount of cash that should be kept on hand.
Page: 313

106.

Describe the considerations of EPS/EBIT analysis.

There are four considerations of EPS/EBIT analysis: 1) profit levels may be higher
for stock or debt alternatives when EPS levels are lower; 2) flexibility; 3) dilution of
ownership can be an overriding concern in closely held corporations in which stock
issuances affect the decision-making power of majority stockholders; and 4) timing
in relation to movements of stock prices, interest rates and bond prices becomes
important.
Page: 313-315

107.

Explain how to perform a projected financial analysis.

The steps to performing a projected financial analysis are as follows: (1) prepare the
projected income statement before the balance sheet and start by forecasting sales as
accurately as possible; (2) use the percentage-of-sales method to project CGS and
the expense items in the income statement; (3) calculate the projected net income;
(4) subtract from the net income any dividends to be paid and add the remaining net
income to Retained Earnings; (5) project the balance sheet items, beginning with
retained earnings and then forecasting stockholders equity, long-term liabilities,
total liabilities, total assets, fixed assets and current assetsin that order; and (6) list
comments on the projected statements.
Page: 318-320

108.

Identify and describe three approaches for determining a business worth.

The three approaches for determining a business worth are what a firm owns, what
a firm earns and what a firm will bring in the market. Please see the discussion on
page 322 under Evaluating the Worth of a Business for descriptions of each
approach.
Page: 322

181

109.

Explain the important issues involved in deciding whether to go public, i.e., a private
firm considering becoming a public firm. Include cost estimates, advantages and
disadvantages.
Please refer to the entire discussion on page 324 under Deciding Whether to Go
Public for this answer.
Page: 325-325

110.

Discuss guidelines used to determine whether a firm should conduct R&D

internally or externally.
First, if the rate of technical progress is slow, the rate of market growth is
moderate, and there are significant barriers to possible new entrants, then in-house
R&D is the preferred solution. Second, if technology is changing rapidly, and the
market is growing slowly, then a major in-house effort in R&D may be risky.
Third, if technology is changing slowly but the market is growing quickly, there
generally is not enough time for in-house development. Finally, if both technical
progress and market growth are fast, R&D expertise should be obtained through
acquisition of a well-established firm in the industry.
Page: 326

111.

List and describe the three major R&D approaches for implementing strategies.
The three major R&D approaches for implementing strategies are: (1) to be the first
firm to market new technological products; (2) to be an innovative imitator of
successful products, thus minimizing the risks and costs of start-up; and (3) to be a
low-cost producer by mass-producing products similar to but less expensive than
products recently introduced.
See page 326 under R&D Issues for descriptions of each approach.
Page: 326-327