OM Strategic Planning & Decision Making 3 — Questions and Answers
Question 1: In strategic management, a 'stretch goal' is best described as:
- A target easily achievable with current resources
- An ambitious objective requiring significant capability development (Correct answer)
- A goal set by external regulators
- A minimum performance threshold for survival
Correct answer: An ambitious objective requiring significant capability development
Stretch goals are ambitious targets that push organizations beyond current capabilities, driving innovation and performance improvement.
Question 2: Which framework helps managers evaluate whether to make or buy a product by analyzing transaction costs?
- Resource-based view
- Transaction cost economics (Correct answer)
- Porter's five forces
- Balanced scorecard
Correct answer: Transaction cost economics
Transaction cost economics (Williamson) examines the costs of conducting transactions in-house versus through markets to guide make-or-buy decisions.
Question 3: A 'first-mover advantage' can be eroded when:
- The market grows faster than expected
- Later entrants free-ride on pioneer investments and avoid mistakes (Correct answer)
- The pioneer continuously invests in R&D
- Regulatory barriers prevent new entrants
Correct answer: Later entrants free-ride on pioneer investments and avoid mistakes
Late movers can benefit from free-rider effects, learning from the pioneer's mistakes and avoiding their market development costs.
Question 4: When applying scenario planning, how many scenarios should typically be developed for effective strategic decision making?
- One best-case scenario only
- Two to four distinct plausible futures (Correct answer)
- Ten or more to cover all possibilities
- As many as stakeholders request
Correct answer: Two to four distinct plausible futures
Best practice in scenario planning uses two to four distinct scenarios — enough to challenge assumptions without overwhelming decision makers.
Question 5: The concept of 'strategic drift' refers to:
- Intentional gradual shift in strategy over time
- A gap between the pace of environmental change and organizational strategic response (Correct answer)
- Expanding into too many strategic directions simultaneously
- Aligning strategy with short-term financial targets
Correct answer: A gap between the pace of environmental change and organizational strategic response
Strategic drift occurs when an organization's strategy gradually falls out of alignment with its changing environment, creating a performance gap.
Question 6: In a BCG matrix, a 'cash cow' business unit should primarily be managed to:
- Invest heavily to capture market share
- Generate cash to fund other units with higher growth potential (Correct answer)
- Exit as quickly as possible
- Match competitor investment levels in the market
Correct answer: Generate cash to fund other units with higher growth potential
Cash cows are high-share, low-growth units that generate surplus cash, which should be harvested to fund stars and question marks.
Question 7: Which decision-making bias causes managers to overweight information that confirms their existing beliefs?
- Anchoring bias
- Availability heuristic
- Confirmation bias (Correct answer)
- Escalation of commitment
Correct answer: Confirmation bias
Confirmation bias leads decision makers to seek and favor information that supports their preexisting beliefs, ignoring contradictory evidence.
OM Strategic Planning & Decision Making 3
In strategic management, a 'stretch goal' is best described as: